GMA Garnet Pty Ltd v Barton International Inc
[2009] FCA 439
•5 May 2009
FEDERAL COURT OF AUSTRALIA
GMA Garnet Pty Ltd v Barton International Inc [2009] FCA 439
CONTRACTS – construction of contract – principal agreement – garnet supply agreement – construction of branding obligation – whether garnet supplied as loose bulk subject to branding obligation – whether obligation to develop North American market – rectification of contract
TRADE PRACTICES – whether misleading or deceptive conduct in relation to development of North American market
HELD - rectification of garnet supply agreement on cross‑claim of respondent – application of applicants dismissed
Trade Practices Act 1974 (Cth) s 4D, s 42(f)(ii), s 45(2), s 46, s 47, s 47(2)(c), s 47(10
Aussie Airline Pty Ltd v Australian Airlines Ltd (1996) 139 ALR 663
Australian Competition and Consumer Commission v Barton Mines Corporation & Ors [2006] FCA 1264
Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104
Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1981) 149 CLR 337
Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226
Esso Australia Limited v Australian Petroleum Agents' & Distributor's Association [1999] 3 VR 642
Horton Geoscience Consultants Pty Ltd v Energy Minerals Pty Ltd [2005] QCA 169
International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151
Investors Compensation Scheme v West Bromich Building Society [1988] 1 WLR 896
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181
Moorgate Tobacco Co Ltd v Philip Morris Ltd [No 2] (1984) 156 CLR 414
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451
Ryledar Pty Ltd t/as Volume Plus and Another v Euphoric Pty Ltd (2007) 69 NSWLR 603
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596
Sunset Vineyard Management Pty Ltd v Southcorp Wines Pty Ltd [2008] VSCA 96
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Wachmer v Jaksic [2007] WASC 313
GMA GARNET PTY LTD ACN 009 344 227 and GARNET INTERNATIONAL RESOURCES PTY LTD ACN 081 244 715 v BARTON INTERNATIONAL INC ARBN 009 475 138
WAD 79 of 2007
BARKER J
5 MAY 2009
PERTH
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WAD 79 of 2007
BETWEEN: GMA GARNET PTY LTD
ACN 009 344 227
First ApplicantGARNET INTERNATIONAL RESOURCES PTY LTD
ACN 081 244 715
Second ApplicantAND: BARTON INTERNATIONAL INC
ARBN 009 475 138
Respondent
JUDGE:
BARKER J
DATE OF ORDER:
5 MAY 2009
WHERE MADE:
PERTH
THE COURT ORDERS THAT:
The application of the applicants is dismissed.
The cross‑claim of the respondent is allowed.
The Garnet Supply Agreement made on 31 March 2005 between GMA Garnet Pty Ltd as Seller and Barton International Inc as Buyer and Garnet International Resources Pty Ltd be rectified by inserting therein, immediately after clause 2.5 the following term:
The Buyer agrees to ensure that Barton Mines Company LLC abides by clause 2.5 as if it was bound thereby. For that purpose, rights conferred under clause 2.5 may be exercised by Barton Mines Company LLC.
The applicants pay the respondent's costs of the proceedings to be taxed if not agreed.
Such other orders as the Court may consider appropriate after hearing from counsel for the parties.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.
INDEX
Introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .
[1]
THE ISSUES........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..
[40]
principal agreement........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........
[41]
Garnet Supply agreement........ ........ ........ ........ ........ ........ ........ ........ ........ ....
[59]
outline of the parties' cases........ ........ ........ ........ ........ ........ ........ ........ ......
[73]
the court's approach to its construction task........ ........ ........ ...
[89]
surrounding circumstances, purposes and objects of transaction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....
[102]
the negotiation of the principal agreement and gsa........ ......
[138]
summary – key points of negotiations........ ........ ........ ........ ........ ........ .
[225]
the parties' common understanding or concurrence concerning intentional blending and marketing........ ........ ......
[226]
barton's practices and plans regarding Intentional Blending........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....
[290]
The Branding issue........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......
[366]
First strand of the construction argument: does cl 2.5 only apply to packaging?...
[367]
Second strand of the construction argument: does cl 2.5 apply to an internal Barton transaction?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....
[415]
Third strand of the construction argument: does the phrase "which is 100% Product" qualify the branding obligation?........ ........ ........ ........ ........ ........ ........ .......
[467]
Conclusion on the construction issue........ ........ ........ ........ ........ ........ ........ ........ .......
[492]
The question of breach of cl 2.5 by inadequate branding........ ........ ........ ........ ........ .
[493]
the marketing issue........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..
[502]
The constructional issue........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....
[502]
Misleading or deceptive representation........ ........ ........ ........ ........ ........ ........ ........ .....
[561]
Estoppel........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......
[581]
conclusion and orders........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...
[582]
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WAD 79 of 2007
BETWEEN: GMA GARNET PTY LTD
ACN 009 344 227
First ApplicantGARNET INTERNATIONAL RESOURCES PTY LTD
ACN 081 244 715
Second ApplicantAND: BARTON INTERNATIONAL INC
ARBN 009 475 138
Respondent
JUDGE:
BARKER J
DATE:
5 MAY 2009
PLACE:
PERTH
REASONS FOR JUDGMENT
Introduction
Garnet is a mineral. Most garnet mined in the world is alluvial. Some other garnet is known as "hard rock" garnet. Alluvial garnet is most commonly used as both an industrial abrasive in the preparation of surfaces and as an abrasive in water jet cutting. It is also used in other applications including anti‑slip coatings, denim blasting, water purification, glass preparation and electronic component surfacing. Hard rock garnet is generally more angular and sharper than alluvial garnet and is sold for different applications at significantly higher prices.
Garnet International Resources Pty Ltd (GIRL), the second applicant in these proceedings, owns an alluvial garnet mine at Port Gregory, near Geraldton, Western Australia (the mine), which is operated by GMA Garnet Pty Ltd (GMA Garnet), the first applicant, of which GIRL is the parent corporation.
GMA Garnet and Indian producers of alluvial garnet are the largest producers of garnet in the world.
In early 2005, and at material times, Barton Mines Corporation was a corporation incorporated in the State of Pennsylvania, United States of America (USA), which traded, as it still trades today, under the name, The Barton Group.
Barton Mines Company LLC (BMC) is and was at material times a corporation incorporated in the USA and a wholly owned subsidiary of Barton Mines Corporation.
Barton International Inc (Barton International), the respondent in these proceedings, is and was at material times a corporation incorporated in the USA and registered in Australia as a foreign registered company and a wholly owned subsidiary of Barton Mines Corporation.
Barton International (Australia) Pty Ltd (BIA) is and was at material times a company incorporated in Australia and a wholly owned subsidiary of Barton International.
Barton Mines Corporation is a family owned company. In 1878 it commenced the business of mining, processing, selling and distributing garnet for industrial abrasive uses. From 1988, several wholly owned subsidiaries of Barton Mines Corporation (including Barton International and BMC) were established to conduct the various divisions of its business. In particular:
·Since 1988, BMC has owned and operated a hard rock mining and milling operation in the State of New York, USA.
·From 24 February 1999 to 26 March 2002, Barton Joint Venture Corporation, another company incorporated in the USA, and Barton International (then known as B‑L (Australia) Inc) were shareholders in GMA Garnet.
·From 26 March 2002 to 31 March 2005, Barton International held 50% of the issued shares in GMA Garnet, following a restructure of those corporations.
·From its incorporation in April 2002 until 31 March 2005, BIA purchased garnet from GMA Garnet. This garnet was sold to customers in the eastern states of Australia, New Zealand, North East Asia, South Africa, South America and to BMC in North America. The sale of garnet by BIA to BMC was on a consignment basis. Much of the garnet purchased by BIA from GMA Garnet was in loose bulk form though other garnet was supplied in a packaged form.
·Since its incorporation in 1998, BMC has also operated in the USA a warehouse and wholesale distribution and sale network for garnet.
For some time, BMC has purchased garnet from various sources, including from GMA Garnet and from a supplier in India, V.V. Mineral of India (VVM). At material times, BMC maintained stocks of garnet at 19 warehouses in the USA. Four of those warehouses were known as mega-centres and operated as import centres. They are located at Reserve (Louisiana), Chesapeake (Virginia), San Diego (California) and Olympia (Washington State).
In early 2002, GIRL acquired the other 50% shareholding in GMA Garnet. From that time, together with Barton International, it effectively owned and controlled GMA Garnet.
During 2003 and into 2004, significant differences arose between Barton International and GIRL and their respective representatives in relation to the operation of the mine at Port Gregory. Attempts were made, unsuccessfully, to resolve those differences.
In the course of doing so, GIRL approached the Australian Competition and Consumer Commission (ACCC) and explained what it regarded as a contravention of the Trade Practices Act 1974 (Cth). The alleged contraventions related to an agreement known as the Perth Agreement, under which garnet was to be sold to the partners in the garnet mine at cost and the partners would sell that garnet for profit into defined territories.
On 23 August 2004, GIRL commenced proceedings in the Federal Court of Australia (the dissolution proceedings) against Barton International and GMA Garnet in which it claimed, amongst other things, an order dissolving the partnership in respect of the garnet mine and the winding up of GMA Garnet. GIRL contended, amongst other things, that there were irreconcilable differences between it and Barton International in relation to the partnership and GMA Garnet, and the management of both were deadlocked.
Those proceedings were eventually set down for trial in February 2005.
In the result, the dissolution proceedings were compromised and settled without trial.
Negotiations that led to the compromise and settlement had a false start in October 2004, and were then recommenced in December 2004. They were ultimately successfully concluded by the execution of a deed called the Principal Agreement, on 21 February 2005.
The Principal Agreement, which was the subject of a number of conditions that were subsequently satisfied, provided for the resolution of differences between the parties by GIRL purchasing all of the interests of Barton International in the mine and its shareholding in GMA Garnet. The consideration for these transactions included a substantial cash payment and the execution of a long term supply agreement in respect of garnet from Port Gregory, as well as other aspects provided for in the deed. The Principal Agreement provided that the parties to these proceedings should execute a Garnet Supply Agreement in the form annexed to the Principal Agreement.
On 31 March 2005, GMA Garnet, Barton International and GIRL executed the Garnet Supply Agreement (GSA). The GSA provided for the supply by GMA Garnet (as Seller) to Barton International (as Buyer) of garnet from the mine and included responsibilities, which are now disputed, with respect to the branding (or labelling) and the distribution and sale of GMA garnet by Barton International.
Thereafter, Barton International had no interest in the mine or the garnet it produced, save that, under the GSA, Barton International had contractual rights to a supply of GMA garnet for a period of just over 12 years. The GSA provided for Barton International to order a certain quantity per year of GMA garnet in either packaged or loose bulk form, on the terms set out in the GSA. The GSA continues to govern the garnet supply arrangements between the parties.
Clause 4.2 of the GSA and cl 2.3 of the Principal Agreement record the acknowledgment of the parties to each Agreement that GMA Garnet "wishes to promote distribution" of GMA garnet within the USA and Canada (North America). Clause 4.2 then goes on to note that, "Accordingly" (in the circumstances provided for by cl 4.2), Barton International is entitled to a "concessional rate" in respect of certain quantities of Product which it "ships and discharges" into North America.
By cl 2.5 of the GSA, the Buyer undertakes certain branding obligations with respect to the distribution and sale of the GMA garnet, "which is 100% Product", purchased under the GSA. On the face of it, generally speaking the Buyer must ensure such garnet is labelled with the GMA Garnet name and logo (with no less prominence than that which applied during the 2004 calendar year); although it can also be co‑branded with "the Buyer's own branding". The Buyer must also ensure the GMA Garnet name and logo is not used in relation to product which is not 100% Product.
Following execution of the GSA, GMA Garnet filled orders lodged by Barton International under the GSA and shipped GMA garnet to Barton International in the United States, both in packaged form and (mostly) in loose bulk shipments, where it was discharged and taken delivery of by BMC. The first bulk shipments of loose bulk garnet were made in about August 2005.
In the second half of 2005, Mr Aaron Williams who had been involved in the negotiation of the GSA on behalf of GIRL, and by then had become the Group General Manager within the GMA group of companies including GMA Garnet, made some reconnaissance trips to the USA.
In August 2005, Mr Williams visited a garnet distributor's warehouse in Houston, Texas where he inspected several pallets of paper bags which were labelled as "GMA Garnet 80 mesh". On inspecting the contents of several of these bags he discovered the garnet in them was of a different appearance to GMA garnet, which is of a distinctively pink colour. He then noticed that the words "80 mesh" had been struck out by ballpoint pen and the words "16A" substituted. However, the GMA logo had not been altered or obscured in any way.
In the warehouse Mr Williams also discovered another bag not labelled as GMA Garnet, but located amongst a collection of GMA Garnet bags. This led him to conclude that, while unlabelled, the bag in fact contained GMA garnet.
As a result of his warehouse inspection, Mr Williams was concerned that garnet supplied by GMA Garnet to Barton International pursuant to the GSA was being distributed or sold contrary to the branding obligations set out in cl 2.5 of the GSA.
As a result, on Friday 9 September 2005, Mr Williams, who was also GMA Garnet’s authorised officer for the purposes of the GSA, emailed Mr Clifford (Cliff) Summers, who was Barton International’s authorised officer for the purposes of the GSA, setting out what he had seen in the Houston warehouse, expressing his concerns and requesting an investigation and explanation from Barton International.
Mr Summers replied by email dated 15 September 2005—an email which had been settled by Barton International's lawyers—assuring Mr Williams of Barton International’s adherence to its obligations and taking offence at the tone of the allegations made.
Mr Williams was quite unsatisfied with this response. By further email dated Friday, 16 September 2005 he required that Barton International conduct an urgent investigation into both incidents, withdraw the offending bags and advise GMA Garnet of the measures that Barton International would put in place to avoid a repeat of such an occurrence.
Eventually, following a reminder, Mr Williams received a letter informing him that, due to Hurricane Katrina (in late August 2005), Barton had lost all records at their New Orleans warehouse and were unable to determine what had happened. Mr Williams then let the matter drop.
A little later, in about February 2006, Mr Williams relocated to the United States when GMA Garnet (USA) Corp (GMA USA), a United States corporation of which GIRL is the parent, commenced operations in the United States. By then he had also become President and a director of GMA USA. Later in the year he began visiting customers, or potential customers, on behalf of GMA USA. On two occasions in October/November 2006, he noticed bulk bags containing what appeared to be GMA garnet, on which the GMA Garnet logo was, he considered, smaller than the logo used prior to the GSA and less prominently displayed, contrary he believed to the requirements of cl 2.5 of the GSA. These bags were also prominently marked "Barton".
During September 2006, at a water jet job shop in Florida, Mr Williams inspected bags of garnet that were not branded with GMA Garnet’s name, but which appeared predominantly to contain the distinctive pink colour of GMA garnet. Mr Williams took a sample of the garnet and arranged for it to be analysed. (He was later advised that it contained a mixture of GMA garnet and Indian garnet.)
By written notice dated 3 November 2006, and sent by fax to Barton International, Torsten M H Ketelsen, director of GMA Garnet, purported to give notice of breach of cl 2.5 "for the purposes of clause 8.1(c) of the Supply Agreement", which was limited to the branding issue relating to bags, in the following terms:
Under clause 2.5 of the Supply Agreement, Barton must brand 100% GMA Garnet product with the GMA Garnet name and logo which is entitled to co-exist with Barton’s own branding provided that the prominence of the GMA Garnet name and logo is not less than that which has applied during the 2004 calendar year.
In breach of its obligations under clause 2.5, Barton is selling 100% GMA Garnet product in packaging where the prominence of the GMA Garnet name and logo co-existing with Barton's own branding is less than that which applied during the 2004 calendar year.
Take notice that GMA Garnet requires Barton to remedy the above breach within a period of 30 days from the date of the giving of this notice. This notice constitutes a notice in writing given for the purposes of clause 8.1 (c) of the Supply Agreement.
By fax dated 10 November 2006, Mr Cliff Summers from Barton International responded to the notice expressing concern and seeking more information. Mr Ketelsen provided further information to Mr Summers by letter dated 15 December 2006.
By letter dated 19 December 2006, sent by fax, Richard G Jenks, Jr, from Barton International responded substantively to the GMA Garnet notice advising that while Barton International did not agree that it had breached the GSA, Barton International had taken action and "implemented systems, designed to address any future concerns, and to give assurance to all parties of continuing contractual compliance".
Despite Barton International's assurance, it seems GMA Garnet remained concerned about the extent to which Barton International was meeting its obligations under the GSA. In early March 2007, Mr Aaron Williams received information from a Barton customer to the effect that "Barton were now mixing GMA 30/60 mesh with Indian 30/40 mesh to extend the availability of blast grade material".
Soon after, on 23 April 2007, the applicants commenced these proceedings seeking clarification of their rights under the GSA, confirmation of their right to terminate the GSA for breach of material terms, and damages.
On 20 December 2007, during the pre-trial stage of these proceedings, GMA Garnet having regard to the re-amended defence filed by Barton International, considered that Barton International effectively admitted it had sold to BMC all bulk shipments of GMA garnet supplied under the GSA without branding it as GMA garnet. It therefore issued the first breach notice. GMA Garnet issued a second breach notice on 13 May 2008 and a third breach notice on 30 July 2008 in respect of subsequent bulk shipments it considered had been on-sold by Barton International to BMC without meeting the branding obligations in cl 2.5 of the GSA.
The issues of branding, or labelling, particularly in respect of loose bulk supplies and promotion of distribution, or marketing, of GMA garnet under the GSA and the Principal Agreement remain unresolved and in issue between the parties.
THE ISSUES
Having regard to the matters outlined above, the two principal issues arise for determination in these proceedings:
1.Whether Barton International was obliged to brand discounted garnet supplied to it by GMA Garnet under the GSA, all of which it has onsold to BMC (primarily in loose bulk form), identifying it as GMA garnet.
2.Whether Barton International was obliged to do anything, or refrain from doing anything to assist in the promotion of the discounted garnet supplied to it under the GSA.
principal agreement
By the Principal Agreement executed on 21 February 2005 (in which Barton International is referred to most often as "Barton"), in particular the Introduction part of it, the parties note that at material times before the execution of the deed:
·Through the chain of documents and events summarised in the Schedule to the Principal Agreement, Barton International and GIRL were equal partners in a partnership that owned a garnet mine near Geraldton, Western Australia (the Mine or GMA Garnet mine), processing plant, associated plant and equipment and infrastructure and the minerals produced therefrom, and each held 50% of the issued shares in GMA Garnet which then had receivers and managers appointed.
·GMA Garnet provided mining and processing services to the partnership and was the partnership's exclusive distributor of garnet produced from the GMA Garnet mine.
·Disputes had arisen between the parties to the deed which, among other things, resulted in proceedings being instituted in the Federal Court of Australia in action number W202/2004 (the dissolution proceedings).
·The receivers and managers appointed to GMA Garnet were also appointed to the partnership in the dissolution proceedings.
The Principal Agreement then recites that, without admission of liability, the parties have agreed to settle all disputes and claims between them, including those arising from the proceedings on the terms set out.
The disputes the parties agreed to settle by the Principal Agreement are defined by the term "Disputes" in cl 1.1 as follows:
Disputes means all and any matters of dispute between the Parties and/or GMA Garnet (and including their respective Personnel and Related Entities) arising in any way in connection with:
–the Partnership or the operations and activities of the Partnership; and/or
–GMA Garnet or the operations and activities of GMA Garnet; and/or
–the documents and events summarised in the Schedule; and/or
–otherwise howsoever;
up to and as at Completion (other than arising out of a breach of the Settlement Documents), whether or not known to or suspected by either Party or GMA Garnet, and including all matters the subject of the Proceedings and any claim by either Party or GMA Garnet against the Partnership or by the Partnership against either Party or GMA Garnet.
(emphasis in original)
The term "Completion" is defined by the cl 1.1 of the Principal Agreement to mean:
the settlement of the sale and purchase of the Partnership Interest and the Sale Shares in accordance with accordance with this Deed, the Partnership, Interest Sale Deed and the GMA Garnet Share Sale Agreement.
The expression Partnership Interest is defined by cl 1.1 as follows:
Partnership Interest means all of Barton's rights, title and interest in the Partnership. (emphasis in original)
The Partnership is defined by cl 1.1 as follows:
Partnership means the partnership between Barton and GIRL referred to in the Introduction and includes all assets, rights, liabilities and obligations of the Partnership. (emphasis in original)
The expression Partnership Interest Sale Deed is defined by cl 1.1 to mean:
the Deed to be entered into between Barton and GIRL in the form set out in Annexure C.
The expression Sale Shares is defined by cl 1.1 to mean:
all the shares held by Barton in GMA Garnet being 1,593,784 fully paid ordinary shares.
The expression GMA Garnet Share Sale Agreement is defined by cl 1.1 to mean:
the Agreement to be entered into between Barton International and GIRL in the form set out in Annexure B.
The Principal Agreement was subject to a number of conditions as set out in cl 3.1 as follows, all of which were satisfied at material times:
This Deed (other than clauses 1, 6.1, 6.2, 7, 8, 9, 10, 11, 12 and 13), the Partnership Interest Sale Deed, the GMA Garnet Share Sale Agreement and the Product Supply Agreement are subject to and conditional upon:
(a) the Parties:
(i)receiving official communication or advice from the ACCC that it raises no objection, or that the ACCC proposes to take no action in respect of, any proposed transaction or dealing the subject of the Settlement Documents; or
(ii)receiving ACCC approval of the proposed acquisitions and dealings between the Parties in the terms of the Settlement Documents (or such of them over which the ACCC claims relevant jurisdiction authority), such approval being either unconditional or subject to conditions acceptable to the Parties;
(b)the granting of all necessary approvals and consents required at law to the execution of the Settlement Documents, and Completion of the GMA Garnet Share Sale Agreement and Partnership Share Sale Agreement, including written approval by the Minister or an officer of the Department of Industry and Resources responsible for the administration of the Mining Act 1978 (WA) to the transfer of the mining tenements specified in the Partnership Interest Sale Deed;
(c)the retirement or removal of the Receivers as receivers and managers of GMA Garnet at Completion; and
(d)the execution by GMA Garnet of a Deed of Covenant and the Supply Agreement at Completion.
The "Supply Agreement" is defined by cl 1.1 to mean:
the Agreement to be entered into between Barton, GMA Garnet and GIRL at Completion in the form set out in Annexure D.
In the interpretation cl 1.2(c), the parties agree that in the interpretation of the GSA, unless there is something in the subject or context inconsistent therewith:
Headings used in this Agreement are for convenience only and shall not be used in the interpretation or construction of this Agreement.
The Schedule to the Principal Agreement, earlier referred to, provides as follows:
1. The Partnership is governed by an agreement dated 4 June 1998 between Barton Joint Venture Corporation (BJVC), B-L (Australia), Inc (BLAI), Garnet Millers Australia Pty Ltd (GMAPL) and Garnet Producers NL ( GPNL). (Partnership Agreement).
2. The relationship of the shareholders of GMA Garnet is governed by its constitution and by an Agreement dated 24 February 1999 between BJVC, BLAI, GPNL and GMA Garnet (Shareholders Agreement).
3. By an Agreement dated 25 June 1998 between GMAPL, GPNL, BJVC and BLAI, GMAPL transferred its interest in the Partnership to GPNL.
4. By a Sale Deed dated 6 December 2001 between GMAPL, GPNL, GIRL and Messrs Ketelsen, Jebsen, Putzier and Jessen, GIRL acquired a 50% interest in the Partnership and 50% of the issued shares in GMA Garnet (2001 Sale Deed).
5. GIRL became bound by the terms of the Partnership Agreement by a Partnership Assumption Deed dated 26 March 2002 between GIRL, GMAPL, GPNL, BJVC and BLAI. By a Shareholders Assumption Deed also dated 26 March 2002 and made between the same parties, GIRL became bound by the Shareholders Agreement.
6. Pursuant to an Exclusive Distributorship Agreement dated 24 February 1999 between BJVC, BLAI, GPNL and GMA Garnet, GMA Garnet was appointed the exclusive distributor of garnet for the Partnership.
7. Pursuant to a Mining and Processing Services Agreement dated 24 February 1999 between BJVC, BLAI, GPNL and GMA Garnet, GMA Garnet was appointed to provide various mining and processing services to the Partnership.
8. On 30 June 2002, as evidenced by Certificate of Ownership and Merger of that date, pursuant to Section 253 of the General Corporation Law of the State of Delaware, USA, BJVC merged with BLAI and BLAI assumed its present name of Barton (International) Inc.
(emphasis in original)
By cl 2.1, headed "Settlement Documents", the parties to the Principal Agreement undertook to one another, subject to the Conditions, the following:
(a)to execute and deliver to each other and to GMA Garnet on Completion each of the Settlement Documents to which they are a party;
(b)to duly and punctually observe and perform all obligations on their part respectively contained or implied in each of the Settlement Documents to which they are a party;
(c)to do all matters and things reasonably within its power or control to cause GMA Garnet at Completion to execute and deliver to the other the Deed of Covenant and Supply Agreement.
Clause 2.2, headed "Interdependence", provides:
This Deed is interdependent with the Partnership Interest Sale Deed, the GMA Garnet Share Sale Agreement and the Supply Agreement.
Clause 2.3, headed "Generally", provides:
The Parties acknowledge:
(a)that it is the composite transaction evidenced by the Settlement Documents that reflects the consideration under the Settlement Documents; and
(b)that as part thereof, GMA Garnet wishes to promote distribution of Product (as defined in the Supply Agreement) within the United States of America and Canada and, for that purpose, GMA Garnet is allowing Barton a concessional rate for product as provided for in cl 4.2 of the Supply Agreement.
The action required at "Completion" by the parties to the Principal Agreement – and which was performed at material times so that the Principal Agreement became unconditional - was set out in cl 4 and provides, in substance, as follows:
a)the parties shall execute and effect the various deliveries and undertakings to each other required at Completion pursuant to the Partnership Interest Sale Deed and the GMA Garnet Share Sale Agreement;
b)Barton shall endorse each of the Promissory Notes in favour of GIRL and deliver them to GIRL;
c)GIRL shall deliver to Barton a bank cheque for the sum of $18 million;
d)each party shall execute and do all matters and things reasonably within its power or control to procure GMA Garnet to execute the Supply Agreement and the Deed of Covenant;
e)Barton must pay GMA Garnet in accordance with GMA Garnet's normal trading terms, for all GMA Garnet product taken by Barton and not paid for by Completion; and
f)the Parties shall execute and file with the Court and shall do all matters and things within their power or control to procure GMA Garnet to execute and file with the Court, the Consent Orders B.
The Consent Orders B are defined by cl 1.1 to mean:
the orders in the form attached as Annexure A2.
Garnet Supply agreement
The GSA as executed by the parties to these proceedings on 31 March 2005, was in the same terms as the form attached to the Principal Agreement, as the Principal Agreement required it to be. (Barton International is most often simply referred to in the GSA as the "Buyer" or "Barton")
By cl 2.1, (in short) the Seller, GMA Garnet, agrees to sell and deliver to the Buyer (which, on the face of the GSA, is Barton), against orders for Product that may be placed by the Buyer with the Seller in accordance with the GSA, the following quantities:
(i)up to 50,000 x tonnes of Product during the initial Contract Year
(where "A" = the number of months, (to one decimal place) from the Commencement Date to the expiry of the first Contract Year);
(ii)up to 50,000 tonnes of Product during each other Contract Year during the Term on the terms and conditions of this Agreement.
"Product" is defined by cl 1.1 to mean 30/60 Mesh or 80 Mesh as the context requires. The expression 30/60 Mesh is further defined to mean 30/60 Mesh garnet or 60 Mesh garnet produced from the Mine. 80 Mesh is defined to mean 80 Mesh garnet or 100/120 Mesh garnet produced from the Mine. (Mesh is a reference to the grade the garnet ore is crushed to following mining, 30 Mesh being the finest grade).
Clause 2.1(b) of the GSA expressly provides that the quantity of the Product to be sold and delivered in each "Contract Year" shall not comprise more than 50% of 30/60 Mesh unless the Seller agrees otherwise.
Clause 2.2 sets out a non accumulation limitation so that if the Buyer does not purchase and take delivery of its full entitlement of Product in any Contract Year the quantity not taken shall not be carried forward.
The "Term" of the GSA Agreement is defined by cl 1.1 to mean the period commencing on the "Commencement Date", namely 31 March 2005 when the GSA was executed, and ending on 30 June 2017, or such earlier date if the Agreement is terminated pursuant to cl 8. In other words the GSA has an expected period of operation of just over 12 years.
By cl 2.4, headed "No Restriction", the parties provide that:
This Agreement does not restrict the Buyer from acquiring any Product from sources other than the Seller nor does it restrict the Seller from selling any Product to parties other than the Buyer.
Clause 2.5 of the GSA –which, together with cl 4.2 of the GSA, and cl 2.3 of the Principal Agreement, is at the heart of the dispute between the parties the subject of these proceedings – is headed "GMA Branding" and provides as follows:
All garnet purchased under this Agreement and distributed or sold by the Buyer which is 100% Product must be branded by the Buyer with the GMA Garnet name and logo (which may co-exist with the Buyer's own branding provided that the prominence of the GMA Garnet name and logo is not less than that which has applied during the 2004 calendar year) and the Seller grants to the Buyer a non exclusive licence to use the GMA Garnet name and logo on Product for this purpose. The Buyer must not use the GMA Garnet name or logo on, or in connection with, the distribution or sale of any garnet which is not 100% Product or hold out in any way that garnet which is not 100% Product, is Product.
Clause 2.6 provides, in effect, that nothing in the GSA is intended to limit the quantity of Product, or prescribe the terms of supply of Product to which the Seller and the Buyer may agree from time to time in addition to the 50,000 tonnes of Product in effect guaranteed by cl 2.1.
Clause 4 deals with "Price". Clause 4.1 sets out a price which applies generally and in effect has regard to the type, quantity and price that GMA Garnet usually offers to its "prime customers (other than related entities)". However, this price does not apply where clauses 4.2 and 4.3 operate.
Clause 4.2 of the GSA in some respects reflects the terms of 2.3(b) of the Principal Agreement referred to above. Clause 4.2 is headed "North American Market" and provides as follows:
The Parties acknowledge that the Seller wishes to promote distribution of Product within the United States of America and Canada and, for that purpose, the Seller shall allow to the Buyer a concessional rate for Product as provided in this Agreement. Accordingly, if the territory into which the Buyer ships and discharges Product under clause 2.1 after taking delivery of the same is the United States of America or Canada, the price for Product to be sold pursuant to orders to be placed by the Buyer pursuant to clause 2.1 shall be:
(a)during the first Contract Year:
(i)for the first 35,000 x tonnes of Product: the prices specified in Annexure A; and
(ii)for the next 15,000 x tonnes of Product taken: the prices specified in Annexure A plus 15%:
(Base Prices);
where:A=the number of months (to one decimal place) from the Commencement Date to the expiry of the first Contract Year.
(b)during each subsequent Contract Year:
(i)for the first 35,000 tonnes of Product: the Base Price in clause 4.2(a)(i) adjusted pursuant to clause 4.3;
(ii)for the next 15,000 tonnes of Product: the Base Price in clause 4.2(a)(ii) adjusted pursuant to clause 4.3.
What is evident from a careful reading of cl 4 of the GSA, as the parties to these proceedings agree, is that in respect of the product sold and delivered to the Buyer under cl 2.1 – up to 50,000 tonnes each Contract Year – the Buyer is entitled to "a concessional rate" under cl 4.2, but only "if the territory into which the Buyer ships and discharges Product under cl 2.1 after taking delivery of the same is the USA or Canada".
In this context, the expressions "sell and deliver" in cl 2.1(a) and "ships and discharges" in cl 4.2 are terms of art. The point is that the concessional rate referred to in cl 4.2 of the GSA is not available to Barton International unless the Product it has purchased and takes delivery of under cl 2.1, is shipped and discharged into the territory of the USA or Canada.
How the GSA came to be in these terms and what the parties commonly understood at material times at and before the Principal Agreement and GSA were executed, is part of the contractual narrative that the parties contend, variously, helps to define the rights and obligations of the parties under the GSA as properly interpreted or construed and, so far as the applicants are concerned, helps to inform the representations they say were made to them.
outline of the parties' cases
GMA Garnet and GIRL say that, under the GSA, Barton International is not only obliged to ensure that all GMA garnet supplied under the GSA is branded according to the formula set out in cl 2.5 of the GSA, but also – by virtue of a term they say should be included in the GSA upon its rectification to honour the common understanding of the parties – that Barton International is obliged to ensure that BMC complies with the same branding obligation.
Further, the applicants say that Barton International is obliged by the GSA and Principal Agreement to encourage the marketing of GMA garnet in North America both by itself and through BMC, and must ensure that neither does anything that would diminish its distribution and reputation in North America. The applicants claim that representations conveyed by the GSA when read with representations made by Barton International during the negotiations in early 2005, are to similar effect.
The applicants say that Barton International has failed to satisfy these obligations or representations. So far as branding is concerned, the applicants say the acts of sale or distribution by Barton International to its related entity, BMC, of loose bulk 100% GMA garnet acquired from GMA Garnet under the GSA, without first branding the garnet, constitute breaches of cl 2.5 of the GSA. They also point to acts of sale to BMC of packaged GMA garnet in the USA, which they say breached the name and logo branding requirement of cl 2.5.
Additionally, the applicants say the subsequent blending by BMC of the loose bulk 100% GMA garnet with garnet acquired from elsewhere, which occurred with the knowledge of Barton International, is in breach of both the branding and marketing obligations imposed on Barton International by the GSA. This is because 100% GMA garnet was not branded when it went to consumers as GMA garnet, and because its distribution as GMA garnet was diminished.
Indeed, the applicants say that the evidence shows that Barton International always intended to blend GMA garnet from the time the agreements were negotiated and so ignore the branding obligations, and for similar reasons never had any intention to meet the distribution or marketing obligations imposed on it, or to satisfy the representations it made in that regard.
In consequence of the pleaded breaches of the contract and representations, the applicants claim they are entitled to a declaration that they may terminate the GSA for the identified contractual breaches, as well as to damages for breach of contract and by reason of loss and damage flowing from the dishonoured representations.
As to damages, the applicants contend the proper measure is equal to the whole of the amount of any loose bulk garnet sold by Barton International to BMC which BMC could potentially blend, an amount of $9,353,123. Alternatively, the applicants say the measure is the amount of the discount received by Barton International for the quantity of loose bulk garnet which BMC has in fact blended, an amount of $4,869,433.
Barton International denies the applicants’ claims; although it agrees some rectification of the GSA is required, but only in acknowledgement of the agreed role of BMC in sales and distribution of 100% GMA garnet to ultimate consumers. Otherwise, Barton International says no obligations arise under the Principal Agreement or the GSA in respect of the marketing of GMA garnet, and so far as cl 2.5 of the GSA is concerned, Barton International and BMC are only obliged to brand GMA garnet which they sell or distribute to end consumers (customers) in a packaged form.
In effect, Barton International contends that nothing in the Principal Agreement or GSA constricts their right to market GMA garnet supplied under the GSA to customers in any form that they choose, for example, following blending - whether in packaging or in loose bulk.
Barton International says that nothing in the agreements prevents them from mixing or blending GMA garnet supplied under the GSA with garnet they source from other suppliers.
Barton International accepts, however, that if GMA garnet supplied under the GSA is distributed or sold to customers in a packaged, unblended form (ie "100% Product"), then it must be branded as provided for by cl 2.5 of the GSA.
As to the applicants’ claim that Barton International always intended to blend GMA garnet supplied under the GSA to avoid its branding and marketing obligation, Barton International says this raises a false issue in the proceedings and, in any event, is false as a matter of fact.
Barton International contends that its position is vindicated on the proper interpretation or construction of the Principal Agreement and GSA, taking into account certain facts commonly known to the parties at the time of execution of the Principal Agreement and GSA. In the alternative, Barton International claims that the position it contends for is made apparent if cl 2.5 of the GSA is rectified in the manner it proposes.
Barton International deny any representations were made that go beyond the terms of the Agreements.
As to the applicants' claim for damages, the respondent contends that because the concessional price has nothing to do with a breach of cl 2.5 dealing with branding, assuming the applicants make out their case, damages should not be assessed by reference to a difference between the concessional price and the prime customer price, or the benefit of the discount obtained. The respondent says no facts are pleaded which are capable of supplying a causal connection between the absence of branding bulk product sold to BMC and the giving of concessional pricing to Barton International. Accordingly, no damage has been proved as regards the first breach allegation. As regards the other breach allegations, although these seek to relate the entitlement to concessional prices to an absence of blending and distribution in North America, both ignore the fact that concessional prices were readily made available by GIRL as part of the overall consideration for the settlement effected by the Principal Agreement. As a result the benefits obtained by GIRL cannot be ignored in any calculation of damages. The respondent says no attempt has been made to prove such losses or to quantify the value of these benefits for the purpose of assessing damages.
Finally, it should be noted that each of the applicants and Barton International rejects the rectification of the GSA proposed by the other.
the court's approach to its construction task
In this case, each of the parties puts forward sophisticated and commercially justifiable sets of reasons for interpreting or construing the relevant clauses of the GSA in a way that favours their interpretation or construction. This only serves to emphasise there are no obviously correct literal meanings of the contentious clauses under consideration. The Court is now called upon to adjudicate and state, in effect, which meanings it prefers.
In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1981) 149 CLR 337 at 352, Mason J said, in oft repeated words, that:
Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting.
A little later in Codelfa 149 CLR 337 at 352-253, Mason J added that there was perhaps one situation in which evidence of the actual intention should be allowed to prevail over their presumed intention, namely:
If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal.
The exceptional position mentioned in the last quoted portion of Mason J's dicta in Codelfa at 149 CLR 337, which is relied on by the respondent here, has been applied in a number of cases, some examples of which are: Esso Australia Limited v Australian Petroleum Agents' & Distributor's Association [1999] 3 VR 642, 647 – 8 [19] – [20]; Wachmer v Jaksic [2007] WASC 313 [168] – [187]; Sunset Vineyard Management Pty Ltd v Southcorp Wines Pty Ltd [2008] VSCA 96 [48] – [49]; Horton Geoscience Consultants Pty Ltd v Energy Minerals Pty Ltd [2005] QCA 169.
In relation to the "objective framework of facts within which the contract came into existence", as Mason J put it in Codelfa 149 CLR 337, it is commonly understood that the proper construction of a contract should reflect what reasonable people in the position of the contracting parties would have understood by the relevant clauses, considering not only their text, but also the surrounding the circumstances and the purpose and object of the entire transaction and its elements: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 461 – 462 [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179 [40]; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151, [8], [53].
In International Air Transport Association 234 CLR 151 at [53], in the joint judgment of Gleeson CJ, Gummow, Kirby, Hayne, Heydon, Crennan and Kiefel JJ, their Honours confirmed that the task of construction is to be approached in the manner described as follows by Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ in Toll 219 CLR 165 at [40]:
This Court, in Pacific Carriers Ltd v BNP Paribas (footnote omitted), has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction (footnote omitted).
It may be said that it is now generally accepted in Australia, particularly having regard to this recent dicta of the High Court of Australia which makes no mention of an ambiguity factor as a precondition to considering other factors, that there is no need for ambiguity to be demonstrated in a contractual provision before regard can be had to the surrounding circumstances known to the parties and the purpose and object of the transaction. See also Seddon NC and Ellinghaus MP, Cheshire and Fifoot's Law of Contract (9th Australian ed, Lexis Nexis Butterworths, 2008) at [10.12], and authorities there referred to.
In other words, as stated in Toll, the construction task to be undertaken by the Court requires consideration of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction. In a commercial setting, the business objectives should be accounted for and, as other authorities have suggested, the relevant provisions given a "business commonsense" or a "business‑like" construction. See, for example, Investors Compensation Scheme v West Bromich Building Society [1988] 1 WLR 896, Lord Hoffman at 912 – 913.
Nonetheless, this process of construction is not intended to be a "free‑wheeling" exercise. In the Court of Appeal of New South Wales in Ryledar Pty Ltd t/as Volume Plus and Anor v Euphoric Pty Ltd (2007) 69 NSWLR 603 at 626 [108], the Court endorsed the observations of the trial judge (Palmer J) whose decision was under consideration, to the following effect:
[31] However, that does not mean that when the Court begins the task of construction it puts the words of the document aside and endeavours first to ascertain the commonly known factual context and purpose of the transaction, often only by resolving a strenuous contest between the parties. The Court does not, once it has found the commonly known factual context and purpose, then look at the words of the contract and, if they do not readily accommodate the context and purpose so found, force them to do so by a process of interpretation.
[32] When the Court is construing a commercial contract, it begins with the words of the document: there it often finds expressed the factual context known to both parties and the common purpose and object of the transaction. But the Court is alive to the possibility that what seems clear by reference only to the words on the printed page may not be so clear when one takes into account as well what was known to both parties but does not appear in the document. When that is taken into account, the words in the contract may legitimately have one or more of a number of possible meanings. It is then the Court's task to identify which of the possible meanings represents the parties' contractual intention.
[33] However, when a party to a contract argues that the known context and common purpose of the transaction gives the words of the contract a meaning which, by no stretch of language or syntax they will bear then, in truth, one has a rectification suit, not a construction suit.
While the objective determination of what a particular contract means may require the adoption of a "business commonsense" or "business‑like" approach, this does not necessarily mean those expressions are themselves unproblematic. As Gleeson CJ, Gummow and Hayne JJ observed in Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at [43] what "business commonsense" is may itself be a topic upon which minds may differ and in respect of which an imputed consensus is impossible.
Writing extra‑judicially, Chief Justice Spigelman has noted that, while the "business commonsense" constraint on contractual interpretation is acceptable, "The only difficulty is that, at least when the matter comes to the level of litigation, each party remains convinced that a 'businesslike' interpretation or 'business commonsense' happens to coincide with its own commercial interests. This is not always easy to resolve": Spigelman JJ, "From text to context: Contemporary contractual interpretation" (2007) 81 ALJ 322 at 330.
To similar effect, one commentator, writing with commendable academic freedom has recently commented (footnotes omitted):
Issues of interpretation occupy a good deal of the time of busy commercial practitioners and judges. Such issues 'are the very lifeblood of commercial law'. Nevertheless, on the basis of the countless decided cases that I read, they also tend to be the most intractable. The outcome of interpretation litigation is notoriously difficult to predict. This is partly because questions of interpretation are often seen as 'matters of impression' or intuition, and inevitably the way in which judges mentally process language and apply it to the facts will vary according to their background and experience. Even so, the division of opinion that one finds in the cases is remarkable. Time and again judges will disagree on such elementary questions as whether particular words have a plain meaning and what is the 'commonsense' or 'commercially realistic' interpretation.
: McLauchlan D, "Contract Interpretation: What Is It About?" (2009) 31 Syd LR 5.
With that guidance and those admonitions in mind I turn to the tasks at hand.
surrounding circumstances, purposes and objects of transaction
As suggested above, the Principal Agreement and the GSA were products of the settlement of what plainly was an acrimonious dispute between Barton International and GIRL in relation to the operation of the garnet mine at Port Gregory. Of that there is no doubt on the evidence and the Court so finds.
At the time the dispute broke out, GIRL and Barton International as partners owned the mine and were equal shareholders in GMA Garnet, which company conducted, and still conducts, garnet mining at the mine and garnet distribution operations.
In the dissolution proceedings in the Federal Court of Australia – which were due to go to trial in February 2005 – GIRL wanted the partnership dissolved and GMA Garnet wound up because of the breakdown of the relationship between the parties.
The breakdown of the relationship between the Barton International and related companies and GIRL was no doubt contributed to or exacerbated by GIRL's conduct in complaining to the ACCC about the Perth Agreement, by which Barton International and GMA Garnet had an arrangement concerning the marketing of GMA garnet in Australia (and elsewhere), as a result of which the ACCC commenced an investigation into the circumstances of the Perth Agreement.
In general terms, in settling the litigation, the parties agreed that Barton International would sell all its various interests to GIRL for a consideration which comprised cash and a long term supply contract enabling Barton International to buy from GMA Garnet 35,000 tonnes of garnet per annum at prices which effectively represented cost of production and a further 15,000 tonnes per annum at those prices plus 15%.
The matter of the Perth Agreement investigation was later resolved by consent order of The Federal Court of Australia on the application of the ACCC in September 2006, by which Barton Mines Corporation and Barton International were declared to have engaged in conduct contrary to the Trade Practices Act 1974 and pecuniary penalties were imposed: see Australian Competition and Consumer Commission v Barton Mines Corporation & Ors [2006] FCA 1264.
In this overall context, the GSA was a supply agreement made in circumstances to be contrasted with those where the seller is more or less free, having regard to the market conditions, to impose such terms as it desires on the sale of its product. Rather, it represents part of a total consideration provided to the former joint owner of the mine and mining distribution operations for selling its interests to the other joint owner and otherwise resolving their differences. This much is made clear by cl 2.3(a) of the Principal Agreement.
Having regard to the ACCC investigation, competition law issues also loomed large for the parties when the Agreements were struck. One essential term of the Principal Agreement insisted on by GIRL from the outset of negotiations was that the Agreement had to pass ACCC scrutiny. The parties were very aware, and took advice during the negotiations of the Principal Agreement and the GSA to ensure there would be no settlement under which:
(a) The market for distribution and sale of garnet was "carved up" by the parties (for example, by way of a provision which could preclude Barton International from selling in Australia), which would contravene s 45(2) and s 4D of the Trade Practices Act 1974;
(b) GMA Garnet's monopoly position in Australia was used to curtail competition in Australia, which might infringe s 46 of the Trade Practices Act 1974; nor
(c) Barton International was offered a discount for garnet on terms that prevented it from distributing the garnet in a particular place, if the purpose or effect of the arrangement was to lessen the competition substantially in Australia, which might contravene s 47(2)(c) and s 42(f)(ii), s 47(10) of the Trade Practices Act 1974. For example, an agreement which positively required discounted product only to be sold in North America, which would have the effect of preventing Barton International from selling product in Australia in competition with GIRL/GMA Garnet, might well have offended s 47 of the Trade Practices Act 1974, given the selling position in the Australian garnet market.
In the negotiations leading up to the execution of the GSA, as explained below in more detail, GIRL proposed that Barton International's related entity BMC should act as GMA Garnet's exclusive distributor, and failing that, for Barton International to become GMA Garnet's non‑exclusive distributor in the North American market. GIRL was obviously concerned to ensure that, with the changed arrangements, GMA garnet would still be appropriately marketed in the USA and Canadian markets. However, Barton International—or BMC—was unwilling to accept these proposals, or to undertake the achievement of key performance indicators (KPIs) and negotiated for an open supply agreement between it and GMA Garnet.
Ultimately, the agreement that was reached was that a concessional, or discounted rate for GMA garnet would apply to garnet which Barton International "ships and discharges" into North America, as provided for by cl 4.2 of the GSA. This produces a commercial disincentive for Barton International – because of the double freight charges that would be involved – to consider reshipping GMA garnet out of North America once it had been discharged there. But the GSA does not go so far as to impose an express obligation on Barton International to distribute or sell such GMA garnet only in North America. It is not so limited by the GSA.
However, cl 4.2 of the GSA, in the first sentence, states that the "purpose" for the concessional rate in respect of garnet shipped and discharged into North America is the wish of GMA Garnet, acknowledged by the parties, "to promote distribution of Product" in North America.
It is also important to note, at this point, that in the negotiations leading up to the GSA, GIRL specifically proposed that all GMA garnet purchased by Barton International should be labelled with the GMA Garnet name and logo. Clause 2.5 is the final outcome of the negotiations in relation to this proposal. How cl 2.5 came to be in this form is discussed in detail below.
Accordingly, on the one hand, at material times following the execution of the GSA, the applicants appear to have held the belief that, under the GSA, Barton International had assumed the obligation to brand, as GMA garnet, all GMA garnet supplied under the GSA and to promote, and not to diminish, distribution of discounted Product in North America. As a consequence they later formed the view, when they discovered loose bulk GMA garnet was being blended by BMC with other non‑GMA garnet, to the knowledge of Barton International, that such conduct contravened the branding and marketing obligations imposed on Barton International.
What, if anything, the applicants knew of the practices of Barton International or Barton International interests in relation to the blending of GMA garnet with other garnet at times leading up to the conclusion of the GSA, or of Barton International's future plans for blending in that regard, is the subject of dispute between the parties and is the subject of findings below.
On the other hand, it appears that Barton International and related entities believed, that under the GSA, there was no impediment to them mixing or blending GMA garnet with garnet sourced from elsewhere, if they so chose – something they say was brought to the applicants' attention during the negotiations leading up to the conclusion of the agreements - and that the obligation to brand garnet in accordance with cl 2.5 of the GSA only arose when garnet, that was in fact 100% GMA garnet, was sold in packaging to an end consumer.
Against this background, for the purposes of their claims of breach of the pleaded terms of the Principal Agreement and GSA, the applicants plead (in para 12A of the substituted further re‑amended statement of claim – hereafter simply referred to as the "statement of claim") a number of surrounding facts and circumstances they say were mutually known to the parties over the period that the GSA and the Principal Agreement were being negotiated and then concluded in late 2004 and early 2005, as set out in the following summary. Barton International accepts a number of these in its substituted defence (hereafter simply referred to as the "defence"), but adds others of its own or qualifies those pleaded by the applicants. In summary:
(1)The applicants say (para 12A.1 statement of claim) that up to the time of conclusion of the GSA, 100% GMA garnet had been sold or distributed by BMC in North America to ultimate consumers of garnet either directly or through an established distribution network. Barton International agrees (para 15 (b) defence);
(1A)The applicants say (para 12A.1A statement of claim) that up to that time of the conclusion of the GSA, BMC or related companies were the sole supplier of GMA garnet to ultimate consumers in North America. Barton International agree, but say that in fact only BMC was the supplier of GMA garnet (para 15 (c) defence);
(1B)The applicants say (para 12A.1B statement of claim) that 100% GMA garnet sold or distributed by BMC to ultimate consumers of garnet within North America had always, or alternatively usually, been packed and labelled in a fashion that identified the garnet product as GMA garnet (and on occasions with a BMC label of equal prominence). Barton International agrees that BMC usually sold GMA garnet in bags labelled with the Barton International logo and the GMA Garnet name and logo in late 2004 and early 2005, when the GSA was being negotiated, save when BMC blended GMA garnet with garnet from BMC’s North Creek Mine and when BMC sold GMA garnet in bulk (para 15(d) defence);
(1C)The applicants say (para 12A.1C statement of claim) that up to the time of conclusion of the GSA, BMC did not sell and distribute GMA garnet within North America that was mixed with garnet from other sources, whether in bags or in bulk. Barton International agrees, save when BMC blended GMA garnet with garnet mined from the North Creek Mine (para 15(e) defence);
(1D)The applicants say (para 12A.1D statement of claim) that there was a potential problem in that 100% GMA garnet supplied under the GSA, which had been warehoused and stockpiled in North America, might be inadvertently mingled with other stored garnet which was not 100% GMA garnet. Barton International says, (i) that at an early point in the negotiations the possibility of GMA garnet being co‑mingled with other garnet that was in BMC's warehouses in the USA, in circumstances where GIRL and GMA Garnet wanted all GMA garnet that was to be purchased under the proposed GSA to be marketed and sold in the USA, was identified as a possible issue; but (ii) that possible issue later ceased to be an issue because the parties agreed that Barton International only had to ship and discharge GMA garnet into North America to obtain the concessional price for GMA garnet (para 15(f) defence);
(1E)The applicants say (para 12A.1E statement of claim) that Barton Mines Corporation, GMA Garnet and GIRL were then under investigation by the Australian Competition and Consumer Commission (ACCC) for alleged breaches of s 45(2) of the Trade Practices Act 1974 concerning arrangements by which GMA Garnet agreed to exclusively supply GMA garnet to certain territorial regions within Australia and BMC agreed to exclusively supply GMA garnet to other territorial regions in Australia (the Perth Agreement). Barton International agree and say that Barton International, Barton Mines Corporation and BIA were under investigation as a consequence of a complaint made by either, or both of, GIRL and GMA Garnet (para 15(g) defence);
(1F)The applicants say (para 12A.1F statement of claim) that in the circumstances referred to in the preceding point, Barton International, Barton Mines Corporation, GMA Garnet and GIRL all wished to avoid the proposed GSA being regarded adversely by competition regulators in Australia or in North America, and for that reason Barton International and GMA Garnet commonly considered that the proposed GSA should be an open product supply agreement rather than an exclusive territorial distribution contract. Barton International say, (i) that for reasons that include those circumstances, Barton International, GMA Garnet and GIRL commonly intended that the proposed GSA should be an open supply contract rather than a contract that imposed any territorial restrictions whatsoever and should provide that Barton International would be entitled to a discount on the purchase of the GMA garnet if it shipped and discharged the garnet into North America; (ii) when the GSA was negotiated and executed it was mutually known by Barton International, GMA Garnet and GIRL that Barton International and its related entities, on the one hand, and GIRL, on the other, were adversaries, were hostile to each other and did not have any trust or confidence in each other; (iii) accordingly when the GSA was negotiated and executed, it was mutually known by the parties that Barton International wished to have an open supply agreement and did not wish to have any obligation to market or promote GMA garnet purchased under the GSA (para 15(h) defence);
(2)The applicants say (para 12A.2 statement of claim) that by reason of its superior qualities over garnet sourced from other places in the world, 100% GMA garnet sold or distributed by BMC had acquired, in North America, an established product reputation as a superior garnet; and that (para 12A.3 statement of claim) the established product reputation of GMA Garnet in North America could be lost, jeopardised or diminished if:
(a)GMA garnet was not in future labelled so as to be identifiable as such when sold or distributed in North America;
(b) GMA garnet so labelled was to be mixed with other garnets of lesser quality and sold or distributed in North America; and
(c) GMA garnet so labelled was not available for purchase in significant quantities as an identifiable product in North America.
Barton International admits GMA garnet sold by BMC prior to February 2005 had been of good quality, but otherwise denies these allegations (para 15(i) and (j) defence).
For the purpose of pleading the proper interpretation or construction of the agreements, Barton International pleads (para 5 defence) that, when negotiating, concluding and executing the Principal Agreement and GSA, each of the parties knew a number of things at all material times before the GSA and Principal Agreement were made, as set out in the following summary. The applicants in their substituted reply (hereafter simply referred to as the "reply") accept some of these facts but deny or do not admit others. In summary:
(a)Barton International says (para 5(a) defence) that garnet produced in Australia, which Barton International had acquired during Barton International's participation in a partnership with GIRL and which were shipped to North America had been on‑sold to BMC, a related company of Barton International and BIA. The applicants do not admit that they knew that garnet produced in Australia, which BIA had acquired during Barton International's participation in a partnership with GIRL and which was shipped to Canada and the USA, had been on‑sold to BMC, but otherwise admit the facts alleged (para 1(a) reply);
(b)Barton International says (para 5(b) defence) that Barton International, BIA and BMC were members of a group of companies. The applicants admit this fact (para 1(b) reply);
(c)Barton International says (para 5(c) defence) that within that group of companies BMC:
(i)used warehouses in the United States of America;
(ii)sold garnet to third-party customers in Canada, the United States of America and elsewhere under its own name or co-branded, including that it sold 100% GMA garnet in bags with branding that prominently contained the logo "Barton" (and usually the words "Barton Mines Company LLC" along with BMC's address) as well as the GMA Garnet name and logo.
The applicants admit these facts, save to say that:
(1)the applicants knew, as was the case, that before the GSA was made BMC sold or distributed under its own name into Canada, the USA or elsewhere, 100% GMA garnet in bags - which were co‑branded with the GMA Garnet name and logo;
(2)the applicants knew, as was the case, that before the GSA was made, 100% GMA garnet sold and distributed by BMC into Canada, the USA and elsewhere, was sold and distributed in bags with co‑branding that included the GMA garnet name and logo, and in bags that had been bagged and co‑branded (with branding that included the GMA garnet name and logo) in the USA and Canada by BMC or the Barton group, from the 100% GMA garnet acquired by BIA in bulk during and under the partnership relationship between GIRL and Barton International;
(3)the applicants say that before the GSA was completed the applicants thought that BMC did not sell and distribute GMA garnet that was mixed with garnet from other sources, in bags or in bulk (para 1(c) reply).
(d)Barton International says (para 5(d) defence) that Barton International did not itself carry on business as a seller or distributor of garnet other than to BMC. The applicants do not admit this fact and deny that GMA Garnet knew the matters pleaded (para 1(d)) reply;
(e)Barton International says (para 5(e) defence) that Barton International did not intend to sell GMA garnet within USA and Canada, other than by selling GMA garnet to BMC. The applicants accept that Barton International now admits that it did not intend to distribute or sell GMA garnet within the USA or Canada, other than by selling GMA garnet to BMC, but deny that GMA Garnet and GIRL knew that (para 1(e) reply);
(f)Barton International says (para 5(f) defence) that GMA garnet was purchased by BIA in bags or in bulk and sold to BMC. The applicants say that whilst they assumed that some GMA garnet purchased by BIA in bags or in bulk may have been on‑sold to BMC, they deny that the applicants knew that to be so, or that it was invariably the case (para 1(f) reply);
(g)Barton International says (para 5(g) defence) that when GMA garnet was purchased by BIA in bags, the bags were usually already branded by GMA Garnet prominently with the logo "Barton" (and usually the words "Barton Mines Company, LLC" along with the address of BMC) as well as the GMA Garnet name and logo. The applicants repeat what they said in subpara (2) and subpara (3) of para 1(c) of the reply above, and otherwise admit they knew, as was the fact, the matters pleaded by Barton International in subpara 5(g) and subpara 5(h) of the defence (para 1(g) reply);
(h)Barton International says (para 5(h) defence) that when BMC on‑sold the GMA garnet to a third-party customer in bags without being mixed with other garnet, the bags were branded prominently with the logo "Barton" (and usually the words "Barton Mines Company, LLC" along with the address of BMC), as well as the GMA Garnet name and logo. The applicants agree (para (g) reply);
(i)Barton International says (para 5(i)) that when BMC on‑sold the GMA garnet to a third-party customer in bulk, there was no branding of the GMA garnet. The applicants deny it to be the case that Barton International on‑sold 100% GMA garnet to third-party customers in bulk without co‑branding of the GMA garnet, but say that, if it be the case, the applicants never knew of such matters (para 1(h) reply);
(j)Barton International says (para 5(j) defence) that Barton International intended that GMA garnet purchased from GMA Garnet under the GSA would be shipped and discharged into North America and on sold to BMC, but Barton International did not otherwise intend to promote the distribution of GMA garnet within North America. Barton International pleads that the knowledge of GMA Garnet and GIRL in this respect is to be inferred from the following:
·at all material times before the GSA was made GMA Garnet sold bagged garnet to BIA including with branding that prominently contained the logo "Barton" (and usually the words "Barton Mines Company LLC" along with the address of BMC) on the basis that BMC was the company which sold garnet in Canada, the USA and elsewhere;
·the document entitled "Without Prejudice Discussion Paper" which was tabled by Steven Cole at a meeting with David Williams on 10 December 2004 and in letters and other documents passing between David Williams and Steven Cole between 10 January 2005 and 19 February 2005 (as set out in the particulars to para 5 of the defence);
·the Principal Agreement and the GSA executed by the parties;
·BMC had long been, at all material times, the member of the Barton group of companies which sold garnet under its own name or co‑branded in Canada or the USA as was published by BMC on its website and in the garnet market.
The applicants:
·accept that Barton International now admits it intended to ship and discharge into the USA or Canada, and to on‑sell to BMC, the GMA garnet purchased from GMA Garnet under the GSA, and that Barton International did not otherwise intend to promote the distribution of GMA Garnet within those countries, but deny that GMA Garnet and GIRL knew that (para 1(i) reply);
·add (in para 1(j) reply) that pursuant to the Perth Agreement of 13 March 2002 made between Barton Mines Corporation trading as The Barton Group and Barton Joint Venture Corporation and B‑L (Australia) Inc (which two entities later merged to become Barton International) and GIRL, Barton International was obliged to purchase garnet from GMA Garnet, but that another Barton group entity, BIA, in fact purchased all GMA garnet from GMA Garnet prior to the date of the GSA;
·admit (in para 2A reply) they knew at all material times that BMC owned and operated a hard rock garnet mine (North Creek Mine) at North River, New York, USA. However, the applicants (para 2B reply) do not admit that BMC blended garnet with garnet from the North Creek Mine and deny in any event that they had any knowledge of such blending occurring either before or at the time when the Principal Agreement or the GSA were executed;
·say (para 2(d) reply) that the dominant reasons why Barton International rejected a proposal that BMC be appointed as an exclusive distributor of GMA garnet and why the applicants did not thereafter persist with a proposal to appoint BMC as an exclusive distributor of GMA garnet purchased from GMA Garnet, were:
(1)the concern of each of these parties that any agreement or arrangement which appointed BMC as such an exclusive distributor would at the time be viewed as anticompetitive, contrary to Australian law; and
(2)the concern of Barton International and BMC, which the applicants acknowledged, that an agreement or arrangement which appointed BMC as an exclusive distributor would impose objective performance goals;
·the applicants say (in para 2(e) reply) the dominant reasons why Barton International and the applicants did not attempt to further negotiate the appointment of BMC as an exclusive distributor was not because these parties commonly intended that members of the Barton group should not be subjected to any obligation to develop the market for GMA garnet in North America. The applicants say (in para 2(f) reply) that notwithstanding that the parties did not attempt to further negotiate the appointment of BMC as an exclusive distributor, they commonly intended that Barton International would develop the market for GMA garnet in North America and that the significant price discount to be provided by GMA Garnet was granted so as to provide an incentive to Barton International as a member of the Barton group to do so.
It goes without saying that the representatives of Barton International at material times had a complete understanding of the structure of the various entities owned or controlled by Barton Mines Corporation – The Barton Group – as outlined above. Mr Steven Cole, the lawyer who acted as the agent for Barton International in the negotiations leading up to the conclusion of the Principal Agreement and GSA, had acted for some years as solicitor for Barton International and related companies and appears to have become well acquainted with the corporate structure and familiar, at least to an extent, with the nature and organisation of the business. In evidence at the trial, Mr Charles (Chuck) Bracken Jnr, Chairman of the Board of Directors of Barton Mines Corporation, Barton International, BIA and BMC, and other executives from Barton entities outlined in some detail the corporate structure.
However, the applicants deny that they were fully conversant with, and had a strict legal and operational understanding of, that corporate structure. Mr David Williams, who was the solicitor appointed by the applicants to negotiate the compromise and settlement with Mr Cole, had not had a long involvement, it appears, with the operations of the applicants and certainly not with the operations of Barton International or related companies. In his evidence he said he did not recall having any real understanding of the entities within The Barton Group. As far as he was concerned he was acting for GIRL and Mr Cole was acting for "the other side". He accepted that from the correspondence that passed between him and Mr Cole, and from information he received from his instructors, particularly Mr Ketelsen, he knew there was more than "one Barton" corporate entity. But he was not told by Mr Cole and was not instructed about what role each Barton entity played within the Barton group of companies. Nonetheless, he acknowledged that in the letter to Mr Cole he wrote dated 10 January 2005, he expressly referred to Barton Mines Company LLC (BMC). Nonetheless, he does not recall being informed by Mr Cole or ever being instructed about the role BMC performed, or how it differed from the role performed by Barton International.
The applicants respond to the Barton International claim that there is no express link between the labelling obligation in cl 2.5 and the provision in cl 4.2 of the discount. The applicants say this is a flawed argument and the practical reality is that Barton International has sufficient demand in the North American market to consume over 50,000 tonnes of GMA garnet. Hence, assuming Barton International acts in a commercially rational manner, Barton International will only purchase garnet under the GSA, where the GSA provides a discount to the price of which it may otherwise purchase garnet from GMA Garnet or elsewhere. As the labelling obligation applies to all garnet purchased under the GSA, it follows that the labelling obligation will, in practice, apply to all discount garnet.
As to the submission of the respondent that there are no words which impose any promissory obligation upon Barton International in the introduction of cl 4.2, the applicants state that their primary position is that the introductory words state the contractual purpose and operational effect of the GSA, and that the principle in the High Court's decision in Secured Income 144 CLR 596 operates on this statement to supply the necessary, promissory obligation. In other words, the introductory words expressly state what might otherwise be deduced about the contractual purpose of the GSA.
The Court in large part accepts the construction of cl 4.2 of the GSA and cl 2.3(b) of the Principal Agreement contended for by Barton International, mostly for the reasons Barton International advances. The language actually employed in cl 4.2 of the GSA and cl 2.3(b) of the Principal Agreement whereby the parties "acknowledge" that "the Seller wishes to promote distribution of Product within the United States of America and Canada", for which purpose a concessional rate for Product is provided, is not the ordinary language of legally enforceable rights and obligations.
If the parties had in fact intended that Barton International should undertake to develop the North American market into which discounted garnet was shipped and discharged – or "sold", as the applicants would have it - then the express language of cl 4.2 of the GSA would surely have been quite different from what it is, particularly in circumstances where two highly distrustful commercial groups were negotiating such a significant supply agreement that was part of the consideration of the overall settlement of their bitter dispute. What cl 4.2 actually provides is that:
The Parties acknowledge that the Seller wishes to promote distribution of Product… and, for that purpose, the Seller shall allow to the Buyer a concessional rate
It is the Seller who wishes to promote distribution. For that purpose the Seller shall allow the Buyer a concessional rate for Product. Just how the wish of the seller will be realised by the grant of the concessional rate is not clear from cl 4.2.
It is perhaps to some extent explained, as a matter of commerciality, by the product branding obligations created by cl 2.5 in relation to the distribution or sale of relevant Product. If all 100% Product must be branded by the Buyer with the GMA Garnet name and logo, as required by cl 2.5, compliance with this obligation may, where it applies, commercially assist in achieving market recognition of that Product in the markets in which it is sold. If Product can only be landed in North American at the concessional rate, commercial considerations suggest that ordinarily the Buyer would seek to sell in the same geographical market to maximise profits by limiting further transportation costs. In this way, the concessional price may be seen as an "incentive" for promoting distribution or sale of Product by the Buyer in North America (as indeed it was described by Mr Cole in his letter to Mr David Williams in the course of negotiations, dated 10 February 2005 in relation to the delivery of GMA garnet to the Americas).
It is a very big – and different – step to take, however, as the applicants submit should be taken, to construe the acknowledged wish of the Seller to promote distribution of Product in North America, in the light of the concessional rate purpose stated in cl 4.2, as constituting a contractually enforceable undertaking by Barton International to develop the North American market for the distribution or sale of GMA garnet in North America.
As the respondent points out, so far as cl 2.5 is concerned the branding obligation is not limited to Product purchased at a concessional rate. Rather, it applies to all garnet supplied under the GSA. Nor does cl 2.5 impose a branding obligation only in respect of Product distributed or sold by the Buyer within North America.
The most that can be said of cl 4.2 is that it constitutes an acknowledgement by the parties that the concessional rate granted by the Seller to the Buyer for shipping and discharging Product into North America is for the purpose of facilitating the Seller's wish to promote the distribution of that product within North America. As to how the grant of a concessional rate in respect of such Product will actively achieve this purpose is not provided for in the GSA. To some extent, the introductory words may be explained by GIRL's real concern to avoid drafting the GSA in such a way that the adverse attention of the competition regulators might be attracted. However, the applicants say the explanation is supplied by construing terms of the GSA as providing for the development of the North American market by the respondents and (effectively) BMC (or by recognising that certain representations were thereby made to similar effect).
What is very clear on the evidence, as outlined above, is that the parties understood Barton International and BMC were adamant that they would not undertake any form of distributorship for GMA garnet in North America or elsewhere but simply wanted a steady supply of GMA garnet for their own purposes. At the same time the parties were focussed on ensuring the GSA did not create any competition law problems. In the end, the only specific obligation that touches on the question of distribution of product – or marketing - are those to be drawn from cl 2.5, which relates simply to branding of relevant Product. In my view, no legal obligations were imposed on Barton International to develop a market into which discounted garnet was sold in North America, as the applicants contend. It follows that, in my view, there is also no term of the GSA to the effect that Barton International (or BMC) must not do anything to diminish the reputation of GMA Garnet or its distribution.
This conclusion is also supported by the finding I have made earlier concerning what the parties understood concerning the possible blending of GMA garnet supplied under the GSA. I have found that cl 2.5 of the GSA found its form directly as a consequence of the discussions and Mr Cole and Mr David Williams on 11 February 2005, during which Mr Cole said that Barton International did not wish to be compelled to label all garnet acquired under the GSA (as was then proposed by para 5 of the Principles document, prepared by Mr Williams and dated 11 February 2005), because "there may be blending". The substance and effect of the marketing terms of the GSA pleaded and advanced by the applicants are inconsistent with this understanding.
As I previously emphasised, it is irrelevant, in my view, whether the applicants, at the point of discussion between Mr Cole and Mr Williams, had any full appreciation of the implications of their understanding that there may be blending or its extent. Clause 2.5, in my view, was drafted so as not to prohibit intentional blending of GMA garnet supplied under the GSA.
The negotiations concerning the provision of concessionally priced product also militates against the construction of the GSA contended for by the applicants. Barton International through Mr Cole steadfastly declined to undertake any distribution responsibilities in North America. Mr David Williams prepared a draft of the GSA which linked the entitlement to concessionally priced product to "distribution" of product in North America. Mr Cole altered the word "distributes" in cl 4.2 with the words "ships and delivers". Mr Williams, on the advice of Mr Ketelsen changed the word "delivers" to "discharges", for the reason he explained in his evidence.
The parties clearly were of a common understanding that in order to obtain the concessionally priced product, all that was required was for Barton International to ship and discharge the relevant GMA garnet into North America. There was no requirement that it be sold or distributed in North America in order to obtain the concessional price. (This plainly also militates against the representations propounded by the applicants to the effect that all concessionally priced GMA garnet acquired under the GSA must be marketed in North America and labelled as GMA garnet, as discussed below.)
I also do not consider that the so called duty to cooperate from Secured Income 144 CLR 596 relevantly assists the applicants in this case. As Mason J pointed at 607 – 608 implied obligations are necessarily governed by the specific content of express obligations. It goes a bridge too far to say an implied term can attribute to a party a substantive intention which has not been incorporated in the express terms of the bargain.
As the respondent points out, in Moorgate Tobacco Co Ltd v Philip Morris Ltd [No 2] (1984) 156 CLR 414 at 434 – 435, the High Court disposed of an argument that Philip Morris could not apply to register a trademark of its own to market Golden Lighter cigarettes on the basis that it was, as licensee of Moorgate Kent cigarettes, obliged to not to hinder or prevent the development of Kent Light cigarettes. Deane J explained (at 435) that there was nothing in the agreement to indicate that any such term was assumed to exist; that such a term would preclude competition; and that such a term could not be implied because it did not correspond with some evident underlying intention of the parties.
In Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104, the New South Wales Court of Appeal (at 124) said that there is no duty to cooperate in bringing about something which the contract itself does not require to happen.
If a wider duty to cooperate to give the other party a perceived benefit under a contract is sought to be imposed, such a term has to be implied as a matter of fact. There is no warrant in this case to imply a term that Barton International would cooperate and assist GMA Garnet to develop a market in North America.
In other words, in my view, there is no relevant term expressed, on its proper construction, or to be implied upon which the duty to cooperate can operate to bring about the outcomes contended for by the applicants.
I should add for completeness that I reject the applicants' rectification plea.
As to the substance of the applicants' rectification plea there is no clear and convincing proof that the parties intended BMC to be bound by the GSA. During the early stage of negotiations GIRL wanted BMC to be a party to the GSA and to act as an exclusive distributor of Product. BMC was dropped when the parties agreed that Barton International would get the benefit of an open supply agreement, with the right to a concessional price if it shipped and discharged GMA garnet into North America.
I also accept the respondent's contention that the applicants' suggestion that Barton International was treated as part of the Barton group and that "Barton" was used to refer to the group and not to a particular Barton entity does not show the requisite common intention in this particular context – which is quite different from the context in which I have allowed the respondent's proposed rectification. There was no general understanding that Barton International would ensure BMC's compliance with the GSA in respect of generally stated obligations under the GSA.
Misleading or deceptive representation
The next issue is whether cl 4.2, by itself or in the context of the whole of the GSA and the Principal Agreement (especially cl 2.3(b)), or having regard to the pre‑contractual negotiations, conveyed or conveys any representations, in the nature of a contractual promise or short of a contractual promise, to facilitate promotion of GMA garnet in North America, which were misleading or deceptive as contended for by the applicants: see para 4 statement of claim; or that such representations were repeated when supply orders were periodically lodged, as alleged in para 4B statement of claim.
The question whether the conduct of a party is misleading or deceptive is a question of fact and requires an examination of all of the relevant conduct in the circumstances considered as a whole: Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592, 625 [109]. The question is one to be determined objectively: Butcher at [109].
The applicants' primary position in these proceedings is that the introductory words of cl 4.2 of the GSA state the contractual purpose and operational effect of the GSA and that the principle from Secured Income 144 CLR 596 operates upon this statement to supply the necessary promissory obligations. In other words, the introductory words to cl 4.2 expressly state what might be otherwise deduced about the contractual purpose of the GSA.
The Court has found in the preceding section that the construction of cl 4.2 in this regard advanced on behalf of the applicants should not be preferred.
In those circumstances the applicants say that it does not follow that the introductory words of cl 4.2 have no legal significance and can be ignored for the purposes of construing the GSA.
The applicants claim that the introductory words of cl 4.2, alone or understood in the context of pre‑contractual negotiations, are at least a statement of Barton International's present and future intention to perform the GSA in a manner which would facilitate promotion of GMA Garnet in North America.
The applicants say that it does not automatically follow that if their primary contractual position is rejected, that Barton International's construction, which gives no effect to the introductory words, should be accepted. The applicants say there is an intermediate position, namely that Barton International represented, but did not contractually promise, to facilitate promotion of GMA garnet in North America.
The applicants essentially rely upon the same argument deployed above in relation to the contractual interpretation. In effect, that the introductory words of cl 4.2 of the GSA and cl 2.3(b) of the Principal Agreement, were intended to have some legal effect beyond the statement of an expectation or a dream. The applicants say further that the pre‑contractual negotiations demonstrate that the parties themselves understood that there was significance to Barton International's position and that it would facilitate promotion of GMA garnet in North America. Barton International undertook to develop the market into which discounted garnet was sold—and it was irrelevant whether that market was the Americas or North America, as the essential nature of the negotiated obligation remained the same but applied to a smaller area.
The applicants say, however, that Barton International never intended to facilitate promotion in the North American market. Its proposed undertaking was effectively an undertaking to do nothing. Mr Bracken himself believed soon after signing the Principal Agreement and before execution of the GSA that members of the Barton group could blend GMA garnet. The applicants say that it is only a matter of short inference that he and Barton International always intended to blend GMA garnet in order to prevent it being promoted in North America.
The applicants say, that in context, whenever an order was placed, pursuant to the contractual framework of the GSA, it follows that the Barton International represented that it was making an order on the basis of the GSA, including the representation derived from the introductory words of cl 4.2.
The Court has already found that it is not prepared to draw the inference that Barton International always intended to blend GMA garnet in order to prevent it being promoted in North America.
For the reasons given above in relation to the proper construction of cl 4.2 and having regard to the relevant surrounding circumstances and the pre‑contractual negotiations, I do not consider that by the time the Principal Agreement was signed and the terms of the GSA were settled, any such representation was made about the development of the North American market for GMA Garnet by Barton International.
As explained in the section dealing with the key points of negotiations above, on 9 February 2005, Mr David Williams for the applicants put forward a separate proposal that included in para 2.2 that Barton International be appointed as a distributor of GMA product on a non‑exclusive basis; and "to incentivise the maintenance and development of the North American (ie USA/Canada) market, GMA product distributed into that market each year would attract a rebate/discount for the first 50,000 tonnes of product sold".
On 10 February 2005, Mr Cole responded to that proposal noting the mutual desire of the parties to structure arrangements to minimise the prospects of adverse response from competition law regulators and, in relation to the proposal to "incentivise" the North American market, expressed some willingness to consider that proposal in respect of the Americas and stated that "Barton is prepared to accept an undertaking that the discount is offered as an incentivisation with respect to the market in the relevant territory (but without performance and market growth obligations) and that product acquired at the discount must only be distributed into that market".
In the event, the negotiations developed in different ways. There was no agreement that product acquired at a discount could only be distributed or sold into a particular market, whether the Americas or just North America. Instead, the terms of the GSA were such that the discount would be attracted by landing – "ships and discharges" – the relevant GMA garnet into North America. Nothing more was said about distribution.
Having regard to the concern of the parties about: the competition regulators; the plain unwillingness, at all material times, of the Barton interests to undertake any distribution responsibilities; and the notion of "incentivisation" used at material times (as discussed above), I do not consider that cl 4.2 of the GSA on its own, or cl 4.2 or the GSA when read with cl 2.3(b) of the Principal Agreement, or either or both of those provisions when taken with the pre‑contractual negotiations constituted a representation, short of a contractual obligation, that Barton International would distribute GMA garnet supplied under the GSA in the North American market under the GMA Garnet name or that it would refrain from doing anything that would affect the reputation of GMA garnet in the North American market.
At the very most, I consider that what was represented by the Principal Agreement and the GSA and what passed during the course of negotiations, was that the Seller of GMA garnet under the GSA had a wish to promote distribution of Product in North America, and that, by the operation of terms of the GSA concerning concessional pricing, that wish might be advanced. Apart from that representation, nothing else obliged Barton International (or BMC) to develop the North American market for GMA garnet or, short of a contractual obligation, constituted a representation that they would do so.
The fact that the Court has found that Mr Cole and Mr David Williams achieved a level of concurrence concerning the possibility of blending of GMA garnet during the discussions on 10 February 2005, which was reflected in the drafting of cl 2.5 of the GSA, only serves to confirm that no such representation was made.
Given that the parties were represented during the negotiations leading up the execution of the Principal Agreement and the GSA by two highly experienced commercial lawyers, who acted as their agents, and who understood the degree of acrimony between the parties and exactly what was at stake in the conclusion of the matters in dispute by the terms of the Principal Agreement and the GSA, it is hard to believe that either of the parties could have thought, or that the parties together intended, that the terms of cl 4.2 read in isolation or with cl 2.5, or in the context of the whole of the Principal Agreement and the GSA, and having regard to the pre‑contractual negotiations, did, or was apt to, create any contractual obligations or convey any representations different from those made express in the contract.
Nor does the Court consider that the "acknowledgement" of the "wishes" of the Seller in cl 4.2 of the GSA gave or gives rise to any representation short of a contractual promise that Barton International would assist in the marketing of GMA garnet in North America.
Estoppel
For the sake of completeness, I should indicate that a formal plea made by the applicants that the respondent should be conventionally estopped from adopting a construction of the GSA contrary to the applicants' pleaded market development terms of the GSA and in opposition to the pleaded representations, was but dimly pressed and fails on the above account of the evidence in any event.
conclusion and orders
The Court would therefore order that cl 2.5 of the GSA be rectified in the manner proposed by Barton International in para 29 of the cross‑claim, namely, by inserting in the GSA the following term:
The Buyer agrees to ensure BMC abides by cl 2.5 as if it was bound thereby. For that purpose, rights conferred under cl 2.5 may be exercised by BMC.
The Court concludes that Barton International has not breached cl 2.5 of the GSA in the process of on‑selling, to BMC, GMA garnet it has acquired under the GSA.
The Court also finds that the GSA does not contain terms requiring Barton International's cooperation in the promotion of the continued distribution and/or sale of 100% Product and the other terms pleaded in para 15 and para 16 of the statement of claim.
Accordingly, the applicants' application for declarations that Barton International's actions as pleaded in para 16A.1 of the statement of claim constitute a breach of cl 2.5 of the GSA and that the notices referred to at para 25 of the statement of claim were lawfully issued, should be refused.
The Court also finds that the basis for the rectification sought by the applicants in respect of Barton International's responsibilities for the conduct of BMC is not made out.
As to whether there should be a declaration in respect of the breach pleaded in para 19B of the statement of claim relating to the question whether BMC has distributed and/or sold GMA garnet which is 100% Product branded by BMC with the GMA Garnet name and logo of lesser prominence than that which was applied during the 2004 calendar year, the conduct complained of has not been shown to constitute a "persistent" breach of cl 2.5 for the purposes of cl 8.1 of the GSA. Such relief should be refused.
Having regard to the Court's finding refusing the applicants' claims based on terms of the GSA alleged in relation to Barton International's distribution and promotion obligations, the applicants' claim for damages for such breach should be dismissed.
The Court also finds that Barton International did not make the representations pleaded in para 4 and para 4B of the statement of claim.
Accordingly, the applicants' claim for damages by reason of loss arising from the alleged misleading or deceptive conduct of Barton International should also be dismissed.
The Court therefore orders that:
1.The application of the applicants is dismissed.
2.The cross‑claim of the respondent is allowed.
3.The Garnet Supply Agreement made on 31 March 2005 between GMA Garnet Pty Ltd as Seller and Barton International Inc as Buyer and Garnet International Resources Pty Ltd be rectified by inserting therein, immediately after clause 2.5 the following term:
The Buyer agrees to ensure that Barton Mines Company LLC abides by clause 2.5 as if it was bound thereby. For that purpose, rights conferred under clause 2.5 may be exercised by Barton Mines Company LLC.
4.The applicants pay the respondent's costs of the proceedings to be taxed if not agreed.
5.Such other orders as the Court may consider appropriate after hearing from counsel for the parties.
I certify that the preceding five hundred and ninety-one (591) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker.
Associate:
Dated: 5 May 2009
Counsel for the Applicants: Mr K J Martin QC and Mr J A Thomson Solicitor for the Applicants: Freehills Counsel for the Respondent: Mr C L Zelestis QC and Mr B Dharmananda Solicitor for the Respondent: Clayton Utz
Date of Hearing: 11-24 February 2009 Date of Judgment: 5 May 2009
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