Perfection Dairies v Australian Co-operative Foods - [2007] NSWSC 176

No judgment structure available for this case.

Reported Decision:
72 IPR 102

New South Wales

Supreme Court

CITATION: Perfection Dairies v Australian Co-operative Foods [2007] NSWSC 176

HEARING DATE(S): 29, 30 and 31 January 2007; 1, 2, 5, 6, 7 and 9 February 2007

JUDGMENT DATE :
12 March 2007

JUDGMENT OF: McDougall J at [1]

DECISION: See paras [235] and [236] of judgment

CATCHWORDS: CONTRACT - where parties in current contractual relationship agree on new terms - whether intention to be bound immediately to new terms until formal instrument of agreement executed - relevance of subsequent conduct - whether terms sufficiently certain - implied terms - whether terms to be implied in law or in fact - breach - whether fundamental breach of repudiation - ESTOPPEL - whether defendant estopped from relying on, or has waived, any breach

LEGISLATION CITED: Trade Practices Act 1974

CASES CITED: Australian Broadcasting Corporation v XIVth Commonwealth Games Limited (1988) 18 NSWLR 540
Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd & Ors (1986) 40 NSWLR 622
B P Refinery (Westernport) Pty Limited v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266
Butt v M’Donald (1896) 7 QLJ [68] at 70-71
Fitzgerald & Anor v Masters (1956) 95 CLR 420
G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631
Hillas & Co Limited v Arcos Limited (1932) 147 LT 503
Masters & Anor v Cameron (1954) 91 CLR 353
Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310
The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1967) 118 CLR 429
Update Constructions Pty Ltd v Rozelle Child Care Centre Limited (1990) 20 NSWLR 251

PARTIES: Perfection Dairies Pty Ltd (Plaintiff)
Australian Co-operative Foods Limited (trading as Dairy Farmers) (Defendant)

FILE NUMBER(S): SC 50182/06

COUNSEL: B W Rayment QC/D T Kell/E Raper (Plaintiff)
B C Oslington QC/B P Jones/J A Watson (Defendant)

SOLICITORS: Warren F Ball & Co (Plaintiff)
Allens Arthur Robinson (Defendant)

INDEX

Perfection Dairies v Australian Co-operative Foods [2007] NSWSC 176

[Para]

The issues for decision 2

Credibility 6

Mr Lester 7

Mr Peel 13

Mrs Halfpenny 16

Mr Gordon 19

Mr Maritz 22

Mr Morrison 23

Mr Langdon 25

Mr Buxton 26

Messrs Toomey and Gentili 27

Narrative of relevant facts 29

The trade mark licence agreement 29

Changes in the course of dealings 36

Bottles 37

The accepted Perfection offer 40

Dealings after 27 October 2004 48

Threats to terminate 51

Fresh Start and Fortress 53

Perfection decides to make its own bottles 55

Changes in volume 59

The relationship deteriorates 64

“Moove” packaging 74

Perfection considers terminating the relationship 81

The meeting of 16 October 2006 85

The telephone conversation of 8 November 2006 88

Perfection’s board discusses the ultimatum 91

9 and 10 November 2006 102

The meeting of 15 November 2006 109

Intention to contract on the terms of the accepted Perfection offer 114

The relevant principles 118

The factual matrix 125

Uncertainty 161

The relevant principles 162

Analysis 164

Implied terms 184

The relevant principles 186

Implication in fact 186

Implication in law 188

Analysis 191

Breach 201

Opportunity to remedy breach and other issues: waiver, estoppel, substituted performance 206

Opportunity to remedy 207

Waiver, estoppel and substituted performance 212

Miscellaneous issues: P2 and P13 218

Six months’ notice 219

Relief 225

Conclusions and orders 235

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

McDOUGALL J

12 March 2007

CO-OPERATIVE FOODS LIMITED (TRADING AS

DAIRY FARMERS)

JUDGMENT

1 HIS HONOUR: On 30 September 1997, the defendant (Dairy Farmers) and the plaintiff (Perfection) entered into agreements relating to the processing, packaging, sale and purchase of milk. Only one of those agreements (which I shall call the trade mark licence agreement) is relevant for the purpose of this litigation. Perfection’s case is that that agreement continued in force, with relatively informal variations, up until 27 October 2004; and that it was amended, supplemented or replaced by a further agreement made on that date. Dairy Farmers says that no concluded or immediately binding agreement was reached on that date, and that in law the relationship between the parties continued to be governed by the trade mark licence agreement as informally varied from time to time. Dairy Farmers says further that Perfection repudiated whatever agreement was in force between them, and that on 15 November 2006 it, being entitled so to do, terminated whatever agreement was then in force. Alternatively, Dairy Farmers says, whatever agreement was then in force was susceptible to termination by either party without cause on six months’ notice, and that it has exercised that right.

The issues for decision

2 At my direction, the parties prepared a “combined statement of issues arising” setting out what they contended were the issues for decision. Not all of those issues were agreed, in the sense that they were said not to arise on the “pleadings” (an inaccurate but convenient term, and one that I shall use where necessary in these reasons).

3 The issues stated by the parties were:

Issue

[D3] It is common ground that the defendant’s purported termination of the agreement on 15 November 2006 was because of the plaintiff’s conduct in packaging Dairy Farmers’ milk in different bottles without first obtaining the defendant’s approval to do so.

Contractual terms

[D2(b)] If the answer to [D2(a)] is “yes”, nonetheless were the terms of the 27 October 2004 Heads of Agreement sufficiently certain to be enforceable as a contract?

Issue

[P3] Whether the agreement between the plaintiff and the defendant contained an implied term that the plaintiff would only package the defendant’s milk in bottles manufactured by Pippak unless it first obtained the defendant’s approval to use different bottles.

[P4] Whether the agreement between the plaintiff and the defendant contained an implied term that the plaintiff would not change the bottles into which it packaged milk for the defendant without first obtaining the defendant’s approval to a change.

[P5] Whether either of the implied terms relied upon by the defendant was term [sic] of the agreement between the plaintiff and the defendant, any breach of which by the plaintiff gave the defendant the right to terminate.

[P8] Whether, in the circumstances, the conduct of the plaintiff evinced an intention not to be bound by the agreement, so as to give the defendant the right to terminate.

[P9]+[D3] Whether, in the circumstances, the breach entitled the defendant to terminate any contract in place as at 15 November 2006?

Opportunity to remedy breach

[P7]* If the defendant did offer the plaintiff an opportunity to remedy the (alleged) breach, whether the defendant in fact provided the plaintiff with the opportunity so offered?

Issue

Waiver, estoppel, substituted performance

[P12] If there was an implied term in the form alleged by the defendant, whether the defendant by its conduct referred to in the Amended Reply, is estopped from relying upon the conduct by the plaintiff as a breach of the agreement as giving rise to any right to the defendant to terminate the agreement.

[P11] If there was an implied term in the form alleged by the defendant, whether by its conduct referred to in the Amended Reply the defendant should be taken to have agreed to or accepted substituted performance by the plaintiff under the agreement.

Miscellaneous issues

Issue

6 months’ notice

[P14] Whether the 2004 Heads of Agreement had the effect of varying clause 11 of the 1997 written agreement so as to provide for a five year term, with the plaintiff having an option for a further five years, such that the agreement between the plaintiff and the defendant is not terminable without cause on 6 months’ notice.

[P16] If the agreement is terminable on 6 months’ notice, whether the oral or written communications by the defendant on 15 November 2006 constituted effective notice pursuant to clause 11 of the 1997 written agreement such that the agreement would come to an end on 15 May 2007 (being 6 months from 15 November 2006).

Relief

[D8]* If it is held that the defendant’s termination as at 15 November 2006 is ineffective, is the plaintiff entitled to an order for specific performance?

[D9] If it is held that the defendant’s termination as at 15 November 2006 is ineffective, and if it is held that the plaintiff is not entitled to an order for specific performance, is the plaintiff entitled to a declaration that the defendant’s purported termination as at 15 November 2006 is ineffective?

[D10] If the Court determines that the defendant is in breach of any contract with the plaintiff, is the plaintiff entitled to damages? In particular

(a) what is the basis for the plaintiff’s entitlement to damages, as the case has been framed by the plaintiff?;

(b) is the plaintiff limited to damages for the period of 6 months’ notice (from 15 November 2006)?;

(c) is the plaintiff entitled to damages for 5 years or 10 years (from 27 October 2004)?”

4 Dairy Farmers submitted that the following issues did not arise:

(1) Issues P6 and P7, on the ground that they were not identified in the summons or in the amended reply, and that there was not identified any obligation to afford an opportunity to remedy.

“that is, that the plaintiff proposed to pack the defendant’s branded milk into these bottles without any further consultation”.

5 Perfection submitted that issue D8 did not arise, on the ground that it did not “presently” seek relief by way of specific performance.

Credibility

6 Before I turn to the facts and the issues, I shall indicate my views on the credibility of the witnesses called.

Mr Lester

7 Mr Stephen Charles Lester is, and for a number of years has been, the General Manager of Perfection. In that position, he reports directly to the board of Perfection. His evidence was that the board made all significant decisions on behalf of Perfection, down to a level of very considerable detail, that his actions and decisions as general manager were very much dictated by the board, and that he had very little independent autonomy (T27.35-28.10).

8 Mr Lester impressed me as an astute, strong willed and forceful individual who strove, in his dealings with Dairy Farmers, to achieve the very best outcome that he could for Perfection. It was plain, and indeed he made no secret of it, that in doing so he sought to exploit to the full any commercial or tactical advantage that he thought that Perfection might have.

9 It is apparent that Mr Lester had formed very strong views about Dairy Farmers, its senior management, and the way that Dairy Farmers and its management had treated him, and Perfection, over the years. It is apparent that those views were very unfavourable.

10 Although Mr Lester gave his evidence in a clear, confident and forthright way, there were a number of aspects of it that I found very difficult to accept. For example (and this is by no means a comprehensive list):

(1) He prepared a document, styled “Company Options”, dated 27 August 2006, for the consideration of Perfection’s directors at a board meeting to be held the following day. That document proposed three options: (i) selling the company; (ii) continuing in its present mode of operation; and (iii) establishing independence and building its own identity. The third option was detailed as involving “Break From D.F.” over a “Time Frame (18 months/2 years)”. It was plain that Mr Lester appreciated that this document could be viewed as inconsistent with Perfection’s case that on 27 October 2004 it had concluded an enforceable agreement with Dairy Farmers having a term of at least five years. Mr Lester sought to explain away the significance of the “break from Dairy Farmers”, in a way that I regard as unacceptable (T68.25-69.45).

“1. The General Manager tabled a report (copy attached) outlining the options (and risks) available to the company so that a definite path for progression can be put in place. Following intense consideration of each option the Chairman asked each Director to vote as to which of the options should be pursued. R. Halfpenny, H. Halfpenny and the Chairman voted for option three. D. Peel abstained from voting. The General Manager was instructed to pursue option three.”

I do not accept that explanation of the resolution, which I consider was made for the purpose of seeking to explain away what Mr Lester clearly perceived to be a potential danger to Perfection’s case. I need only add that Mr Peel accepted, although not without some equivocation, both that the relevant part of the minutes correctly recorded the resolution in question and that it meant what it said (T151.20-.40).

“10. A lengthy discussion took place on the position of the company at this point in time and the future direction and opportunities that may become available. In particular was the item of the company operating in an independent mode and severing ties with Dairy Farmers. Following this it was agreed that the General Manager pursue the option of attaining a Lease on a factory at Moorabbin in Melbourne,s [sic] south eastern suburbs and constructing coolroom facilities.”

Again, the minutes were prepared in draft by Mr Lester and signed as accurate by Mr Peel.

Mr Lester was asked about the reference to “severing ties with Dairy Farmers”. Firstly, he gave a non responsive answer (T67.25). When pressed, he said that what this meant was that Perfection was “locked up till October 2009” and that it could not sever its ties with Dairy Farmers (T67.50-68.10). In my view, Mr Lester once again sought by those answers disingenuously to explain away something that he perceived to be dangerous to Perfection’s case.

“As I said to you I will report to our next Directors [sic] meeting on the 31st October 2006 and contact you shortly after on whether we should try to salvage our relationship or go our separate ways”.

Messrs Gordon and Langdon gave evidence to the effect that, at the meeting, Mr Peel or Mr Lester had expressed views to the effect of those set out in that passage. Mr Lester would not accept that this was said, saying “I don’t believe that was said at all” (T71.5). In context, and having regard to Mr Lester’s demeanour and the general nature of his responses, it was plain that he was denying that words to the effect of those contained in the letter had been uttered at the meeting.

He then gave an explanation of the last paragraph of the letter, saying “I was trying to put a bit of pressure on them to get everything working again” (T71.10). I regard this evidence as untrue, and as motivated by a desire to explain away what he perceived to be another danger to Perfection’s case. His subsequent attempts to elaborate and rationalise his position (T71.15-72.25) are entirely unconvincing and, in my view, motivated by the same desire.

11 These considerations (and I repeat that they are not comprehensive) give me very serious concerns about the accuracy of Mr Lester’s evidence. In general, I do not regard it as compelling; and I have concluded that I should be slow to accept it in areas of contest, except to the extent that it is against interest, or corroborated by other, acceptable, evidence, or accords with the probabilities objectively ascertained.

12 In addition, I have concluded that Mr Lester’s evidence requires very close scrutiny when it is relied upon in relation to critical aspects of Perfection’s case where, although there is no contradictory evidence, there is also no truly independent corroboration (for example, the events and outcome of the directors’ meeting on 9 November 2006, with which I deal in paras [91] to [101] below).

Mr Peel

13 As I have said, Mr Peel was the Chairman of Perfection’s board of directors. He impressed me as an astute and capable businessman. However, I formed the impression that his recollection of a number of topics was general and hazy.

14 In addition, there were some aspects of Mr Peel’s evidence that gave me cause for concern. For example (and again, what follows is not comprehensive):

(1) His evidence as to the clear import of option 3 and the resolution passed on 28 August 2006 to adopt it was clearly structured to seek to avoid what in my view is the clear meaning of the document and resolution, and in my view reflected a recognition of the dangers that this might pose to Perfection’s case (T147.50-152.15).

(2) Although he agreed that the minutes “would be deadly accurate” (T150.55), at one point he sought in effect to suggest that they did not accurately record the sense and substance of what was discussed on 28 August 2006 (T150.50, 151.15, 151.40-152.5).

15 I am hesitant, in relation to disputed questions of fact, to accept Mr Peel’s evidence where it is not corroborated by other, acceptable, evidence. Further, I have the same reservation as to the acceptability of Mr Peel’s evidence in relation to critical matters such as the directors’ meeting of 9 November 2006 as I have expressed in para [12] above in relation to Mr Lester’s evidence.

Mrs Halfpenny

16 Mrs Helen Mae Halfpenny is a director of Perfection. It is plain that she was closely involved in its business activities. She, along with the other board members (her husband Mr Russell James Halfpenny, Mr Peel and Mr Peel’s brother, Mr David Peel) or their interests are in substance the owners of Perfection.

17 In general, Mrs Halfpenny appeared to have a good recollection of relevant events. However, there was one aspect of her evidence that concerned me. When cross-examined on the resolution of 28 August 2006, she sought to escape from, or to play down, the instruction given to Mr Lester to “pursue option 3”. She said that he was simply instructed “to look into it” (T140.40) and “that we would look at the situation again then” – ie, in eighteen months to two years’ time (T140.50). It is plain from the whole of her answer at T140.45-55 that she clearly appreciated the significance of this resolution to Perfection’s case that it had a minimum five year contract with Dairy Farmers.

18 In consequence, I have some hesitation in accepting Mrs Halfpenny’s evidence as acceptable corroboration for (for example) the evidence of Mr Lester as to contested questions of fact.

Mr Gordon

19 Mr Gordon is the Managing Director and Chief Executive Officer of Dairy Farmers. It is obvious that he did not get on with Mr Lester. Indeed, Mr Peel said that they were like “two bulls in the same paddock” (T147.30).

20 Mr Gordon is plainly an intelligent and astute man. He appeared to have a good recall of the events of which he gave evidence. However, I regret to say that I do not regard him as a witness whose evidence can be accepted with any degree of confidence. There are a number of features of it that I regard as unacceptable (and again, what follows is not intended to be comprehensive):

(1) He showed a marked and repeated tendency to deliver non responsive speeches in answer to questions where it was clear that a simple “yes” or “no” was all that was required: see for example T185.20-.35 (where the speech was intercepted) and T189.15-.30 (where it was not). Despite the warning given after this last episode (see T189.35), Mr Gordon did not completely abate his enthusiasm for this mode of answer: see, by way of example only, T214.25-.30.

(2) There was a serious dispute between the parties as to when it was that Dairy Farmers’ management (including Mr Gordon) learned that Perfection was setting up its own plant to manufacture milk bottles. In paragraphs 12 and 13 of his affidavit affirmed 23 November 2006, Mr Gordon seemed to suggest that he had not learned of this until “in or about early June 2006”. However, it is plain from an e-mail that he sent to colleagues at Dairy Farmers on 5 December 2005 that he was then aware “that Steve Lester at Perfection is intending to start blow moulding his own bottles in the new year”. Mr Gordon’s attempts in cross-examination to rationalise this significant discrepancy were entirely unconvincing (T241.5-242.40).

“Dairy Farmers to directly compete with current partner Perfection – partly as a result of a deteriorating relationship”.

Mr Gordon was questioned about the word “partly” and asked, in substance, what other reasons there were for Dairy Farmers’ decision to compete with Perfection. He denied that one of the reasons was to garner to Dairy Farmers the profits currently made by Perfection on the packaging business (T253.45). This denial was palpably false: the business case for Project Fortress made it plain that one of the benefits was that Dairy Farmers itself would make those profits. Further, when pressed, Mr Gordon gave an answer that was manifestly nonsensical (T253.50-254.5):

”Q. What was the other part, as you understood it, of the reason for the direct competition?
A. It was because we were building a contingency plan in case we needed to service our customers in the case that Perfection had terminated us and we had no way of servicing it.

HIS HONOUR

Q. That was the contingency plan that was necessary if the deteriorating relationship deteriorated to the point where it collapsed, wasn't it?
A. Indeed.

I regard that evidence as false and evasive, and intended to provide an escape from the consequences of his earlier false denial.

21 In general, I do not accept Mr Gordon’s evidence on contested issues of fact except to the extent that it is against interest, is corroborated by other, acceptable, evidence, or accords with the probabilities objectively ascertained.

Mr Maritz

22 Mr Ryan Maritz is Dairy Farmers’ Group Sales Manager. He gave his evidence in a clear and forthright manner, and appeared to have a good recall of the relevant events. I formed the view that he was a truthful witness, and one on whose evidence I could rely, particularly in the resolution of disputed questions of fact. Indeed, no submission to the contrary was made.

Mr Morrison

23 Mr John Morrison is Dairy Farmers’ Supply Chain Capability Manager. He too gave his evidence in a clear and forthright manner, and did not seek to equivocate or dissemble when answers that he gave could have been perceived as unfavourable to Dairy Farmers’ case. Mr Morrison kept detailed contemporaneous file notes of a number of relevant conversations (in some cases, supplemented by “recollections” added some months later, when this litigation was under way). It was not put to him that his contemporaneous file notes were concocted, or otherwise knowingly false. A submission was made that I should view them with caution, because of what were said to be Mr Morrison’s dual and incompatible roles (as manager of the relationship with Perfection and as one of those chiefly responsible for Project Fortress). That proposition was not put to Mr Morrison. In any event, nothing in the notes or in his evidence suggests that I should accept it, and I do not.

24 In my view, Mr Morrison was a truthful witness and one on whose evidence I could rely in resolving disputed questions of fact; this extends to his file notes as well as his affidavit and oral evidence.

Mr Langdon

25 As I have said, Mr Langdon is the Chairman of the board of directors of Dairy Farmers. He appeared to me to have a reasonable recall of the events of which he gave evidence. I formed the view that he was a witness of truth, and one on whose evidence I could rely in resolving disputed questions of fact.

Mr Buxton

26 Mr Buxton is Dairy Farmers’ General Manager, Supply Chain. He appeared to have a less than clear recall of relevant events. However, I formed the view that to the extent that his memory permitted, he was a truthful witness. In particular, I formed the view that his file note of the telephone conversation of 8 November 2006 is the best guide to what was said during that conversation, with the exception of its closing words (as to which, see para [90] below).

Messrs Toomey and Gentili

27 Mr Toomey is a consultant to Dairy Farmers, who was specifically engaged in what became Project Fortress. Mr Gentili is the Factory Site Manager of the bottle production facilities of Pippak and Full-View.

28 Messrs Toomey and Gentili impressed me as witnesses of truth on whose evidence I could rely. Indeed, no submission to the contrary was made.

Narrative of relevant facts

The trade mark licence agreement

29 As I have said, the trade mark licence agreement was made on 30 September 1997. It was executed under seal by Perfection and by Dairy Farmers’ then Chief Executive Officer, Mr Alan Richard Tooth, pursuant to a power of attorney.

30 By clause 1 of the agreement, Dairy Farmers granted an exclusive licence to Perfection to use certain trademarks in “the Territory”: a defined area comprising much of the north western Sydney region and areas nearby (it appears to extend to the Hawkesbury River in the north, to Mount Victoria in the west and to be bounded by the Great Western Highway on the south, to Wentworthville, and thence by Pennant Hills Road and the Pacific Highway on the southeast and east).

31 The licence granted appointed Perfection the exclusive agent of Dairy Farmers in the Territory for the following purposes:

(1) The processing, packaging, distribution and selling of whole milk to supermarkets and convenience stores in the Territory (clause 1(a));
(2) The distribution and selling in the Territory of certain specified “modified milk products” (clause 1(b)(i)); and
(3) The processing, packaging, distribution and selling in the Territory of other specified modified milk products (clause 1(b)(ii)).

32 Perfection agreed to increase its purchases of milk from the then NSW Dairy Corporation by approximately 30 million litres annually. That milk was to be used firstly for the processing, packaging, distribution and selling of whole milk in the Territory (as contemplated by clause 1(a)) and, secondly, to the extent that it was not required for that purpose, to be processed and packaged for and delivered to Dairy Farmers.

33 Clause 3 provided for a remuneration to be paid by Dairy Farmers to Perfection in respect of the 30 million litres of milk the subject of clause 2.

34 Clause 11 provided that the agreement should “endure until 30 June 2001 and thereafter … continue unless terminated by either party on six months’ written notice given to the other.”

35 Clause 18 provided “that in the event of an emergency at either of [the parties’] plants, each party will make their production capacity for milk available to the extent they find themselves able to do so in conformity with their legal obligations.” In other words, each party agreed to render emergency assistance to the other where possible. It appears to be common ground that, at least for the purposes of the trade mark licence agreement, emergency milk supplied pursuant to clause 18 should not count towards the 30 million litres the subject of clause 2.

Changes in the course of dealings

36 Perfection and Dairy Farmers continued to do business, substantially on the terms of the trade mark licence agreement, well past 30 June 2001. There were changes from time to time (for example, in relation to the processing “fee” payable pursuant to clause 3); neither party has submitted that such changes are of any present relevance. A particular change occurred on 1 July 2000, when the milk market in New South Wales became fully deregulated. Perfection thereafter ceased to obtain milk from the NSW Dairy Corporation, and supplied Dairy Farmers’ requirements either from its own resources or from milk bought in from others. The parties appear to have accommodated this change without any difficulty, and without perceiving the need formally to amend the trade mark licence agreement.

Bottles

37 At all material times, at least up until late October or early November 2006, Perfection obtained the bottles into which it packaged milk for Dairy Farmers from external suppliers. Mr Lester said that the external supplier was Full-View Plastics Pty Limited (Full-View) of Blacktown. Dairy Farmers’ evidence was that some bottles were supplied to Perfection by Full-View, but others were supplied by Pippak Pty Limited (Pippak). Pippak was a joint venture between Dairy Farmers and another entity, known as Brickwood, in which Dairy Farmers had a majority interest. Pippak’s bottle manufacturing plant was located within Dairy Farmers’ Lidcombe plant, and fed bottles to Dairy Farmers’ processing line.

38 Dairy Farmers had no direct interest in Full-View, but Brickwood did. The relationship was so close that both plants were managed by the one person, Mr Renato Gentili (an employee of Brickwood).

39 Mr Gentili gave evidence, the effect of which was that at least one employee of Perfection, Mr Steven Kelly, knew that Perfection received bottles from Pippak as well as from Full-View. That evidence was not challenged or controverted, and I accept it. I find it difficult to believe that someone like Mr Lester, who quite clearly exerted very close control over all aspects of Perfection’s operations, would have been unaware of this. However, he was not challenged on the specific evidence given by Mr Gentili. Nonetheless, I find that Perfection, through Mr Kelly, was aware that it received bottles from Pippak as well as from Full-View.

The accepted Perfection offer

40 It appears that Perfection – specifically, I think, Mr Lester – became dissatisfied with the terms of the trade mark licence agreement, and sought to renegotiate it. Those negotiations culminated in a Dairy Farmers’ document described as the “Perfection Offer”, dated 22 October 2004. There had been a number of earlier drafts of that document, with changes in the terms reflecting the course of negotiations.

41 The terms of the document had been negotiated between Mr Lester on behalf of Perfection and Mr Laurence Robinson and others (including Mr Arthur Aroney) on behalf of Dairy Farmers. Mr Robinson was Dairy Farmers’ Chief Financial Officer up until 21 July 2005. Mr Lester’s uncontroverted evidence (Mr Robinson had sworn affidavits, but they were not read and he was not called) is that he told Mr Robinson that the Perfection offer, in its 22 October 2004 form, was acceptable to Perfection. Mr Lester and Mr Robinson signed the document, which I shall call the accepted Perfection offer, on 27 October 2004.

42 One of the principal provisions of the accepted Perfection offer was an increase in the total volume of milk to be processed and packaged by Perfection for Dairy Farmers, from 30 million litres per year to 45.4 million litres per year (together with, apparently, provision for further supply up to a total of 70 million litres per year). Another provision was for a “10 year term for the licensing of the Dairy Farmers’ brands plus processing arrangements with Perfection having an option after 5 years.”

43 Mr Lester said also that when the accepted Perfection offer was signed, Mr Robinson said, and Mr Lester agreed, that “[w]e will start operating under the bullet points immediately and we can move to a more formal agreement later.”

44 As I have said, Mr Robinson was not called to give evidence, although he had sworn, and there had been served, two affidavits. No explanation was given of the failure to call him. In those circumstances, and notwithstanding what I have said above, I accept this aspect of Mr Lester’s evidence.

45 Mr Lester said also that at no stage did anyone from Dairy Farmers say to him that the accepted Perfection offer should be regarded in any way as conditional. Again, I accept that evidence.

46 A meeting of the board of directors of Dairy Farmers was held over 27, 28 and 29 October 2004. The minutes of that meeting record that Mr Robinson (I think, on 27 October 2004) advised the board as follows:

“L Robinson provided an update to the board as to discussions with Perfection and confirmed that agreement had been reached regarding milk production and distribution for a five year period, with a further five year option exercisable by Perfection.”

47 Those minutes then noted “that the agreement will be strategically important to Dairy Farmers though, it was noted, at a greater cost than previously discussed.” They noted also that Mr Robinson informed the board that “[n]otwithstanding other options available to Perfection, the strong recent performance of the current arrangements had been a factor” (presumably, in persuading Perfection to agree on the terms of the accepted Perfection offer).

Dealings after 27 October 2004

48 After 27 October 2004, the parties acted on the basis that at least some aspects of their relationship were governed by relevant provisions of the accepted Perfection offer. For example, after 27 October 2004, the parties acted on the basis that the minimum annual volume of milk to be processed, packaged and supplied by Perfection to Dairy Farmers was 45.4 million litres.

49 It is plain that the parties expected a new formal agreement to be negotiated and executed. What is now in dispute is whether they intended the accepted Perfection offer, read in conjunction with so much of the trade mark licence agreement as survived it (or was not inconsistent with it) to have contractual force, so as to govern their relationship until the execution of the new formal contract.

50 The relationship between the parties became strained after October 2004. It is apparent that Mr Lester resented some aspects of the way that Dairy Farmers and its employees treated Perfection. There was also some degree of instability in the dairy industry in New South Wales at this time, and there were rumours that one party or the other was to be taken over by, or to form an alliance with, other participants in that industry.

Threats to terminate

51 It is Dairy Farmers’ case, advanced through a number of its witnesses, (including Messrs Morrison and Maritz) that Mr Lester, on a number of occasions during 2006, made threats or statements to the effect that Perfection would terminate, or walk away from, its relationship with Dairy Farmers. With one exception (in relation to a threat that he said he did not mean) Mr Lester denied making such statements. I do not accept that denial. On the contrary, I accept the evidence of Messrs Morrison and Maritz, and find that such threats, or statements, were made.

52 At least up until recent times – specifically, early November 2006 - the relationship with Perfection was of very great importance to Dairy Farmers. That is because, until recent times, Dairy Farmers did not have sufficient capacity at its Lidcombe plant to process and package all the milk that it required for its Sydney operations. Messrs Lester and Peel were well aware of this. Mr Peel accepted that it was his view that Perfection had a strong bargaining position in its dealings with Dairy Farmers. Mr Lester would not agree that he was conscious of this. I do not accept his denial. It is inconceivable that a man as astute as he was would not have perceived the strength of Perfection’s position, deriving from Dairy Farmers’ need of Perfection’s processing capacity.

Fresh Start and Fortress

53 It is plain that Dairy Farmers took seriously Mr Lester’s threats to terminate or withdraw from the relationship. (Indeed, the actions that it took confirm that, contrary to Mr Lester’s denials, he did make such threats.) In about August 1996, Mr Gordon or other employees of Dairy Farmers initiated, with the approval of the board, “Project Fresh Start”. That was intended to remove inefficiencies in Dairy Farmers’ Lidcombe plant and to increase its production capacity. This project was overtaken by what became known as “Project Fortress”. The aim of Project Fortress was to ensure that Dairy Farmers was self sufficient, so that it could process and package all the milk that it needed without help from Perfection; and to equip Dairy Farmers to compete with Perfection.

54 It may very well be that Projects Fresh Start and Fortress had their geneses in Dairy Farmers’ need to protect itself should Mr Lester carry out his threats, so that it lost access to Perfection’s production capacity. Indeed, I find, this was always an objective of Project Fortress. However, as Mr Gordon made plain to his board, the projects had very significant financial benefits to Dairy Farmers: the capital cost would be recouped in under two years if Dairy Farmers itself processed all the milk that, to date, was being processed for it by Perfection. Further, the project would be profitable, although on a lesser scale, even if the relationship with Perfection remained in place. It is plain, despite Mr Gordon’s unwillingness to recognise it (to which I have referred above, in discussing his credibility), that this was another – in my view, the other – significant reason why Dairy Farmers undertook Project Fortress.

Perfection decides to make its own bottles

55 Mr Lester said that, during the negotiations that led to the accepted Perfection offer, he told Mr Robinson “that the plaintiff was proposing to buy its own blow moulding machines”, that this was “because the plaintiff had experienced numerous price changes in its deal [sic] with Full-View Plastics” and that “this would enable prices to be stabilised”, providing “savings to both companies”. Mr Lester said that “Mr Robinson had no objection to my proposal” (see Mr Lester’s affidavit sworn 18 November 2006, paragraph 27).

56 Notwithstanding the view that I have formed as to Mr Lester’s credibility, I accept that evidence. It was not shaken in cross-examination. More importantly, Dairy Farmers did not call Mr Robinson (see para [44] above). That decision means that there is no relevant factual contest as to this conversation. It is not inherently improbable. Indeed, I think, because of the prospect of price stability, Mr Lester might have regarded it as something that aided his position during the negotiations.

57 Dairy Farmers did not insert into its Perfection Offer of 22 October 2004 any provision dealing with the source of bottles used by Perfection in packaging its milk. (No one suggested that it did not do so because it was content with whatever the trade mark licence agreement said on that topic.) So far as the evidence goes, Dairy Farmers raised no objection to Perfection’s proposal, either during the negotiations or subsequently (up until 8 November 2006).

58 There is no doubt that after 27 October 2004, other employees of Dairy Farmers became aware of Perfection’s proposal to manufacture its own bottles. There is no doubt that they appreciated that such bottles would be used in the packaging of milk for Dairy Farmers. There is no doubt of this latter point because employees of Dairy Farmers appreciated that if Perfection carried out this plan it would have an adverse impact on the profitability of Pippak. As I have said, Pippak was a joint venture operation in which Dairy Farmers had the majority interest.

Changes in volume

59 After the accepted Perfection Offer was signed, Perfection began to supply Dairy Farmers with milk at an increased weekly rate. On the evidence, the rate of supply was about 42 to 44 “loads” on average. The size, or volume, of a load varies; but a typical load was said to be 19,440 litres.

60 At a later time after the accepted Perfection Offer was signed, Dairy Farmers suffered an outbreak of listeria at its Lidcombe plant. It is unclear precisely when this occurred, because the evidence dated it as being in the first quarter of a “year”, without specifying whether it was the 2005/2006 financial year or the 2006 calendar year. The contamination affected the ability of Dairy Farmers to supply milk. Perfection processed and packaged additional milk for Dairy Farmers until the contamination was cleared up. As a result, if this “emergency milk” were to be taken into account, Dairy Farmers’ orders from Perfection for the year (and it does not matter whether the year is a financial year or a calendar year) in question were likely substantially to exceed 45.4 million litres if weekly deliveries remained at the level of 42 to 44 loads.

61 On 31 May 2006, Mr Gordon instructed his subordinates in Dairy Farmers to reduce by five to six loads per week the number of loads taken by Dairy Farmers from Perfection. That decision was conveyed to Mr Lester, who was plainly unhappy: not surprisingly so, given the need for Perfection to plan in advance the efficient utilisation of its plant and labour. A compromise “with a hard edge” was reached: 38 loads per week (the quotation comes from an e-mail sent by Mr Morris to a colleague on 31 May 2006).

62 Perfection and Dairy Farmers disagreed as to Dairy Farmers’ entitlement to reduce the weekly load in this way. It is plain that Dairy Farmers was taking the view that the emergency milk should be counted towards the annual total, so that it was entitled to reduce loads to ensure that it took no more than it was obliged to take. It is equally plain that Perfection thought otherwise.

63 Subsequently, Dairy Farmers came to appreciate that there was a risk that purchases at the rate of 38 loads per week might mean that it did not take the contractual total of 45.4 million litres per annum. It considered the concept of “catch up”. On 15 August 2006, Mr Gordon sent an e-mail to Mr Morrison proposing that the latter “plan ahead of time to have a make up order with [Perfection] to catch up their contractual shortfall say every quarter”. Mr Gordon said “that this would be a better way of handling the arrangement than a massive catch up at the year’s end.”

The relationship deteriorates

64 Whilst all this was going on, Dairy Farmers continued to seek to protect itself from the consequences of the loss of Perfection’s processing capacity. On 8 August 2006, the board of Dairy Farmers approved the capital expenditure required for Project Fresh Start.

65 The aim of that project, as stated in a “business case” dated 27 July 2006 and presented to the board, was to increase the processing and packaging capacity of Dairy Farmers’ Lidcombe plant by some 48 million litres annually, which was said to include 21 million litres of milk from Perfection packaged in two litre containers, a further 11 million litres of milk from Perfection packed in three litre containers, and a further 6 million litres of milk from Perfection packaged in cartons. Thereafter, Project Fresh Start either changed to or was subsumed by Project Fortress; but the (or a) fundamental aim of each – to remodel the Lidcombe plant so that Dairy Farmers would not suffer if it lost access to Perfection’s processing capacity – remained the same. Project Fortress went further, in that it assumed not only that the relationship between Dairy Farmers and Perfection would terminate, but also that Dairy Farmers would actively compete with Perfection in Perfection’s Territory.

66 Further, as these plans developed and began to be implemented, Dairy Farmers began looking for a “trigger” that would enable it to terminate its relationship with Perfection. Ultimately, Dairy Farmers decided that the “trigger” became available to it when Perfection began to package milk for Dairy Farmers in containers manufactured by Perfection, not in containers sourced from Pippak or Full-View.

67 Messrs Lester and Gordon met on 2 May 2006. Mr Gordon’s evidence is that during that meeting Mr Lester said words to the effect that he had had enough of Dairy Farmers and wanted to get out of the relationship. Notwithstanding my view as to Mr Gordon’s credibility, I think it likely that Mr Lester did say some such words at this meeting. As I have said, I think that Mr Lester (and Mr Peel) thought that Perfection enjoyed a position of strength, in its dealings with Dairy Farmers, and that threatening to take Perfection’s processing capacity away from Dairy Farmers was an effective (although crude) bargaining tool.

68 Mr Gordon discussed Mr Lester’s concerns and proposed a “workshop” to be conducted on 18 May 2006. That workshop did not take place.

69 Mr Lester spoke to Mr Langdon to discuss some grievances on 4 May 2006. Mr Langdon said that when he met Mr Lester on that day, Mr Lester said (in between “expletives”) words to the effect that he was not sure that he wished to do business with Dairy Farmers any longer. Mr Lester denies saying words to the effect of those alleged. I accept Mr Langdon’s evidence that words to that effect were said.

70 On 5 May 2006, Mr Gordon called Mr Lester to follow up the discussion of 2 May 2006. Mr Gordon says that during that telephone discussion, Mr Lester made another threat to “walk away from Dairy Farmers” and stated that “[a]s far as we are concerned we don’t have an agreement with Dairy Farmers … as things stand I have had enough and want out.” Mr Gordon made a handwritten note of that conversation, which substantially confirms his account. Bearing in mind both that note (the authenticity of which was not challenged in cross-examination) and, more importantly, what I regard as the probabilities taking into account Mr Lester’s view of Perfection’s position of strength vis-a-vis Dairy Farmers, I conclude that Mr Lester did say words to the effect attributed to him.

71 These events, and other matters, created in Mr Gordon’s mind the understandable suspicion that Perfection was indeed proposing to go its own way.

72 On 24 May 2006, Mr Maritz telephoned Mr Lester. Mr Maritz says that, in the course of their discussions, Mr Maritz said words to the effect that he had had enough of Dairy Farmers, and that the partnership was not working. Mr Maritz suggested a meeting; he says that Mr Lester replied “[n]o. There is no point. The relationship is over.” Mr Maritz says further that Mr Lester said that he was “planning ways to move on” and that “Dairy Farmers will be shocked who I am working with”.

73 Mr Lester denies using words to the effect of those attributed to him (not all of which I have summarised in the preceding paragraph). For the reasons that I have given above, in dealing with the question of credibility, I accept Mr Maritz’s evidence that words to the effect of those alleged, and others to similar effect, were said on this occasion.

“Moove” packaging

74 Mr Maritz also says that during this conversation, Mr Lester discussed with him a proposal to change the packaging of Dairy Farmers’ “Moove” product. Mr Maritz says that he counselled Mr Lester against this, saying words to the effect that Mr Lester needed to meet the relevant personnel of Dairy Farmers and discuss it with them before acting.

75 Mr Lester accepts that he did have a discussion with Mr Maritz concerning the packaging of Moove, to the effect of that alleged. However, he says, that discussion occurred earlier, in March 2006.

76 Again for the reasons that I have given above in discussing the question of credibility, I accept Mr Maritz’s evidence that the “Moove” discussion did occur in the course of the telephone conversation on 24 May 2006.

77 That is confirmed by what followed. Mr Maritz passed the “Moove” information on to others in Dairy Farmers. Mr Gordon became aware of it. He gave instructions that a letter be sent to Perfection on the topic. That was done on 26 June 2006. Omitting formal parts, that letter reads as follows:

Launch of Moove products in alternative pack sizes

You have recently expressed interest in launching Moove flavoured milk in a package that is outside the existing Dairy Farmers [sic] range of Moove products. The initial response from Dairy Farmers’ Marketing is that the proposed package does not appear to be in line with the brand image and the existing Dairy Farmers [sic] range of Moove products and is therefore unsuitable.

78 The letter was signed by Ms Lisa Miles, Dairy Farmers’ General Manager, Marketing and Innovation. Mr Lester appeared to take offence at having been sent a letter from someone whom he did not know.

79 In my view, it is plain from the letter of 26 June 2006 that the reference to “all advertising, packaging and promotional materials” means precisely what it says, and is not limited to advertising, packaging or promotional materials relating to the Moove range of products. The proper reading of the letter is that Ms Miles intended to justify the particular decision in relation to a proposed change to the Moove products by reference to what she understood to be (or was told was) the general rule for all products. In my view, she achieved that purpose.

80 Mr Lester denied that he so read the letter. I do not accept that denial. Mr Lester was well aware of the vital importance, to a supplier of branded milk products, of the quality and integrity of its packaging (T31.20-.40). That understanding is consistent with the broad, rather than the narrow, interpretation of the last paragraph of the letter of 26 June 2006. In my view, Mr Lester was at all times well aware that Dairy Farmers would want an opportunity to consider and approve any change in packaging before that change was put in place. In my view, Mr Lester would have read the last paragraph of the letter of 26 June 2006 on this basis.

Perfection considers terminating the relationship

81 I have referred in para [10(3)] above to the meeting of Perfection’s board of directors on 25 July 2006, and to the business of that meeting (insofar as it is relevant for present purposes).

82 Likewise, I have referred in para [10(2)] above to the meeting of those directors on 28 August 2006, and to the relevant business of that meeting.

83 It is plain that Perfection was giving very close attention to the severance of its relationship with Dairy Farmers.

84 There is no evidence that Dairy Farmers was aware of those meetings or of the relevant business transacted at them.

The meeting of 16 October 2006

85 On 6 September 2006, Mr Gordon wrote to Mr Lester. He raised again the prospect of a meeting to work through difficulties in the relationship. Thereafter, Mr Langdon spoke to his counterpart at Perfection, Mr Peel. A meeting was arranged to be held at Dairy Farmers’ premises on 16 October 2006. Messrs Peel, Langdon, Lester and Gordon attended. The evidence of Messrs Langdon and Gordon is that, towards the end of that meeting, Mr Peel said words to the effect that the board of Perfection would consider at its meeting to be held on 31 October 2006 whether it would continue the relationship with Dairy Farmers, and that he would communicate the outcome of that meeting to Messrs Langdon and Gordon.

86 Messrs Peel and Lester would not accept that such words were said. I find that they were. Indeed, in a letter drafted by Mr Lester but signed by Mr Peel and sent to Mr Langdon a week later, almost precisely those words appeared in the final paragraph:

“As I said to you I will report to our next Directors [sic] meeting on the 31st October 2006 and contact you shortly after on whether we should try to salvage our relationship or go our separate ways.”

87 The directors of Perfection discussed the topic of the relationship with Dairy Farmers at their meeting held on 31 October 2006. The meeting was called to consider, and I have no doubt did consider, the subject matter flagged by the last paragraph of Mr Peel’s letter to Mr Langdon of 23 October 2006.

The telephone conversation of 8 November 2006

88 In the first week of November 2006, Mr Buxton became aware that Dairy Farmers’ milk was being sold in bottles that had not been manufactured by Pippak or Full-View. He reported this to Mr Gordon. He and Mr Gordon, using a speaker phone, telephoned Mr Lester on 8 November 2006. In general, I think that the most reliable account of that conversation is to be found in Mr Buxton’s contemporaneous notes of it.

89 Based on that note, the conversation included the following elements:

· Mr Gordon said that he had become aware “yesterday” that Perfection was putting up Dairy Farmers’ milk in different bottles.

· Mr Lester said that the source of the bottles was not fundamental to the agreement between Perfection and Dairy Farmers.

· Mr Gordon said that the bottles used must be approved by Dairy Farmers, and that there was no “current” agreement to the use of different bottles.

· Mr Lester said that Dairy Farmers had known for 18 months that Perfection was putting in place its own blow moulding operation.

· Mr Buxton said that he was aware of this, but not that it was to be used for making bottles to package Dairy Farmers’ milk.

· Mr Gordon said that the packaging could not be changed without agreement, and that Dairy Farmers’ milk must be put into bottles approved by Dairy Farmers.

· Mr Lester said “This will finish our agreement. We can’t put back to where it was.”

· Mr Lester said further “We are not in a financial position to change what we’ve done … we can’t do that … we cannot change back and will not (change back) … lines not set up to do this.”

· After further discussion to the same effect, Mr Gordon said that he needed to find a resolution.

· Mr Lester replied “Never sat down and compared the bottles before the designed blow moulding … whole project put in to save us both money … we are stuffed.”

· Mr Lester also said “I made a mistake by not telling you … the decision will cripple us … I would have to turn the whole blow moulding off … can’t just run on own bottles for our own brands. … We can’t do it”. He added “Not saying no, saying can’t” (reverse decision). “If you … demand your bottle you’ll break us.”

· Mr Lester said that he had been instructed by Mr Peel to resolve the issue with Mr Gordon.

90 There was further discussion, at the end of which Mr Lester and Mr Gordon agree that Mr Gordon said words to the effect “You think about the matter overnight, I will think about it overnight, and you ring me tomorrow”. Mr Buxton’s note does not reveal that such words were said, and Mr Buxton denied in cross-examination that they were. Nonetheless, given that Messrs Gordon and Lester agree, I find that Mr Gordon did say words to the effect of those quoted, and that the conversation then finished.

Perfection’s board discusses the ultimatum

91 Mr Lester informed Perfection’s directors of the conversation, and a board meeting was convened for the following day. Mr David Peel was unable to attend; the other three directors did; and Mr Lester was in attendance. Mr Lester said in para 32 of his affidavit sworn 18 November 2006 that “The directors decided that we would resume ordering from Full-View Plastics the old form of container as had been requested and that we would modify the moulds in the blow moulding machines in due course to make them the same.”

92 It does not appear that any notes were made of the board’s discussions on 9 November 2006, nor that minutes (draft or approved) were prepared.

93 Mr Peel did not address the topic in his evidence in chief. Mrs Halfpenny said, in para 29 of her affidavit sworn 22 January 2007, that “[t]he board resolved unanimously to return to [the old] form of bottle.”

94 Mr Peel’s recollection of the meeting, as exposed in cross-examination, was hazy. He thought it was some days – variously two, three or four – after Mr Lester had told the board of the demand made by Mr Gordon on 8 November 2006 (T157.35). He said also that, when Mr Lester informed him of Mr Gordon’s demand, he (Mr Peel) “probably thought” that Dairy Farmers could not do much about the demand because they were dependent on Perfection for processing capacity (T157.20). He confirmed that a similar thought was “probably” in his mind during the meeting on 9 November 2006 (T159.30).

95 Mr Peel gave no direct evidence in cross-examination of the decision made by the directors on 9 November 2006. However, he suggested that by 15 November 2006 a decision had already been made “to change back to the old bottle on their machines” (T159.5).

214 It is to be noted that the relevant circumstances on which Perfection relies are those existing “[a]t all … material times up until November 2006”. Perfection does not rely on the events of 8 November 2006 and following in this aspect of its Reply. Thus, for example, it does not allege that it took from the concluding words of the telephone conversation of 8 November 2006 an understanding that Dairy Farmers would take no further action until it had heard again from Perfection; let alone that it relied on any such understanding in any material way.

215 There is thus a fundamental flaw in this aspect of Perfection’s reply. The implied term for which Dairy Farmers contends is one to the effect that it should have the opportunity to approve (or reject) any change to the packaging of its products before that change occurred. Thus, as I have already said, even if Dairy Farmers knew both of Perfection’s intention to make its own bottles and of Perfection’s intention to use those bottles to package milk destined for Dairy Farmers, Dairy Farmers was entitled to assume that its approval would be sought before that change was implemented. Since the implied term is, among other things, so obvious that it goes without saying, Perfection should be held to the same understanding.

216 On this basis, Dairy Farmers was not obliged to act until its approval was sought; nor (approval not having been sought) can any adverse conclusion be drawn from its inaction. Dairy Farmers was not obliged to inquire from Perfection when any change might come into effect, or to seek specifications or samples for the proposed bottles, or an opportunity to inspect the production line. Equally, Perfection should have understood (and in my view did understand) that it should put any changes to Dairy Farmers for approval before those changes were implemented.

217 It follows that there is no basis for alleging that Dairy Farmers has waived its right to insist on performance of the alleged implied term, let alone that it is estopped by its conduct from insisting on performance of that alleged term. Further, and in my view a fortiori, the evidence falls a long way short of demonstrating that Dairy Farmers agreed to accept substituted performance, in the form proffered by Perfection.

Miscellaneous issues: P2 and P13

218 These issues do not arise for consideration and I see no utility in dealing with them. In any event:

(1) As to issue P2, I have made findings as to the extent of Dairy Farmers’ knowledge of Perfection’s plans; and

Six months’ notice

219 Dairy Farmers submitted, in the alternative, that the notice provisions of clause 11 of the trade mark licence agreement applied to, or formed part of, any binding agreement concluded on the terms of the accepted Perfection offer.

220 I do not accept that submission. The whole commercial point of the accepted Perfection offer was to “lock in” the parties to a continuing relationship. That commercial point would not have been achieved if the relationship put in place by the accepted Perfection offer were, as before, one terminable on six months’ notice. Dairy Farmers would have continued to be at risk of loss of Perfection’s processing capacity. Perfection would have continued to be at risk of losing the bulk of its business on six months’ notice. I do not accept that this is what the parties intended; nor does the language of the relevant bullet point compel that, regardless of subjective intention, this is what they achieved.

221 The sixth bullet point in the accepted Perfection offer read as follows:

“10 year term for the licensing of the Dairy Farmers’ brands plus processing arrangements with Perfection having an option after 5 years.”

222 The fixed or defined term of the trade mark licence agreement was a little under four years, continuing thereafter terminable on six months’ notice by one party to the other.

223 If it is appropriate to regard the accepted Perfection offer as supplementing, or further varying, the trade mark licence agreement, then I think it is appropriate to regard it as replacing the fixed duration of the agreement for which clause 11 provides. In effect the further varied agreement should be regarded as one for five years from 27 October 2004, with an option for Perfection to extend for a further five years, on the basis that once the fixed term (including any renewal) expired, either party could terminate by giving six months’ notice to the other. Alternatively, if the accepted Perfection offer constitutes a separate agreement which incorporates by reference or implication such of the terms of the trade mark licence agreement as are not inconsistent or expressly varied, a similar result would follow.

224 In any event, I do not think that the notice given by Dairy Farmers should be read as one invoking clause 11 of the trade mark licence agreement. It purported to be a notice terminating the contract because of repudiatory conduct by Perfection. Since in my view there was no repudiatory conduct, the notice itself was a repudiation of the contract. It should not be construed as the exercise, in the alternative, of a right under the contract.

Relief

225 Perfection claimed a declaration in the terms of prayer 1 of the further amended summons, and an injunction in terms of prayer 2A. It abandoned “presently” its claim for specific performance.

226 Dairy Farmers opposed the making of such a declaration. It submitted (as I understood it; the submission was by no means clear) that the relevant controversy would be settled by my reasons.

227 I do not accept that submission. There is a controversy between the parties as to the effect of Dairy Farmers’ purported termination of the contract between it and Perfection. Controversies are quelled by the granting of appropriate relief – declarations, orders or judgments, appropriate to the nature of the case – not by reasons for decision. In my view, Perfection having succeeded in its argument that the purported termination was invalid, it is appropriate to grant a declaration in terms of prayer 1. Such a declaration will not give expression to all the controversies that I have sought to decide in these reasons, because it does not deal with the status or contents of the contract that was not terminated. However, Perfection did not seek a declaration as to what was the contract, what were its terms, or in what documents or other conduct it is to be found. It is not the Court’s role to venture down a path that neither party invites it to traverse.

228 The real question is whether, in addition, there should be an injunction in terms of prayer 2A or, indeed, in other terms.

229 Dairy Farmers submitted that an injunction in such terms might have the effect of an order for specific performance. I do not agree. An order for specific performance would compel Dairy Farmers (and Perfection) to observe and perform each and every one of the provisions of whatever is the contract between them according to its terms. An injunction in terms of prayer 2A would reinforce the declaration, by preventing Dairy Farmers from acting in such a way as might be seen to give effect to its purported termination notwithstanding the Court’s conclusion that the termination is invalid; but would not otherwise require Dairy Farmers to perform the contract.

230 That having been said, I have some difficulty in understanding the utility of the injunction sought. There is no evidence of any threat that Dairy Farmers would disregard (except in a lawful way – eg, by appealing) the declaration that I propose to make, and continue to act upon its purported termination as though it were effective. In any event, if such a situation were to arise, it could be dealt with.

231 On the other hand, if an injunction is granted, there is a risk that Perfection would seek to characterise any conduct of Dairy Farmers, that could be seen to be inconsistent with the continued existence of the contract between them, as demonstrating a breach of the injunction, and to seek further relief accordingly. Having regard to what can best be described as the poisoned state of relations between the two companies, I do not think that this risk is unreal, far fetched or fanciful. Nor is it unreal, far fetched or fanciful to think that Dairy Farmers may in the future look for any opportunity that it can find to bring to an end the relationship between it and Perfection. Indeed, Dairy Farmers might decide consciously and deliberately to breach, by refusing to perform, its contract with Perfection. In my view, any such actions on the part of Dairy Farmers should be examined on their merits; and the examination should not be cluttered by considerations relating to contempt of court.

232 Further, to the extent that Perfection seeks the injunction in effect as a means of dissuading Dairy Farmers from acting in either of the ways that I have just described, that does not seem to me to be legitimate. On the contrary, it seems to me to lend force to Mr Oslington’s submission that Perfection is claiming through the “back door”, by the remedy of injunction, that which it has disavowed seeking through the “front door” of specific performance.

233 I do not think that it is appropriate to grant injunctive relief.

234 That leaves the claim for damages. The parties agreed that the appropriate course was to publish these reasons, and to give Perfection an opportunity to consider whether it pressed its claim for damages and, if it did, to articulate the basis on which it was pressed so that the Court could make further orders for the hearing and disposition of that claim.

Conclusions and orders

235 I conclude that:

(1) The parties objectively intended that the accepted Perfection offer should be, and it was, immediately binding upon them, notwithstanding that there was to be prepared and executed a further and formal instrument of agreement.

(2) The terms (at least the fundamental terms) of the accepted Perfection offer are sufficiently certain for it to be enforceable as a contract between the parties.

(3) Since 27 October 2004, the parties have been bound by the accepted Perfection offer together with so much of the trade mark licence agreement as is not expressly or necessarily inconsistent with the terms of the accepted Perfection offer.

(4) The term for which Dairy Farmers contends in paragraph 5 of its Commercial List Response is not implied into the agreement between it and Perfection.

(i) It would be a condition, and Perfection would have breached that condition so as to entitle Dairy Farmers to terminate the agreement; or

(ii) It would be an important term of the agreement, and Perfection would have repudiated that agreement and its obligations (including under the implied term) thereunder, so as to give Dairy Farmers the right to terminate that agreement; and

(iii) On either basis, Dairy Farmers should be taken to have exercised that entitlement or right.

(iv) Dairy Farmers would not have been required to, and did not in fact, offer Perfection an opportunity to remedy that hypothetical breach.

(v) Dairy Farmers should not be taken to have waived its rights arising from the hypothetical breach, nor to have been estopped from relying on those rights.

(vi) Dairy Farmers should not be taken to have agreed to accept substituted performance.

(6) Dairy Farmers was not entitled to terminate the agreement between it and Perfection by giving six months’ notice pursuant to clause 11 of the trade mark licence agreement; and in any event the notices given by Dairy Farmers on 15 November 2006 were not valid exercises of any such right that it may have had.

236 I make the following orders:

(1) Declare that the purported termination by the defendant on or about 15 November 2006 of the agreement between it and the plaintiff for the processing, packaging and distribution of milk is void and of no effect.

(2) Reserve liberty to the plaintiff to apply on seven days’ notice to the defendant and the Court in respect of its claim for damages.

(3) Subject to order (4), order the defendant to pay the plaintiff’s costs of the proceedings.

(4) Grant the defendant leave to move by application made within seven days of today’s date to vary or discharge order (3).

(5) Reserve general liberty to apply on seven days’ notice.

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Citations

Perfection Dairies v Australian Co-operative Foods [2007] NSWSC 176

Cases Citing This Decision

0

Cases Cited

6

Statutory Material Cited

1

Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5

Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27

CITATION:	Perfection Dairies v Australian Co-operative Foods [2007] NSWSC 176
HEARING DATE(S):	29, 30 and 31 January 2007; 1, 2, 5, 6, 7 and 9 February 2007
JUDGMENT DATE :	12 March 2007
JUDGMENT OF:	McDougall J at [1]
DECISION:	See paras [235] and [236] of judgment
CATCHWORDS:	CONTRACT - where parties in current contractual relationship agree on new terms - whether intention to be bound immediately to new terms until formal instrument of agreement executed - relevance of subsequent conduct - whether terms sufficiently certain - implied terms - whether terms to be implied in law or in fact - breach - whether fundamental breach of repudiation - ESTOPPEL - whether defendant estopped from relying on, or has waived, any breach
LEGISLATION CITED:	Trade Practices Act 1974
CASES CITED:	Australian Broadcasting Corporation v XIVth Commonwealth Games Limited (1988) 18 NSWLR 540 Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd & Ors (1986) 40 NSWLR 622 B P Refinery (Westernport) Pty Limited v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266 Butt v M’Donald (1896) 7 QLJ [68] at 70-71 Fitzgerald & Anor v Masters (1956) 95 CLR 420 G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 Hillas & Co Limited v Arcos Limited (1932) 147 LT 503 Masters & Anor v Cameron (1954) 91 CLR 353 Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310 The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1967) 118 CLR 429 Update Constructions Pty Ltd v Rozelle Child Care Centre Limited (1990) 20 NSWLR 251
PARTIES:	Perfection Dairies Pty Ltd (Plaintiff) Australian Co-operative Foods Limited (trading as Dairy Farmers) (Defendant)
FILE NUMBER(S):	SC 50182/06
COUNSEL:	B W Rayment QC/D T Kell/E Raper (Plaintiff) B C Oslington QC/B P Jones/J A Watson (Defendant)
SOLICITORS:	Warren F Ball & Co (Plaintiff) Allens Arthur Robinson (Defendant)