Pillirone & Sons P/L v Meadow View Stud P/L

[1998] VSC 23

SUPREME COURT OF VICTORIA

CAUSES JURISDICTION

Not Restricted

No. 4910 of 1998

IN THE MATTER of an Appeal under Section 109 of the Magistrates’ Court Act 1989

PILLIRONE & SONS PTY LTD	Appellant
v
MEADOW VIEW STUD PTY LTD	Respondent

---

JUDGE:	Byrne, J.
WHERE HELD	Melbourne
DATE OF HEARING:	29 July and 30 July 1998
DATE OF JUDGMENT:	10 August 1998
MEDIA NEUTRAL CITATION	[1998] VSC 23

---

CONTRACT - implied term that suppliers of milk will be paid for supply on equal basis - implied from industry practice.

---

APPEARANCES:	Counsel	Solicitors
For the Appellant	Mr R. Northrop	GSM Lawyers
For the Respondent	Mr J. Brett	Boothby & Boothby

HIS HONOUR:

1. The appellant, Pillirone & Sons Pty Ltd, conducts a cheese factory in Hoppers Crossing trading under the name Sudano Cheese Co (“Sudano”). In the financial year 1995-1996 Sudano purchased milk from dairy farmers including the respondent, Meadow View Stud Pty Ltd (“Meadow View”). On 6 August 1997 Meadow View sued Sudano in the Magistrates' Court at Frankston seeking $13,414.41 as the final adjustment sum payable under an agreement between them for the supply of milk during that financial year. By final order made on 6 March 1998 the court ordered that Sudano pay the sum claimed, plus $920.24 interest, plus $5,674.70 costs with the stay of one month. Sudano appeals against this order pursuant to s.109 of the Magistrates' Court Act 1989. The questions of law raised by the appeal are the following:

“1.

Whether -

(a)	Section 59 Dairy Industry Act 1992; and
(b)	trade practice

bound the Appellant to pay each of its suppliers the same
price.

2.

Whether there was a term of any contract for the sale of Milk by the Respondent to the Appellant that the Appellant would pay each of its suppliers prices at the same daily rate, even if the rate was changed retrospectively.

3.

Whether the ‘bonus payment’ announced by the Appellant in July 1996 constituted a payment of the price for milk supplied.”

1. The circumstances in evidence giving rise to the claim were that Meadow View supplied milk to Sudano between 1993, or perhaps earlier, and June 1996. As is normal in the industry, there was no written contract between them. The evidence showed that in the milk industry at the beginning of each final year the milk factory would send to suppliers a price list for the coming year setting out its base price, expressed by reference to the weight of the component parts of milk such as butterfat and protein together with an amount for volume. These prices are expressed to vary from month to month throughout the year. Notwithstanding this, throughout the year the factory would commonly increase the prices depending upon the market. These price changes were called in evidence “step ups” although the Magistrate in his reasons referred to them as “set backs”. Where a step up is made, the factory pays the supplier at the increased rate for milk to be supplied in the future plus an increased payment at a rate equal to the difference between the previous rate and the new rate for milk previously delivered in that financial year. There is, therefore, an element of retrospectivity in this payment. The matter is somewhat more complicated by the fact that the payment for milk supplied in a given month is customarily made to the supplier in the following month.

2. Factories may be cooperatives or, like the Sudano cheese factory, privately owned. Cooperatives are the main purchasers of milk products; they purchase about 80% of the quantity produced in the State. At the end of the year cooperatives distribute their profit to the supplier members by a payment which is called “back pay”. The amount of back pay paid to any supplier is calculated as with other payments for milk supplied by the application of the rates declared by the cooperative to the quantity of milk supplied by that supplier during the preceding financial year. Some private factories in some years also pay back pay to their suppliers after profitable years in order to compete with the cooperatives for supply.

3. There are, as I have mentioned, no written agreements. The evidence was that suppliers did not commit themselves to maintain supply throughout the whole year; they were at liberty to terminate supply and to supply to another factory if they chose. Likewise, the factory was under no obligation to determine to pay a step up or back pay.

4. For the financial year 1995-1996 Sudano announced its base prices for the season in a document which described these as “starting prices”. By letter dated 15 November 1995 it announced a price increase retrospective to 1 July. This increase is referred to in the letter as a back pay although it is more correctly described as a step up. Towards the end of that financial year, in May 1996, an employee of Sudano, John Pingree, left its employ. Mr Pingree’s primary function with Sudano had been to liaise with dairy farmers. About the same time that Mr Pingree left Sudano, Charlie Pillirone, the manager of Sudano, said he learnt that five dairy farmers including Meadow View intended to cease supply at the end of the current year. Accordingly, Meadow View ceased supply at the end of June 1996.

5. Ross Beveridge, another of Sudano’s suppliers, said that in June 1996 Mr Pillirone convened a meeting of the suppliers of Sudano at which a letter dated 8 July 1996 was given to them. In addition to the base prices for the year 1996-1997 this letter announced the payment of what was called a bonus to “everyone who has been loyal and supportive to Sudano Cheese Co”. The bonus was calculated by reference to butterfat and protein content in the usual way and was to be payable with the payments in September and October. The product upon which it was to be calculated was not mentioned in the letter but it turned out to be the total of milk supplied by the supplier in the preceding financial year 1995-1996. It was for payment of this bonus for milk supplied by it throughout that financial year that Meadow View sued.

6. The position adopted by Sudano was that the bonus was an ex gratia payment to suppliers who were demonstrating loyalty by continuing to supply milk in the coming 1996-1997 year. No supplier, it was said, had a contractual right to receive the bonus, and certainly not those suppliers, including Meadow View who had terminated supply in June. Meadow View, on the other hand, contended that this was in truth back pay for product supplied in the preceding year and that, when declared, there arose an obligation to pay it to all suppliers for that year.

7. The Magistrate said that s.59 of the Dairy Industry Act 1992 and the custom in the industry obliged factories to pay at the same rate to all suppliers. He concluded that there was a contract between the parties pursuant to which Meadow View would supply milk to Sudano and Sudano would pay each of its suppliers at the same daily rate. Any changes to this rate would likewise be adjusted and applied to all suppliers. It was the legal basis of this conclusion which Sudano challenged before me. The Magistrate held that the term in question was founded upon legislative direction and industry practice.

8. Section 59 of the Dairy Industry Act 1992 is in these terms:

“59.

Payments for milk supplied to a factory

(1)	The owner of a factory to which dairy farmers supply milk must use the same basis of payment for all milk supplied on the same day to the owner for use as manufacturing milk.
(2)	At lease one month before making a change to a basis of payment for milk the owner of a factory must give notice in writing of the proposed change to all dairy farmers who supply milk to the factory.”

1. It was put on behalf of Meadow View that the expression “same basis of payment for all milk supplied” in this provision meant that the same formula must be applied in calculating payments to all suppliers including the pricing components of the formula. This would mean that, all things being equal, any two suppliers would receive for milk supplied the same payment for the same amount of product. The contrary submission put on behalf of Sudano was that the provision required that the formula be the same, but not the price variables in the formula. Accordingly, it was said that, providing the same formula or basis of payment were adopted, the factory would not be in breach of s.59 if it negotiated different prices with different suppliers. I am inclined to think that this may be correct, particularly having regard to s.58 and to the statutory predecessors of s.59, but this does not dispose of the present issue. What is contended for on behalf of Sudano in the circumstances of this case is that the statute permits it to apply the same formula for payment of the base pay and any step ups and to make a further payment on the basis that “loyal” suppliers receive a bonus calculated by reference to quantity supplied, but that other suppliers receive nothing. To my mind, this is not a case where a purchaser negotiates different prices with different suppliers; it is a difference in the basis of payment. The payment is not made under an agreement previously made in which a loyalty bonus is included in the formula. It is a separate payment announced after the completion of the year’s supply in which certain suppliers are paid a bonus and others are not. I should add that it is clear that the Magistrate did not see the proceeding before him as an attempt by Meadow View to enforce any civil right created by this statute; he saw it as a factor bearing upon the content of the contract. This he was entitled to do.

2. Next, it was put that the Magistrate fell into error in finding that the contractual term as to equal treatment of suppliers arose from industry practice. I was referred to the four propositions set out by the High Court in Con-Stan Industries of Australia Pty Ltd v. Norwich Winterthur Insurance (Australia) Ltd (1986) 160 C.L.R. 226 at 236-7.

3. First, the question whether a custom or usage exists which will justify the implication of a term into a contract is a question of fact. The Magistrate’s finding of this fact is supported by evidence and I will not disturb it.

4. The second is whether the custom was well-known and acquiesced in so that everyone making the contract could reasonably be presumed to have imported that term into the contract. This, too, is essentially a question of fact. There was evidence which showed that factories in this industry dealt equally with all suppliers with respect to payment for milk supplied by them. The Magistrate was entitled to accept this evidence. Counsel for Sudano then said that the bonus payment was not a payment for milk supplied; it was an ex gratia loyalty bonus which was merely calculated by reference to milk supplied. It is true that the bonus was announced after the year of supply. It is true also that there was no contractual obligation upon Sudano to decide to make this payment. An unusual feature of this industry appears to be that, by step ups and back pays, factories are accustomed to pay more than they are, strictly speaking, contractually obliged to pay. This is doubtless for good commercial reason, including, as the Magistrate observed an enticement to suppliers to continue supplies in the future. When such an extra payment is decided to be paid there is evidence which shows that everyone expects that the payment will be made equally to all farmers who provided the supply. It may be that a factor bearing upon this expectation was the existence of the terms of s.59. These are the reasons why the step ups, back pays and this bonus are calculated by reference to the quantity of the product supplied.

5. The two other propositions mentioned by the High Court are not relevant to this case. I conclude that the Magistrate was entitled to find, as he did, that there was a term as to equality in the milk supply contracts.

6. In my opinion the questions of law raised by Sudano were correctly decided by the Magistrate. The first question was correctly decided inasmuch as the statute and the trade practice imported into the standing offer made at the beginning of the financial year an unspoken component as to equality of treatment. The second is correct inasmuch as upon each supply, the supplier accepted this offer and was entitled to be paid at the rate then on offer and any subsequent adjustment to it by step up or back pay. The third question was correctly answered by the Magistrate inasmuch as the manner and circumstance of the determination to make the bonus payment, including the terms of the existing contracts for supply in the year 1995- 1996, show that the bonus payment was not only calculated by reference to milk supplied, it was for the milk supplied. The appeal will be dismissed with costs including costs reserved and the costs of transcript.

   ---