Quality Bakers Australia Pty Limited v ISS Facility Management Pty Ltd

[2021] NSWCA 74

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Quality Bakers Australia Pty Limited v ISS Facility Management Pty Ltd [2021] NSWCA 74

Hearing dates:

21 April 2021

Date of orders:

30 April 2021

Decision date:

30 April 2021

Before:

Bell P at [1]; Meagher JA at [92]; Leeming JA at [93]

Decision:

Appeal dismissed with costs

Catchwords:

CONTRACT – contract providing for ongoing negotiation between parties following an initial period of due diligence – contract providing for further due diligence to be undertaken – construction of clauses providing for reimbursement of a capped amount of due diligence costs – whether potential service provider entitled to be reimbursed for its due diligence costs – no issue of principle.

Category:

Principal judgment

Parties:

Quality Bakers Australia Pty Limited (First Appellant)
Goodman Fielder Consumer Foods Pty Limited (Second Appellant)
Goodman Fielder New Zealand Limited
(Third Appellant)
ISS Facility Management Pty Ltd (First Respondent)
ISS Facility Services Limited (Second Respondent)

Representation:

Counsel:

J C Giles SC with J J Hutton (Appellants)
B W Walker SC with A R Vincent (Respondents)

Solicitors:

Corrs Chambers Westgarth (Appellants)
HWL Ebsworth (Respondents)

File Number(s):

2020/264990

Publication restriction:

N/A

 Decision under appeal 

Court or tribunal:

District Court of New South Wales

Jurisdiction:

Civil

Citation:

[2020] NSWDC 447

Date of Decision:

14 August 2020

Before:

Abadee DCJ

File Number(s):

2019/269070

HEADNOTE

[This headnote is not to be read as part of the judgment]

The appellants, Quality Bakers Australia Pty Limited and related companies (collectively, Goodman Fielder) and the respondents, ISS Facility Management Pty Ltd and a related company (collectively, ISS) entered into a contract entitled the “Letter of Intent regarding the Provision of Facilities Management Services by ISS to Goodman Fielder” on 5 February 2018 (the Agreement). This provided for ongoing negotiations and further due diligence in relation to a potential long term contract between the parties, by which ISS would provide integrated facility services, including facility management and cleaning services, to Goodman Fielder (the Proposed Agreement).

At issue was who was liable under the Agreement to pay ISS’s due diligence costs, to a contractual limit of $600,000 plus GST, in circumstances where, by the expiry date of the Agreement, the parties had not entered into the Proposed Agreement. It was ultimately not in dispute that ISS incurred due diligence costs in the sum of AUD$609,870.18.

Clause 8 of the Agreement provided that:

“Subject to clause 10, if the parties do not enter into the Proposed Agreement by the Expiry Date, Goodman Fielder will within 7 business days of receiving a valid tax invoice, reimburse the Service Provider [ISS] for actual Due Diligence Costs that are reasonably incurred by the Service Provider and limited in aggregate to AU$600,000 plus GST”.

Clause 10 of the Agreement provided that:

“The parties agree that Goodman Fielder will not reimburse the Service Provider for any Due Diligence Costs if the Service Provider submits a revised offer that is, or insists on entering into a Proposed Agreement on terms that are financially less favourable to Goodman Fielder on the key terms set out in Appendix 1 to this Agreement”.

In the proceedings below, ISS sued Goodman Fielder in an action for breach of cl 8 of the Agreement in failing to pay invoices relating to the costs of performing its due diligence. Abadee DCJ (the primary judge) held that by operation of cl 8, Goodman Fielder was liable to reimburse ISS for its due diligence costs up to the contractual limit of $600,000 plus GST. This was because neither of the circumstances arising under cl 10 were engaged, as ISS neither submitted a “revised offer” before the Agreement’s expiry date that was, nor insisted on entering into a Proposed Agreement on terms that were, financially less favourable to Goodman Fielder than the Key Terms that were set out in Appendix 1 to the Agreement.

The primary judge had construed the phrase “revised offer” in cl 10 as being an offer that was capable of acceptance in the contractual sense, as opposed to the less technical meaning contended for by Goodman Fielder, namely, as a commercial proposal that was sufficiently detailed to be identified as a revision of the Key Terms in the Agreement.

The principal issues on appeal were whether the primary judge erred in his construction of cl 10 of the Agreement, and whether his Honour erred in holding that only conduct prior to the Agreement’s expiry date could be taken into account in determining whether cl 10 had been engaged.

The Court held (Bell P, Meagher and Leeming JJA agreeing), dismissing the appeal with costs:

1. On either construction of the phrase “revised offer”, the primary judge was correct in his conclusion that the only document relied upon by Goodman Fielder as purportedly engaging cl 10 of the Agreement, entitled “Status Update”, could not be described as a “revised offer”, within the meaning of cl 10: [68] (Bell P); [92] (Meagher JA); [93] (Leeming JA).

2. The primary judge did not err in concluding that the “Status Update” document did not represent or evince ISS “insisting on entering into a Proposed Agreement” on terms financially less favourable to Goodman Fielder than the Key Terms set out in the Agreement. The primary judge was correct to conclude that Goodman Fielder was unable to identify, with precision, any term or terms which ISS allegedly “insisted” upon for inclusion in any proposed agreement within the period of due diligence: [72]-[80] (Bell P); [92] (Meagher JA); [93] (Leeming JA).

3. The primary judge did not err in finding that only conduct prior to the Agreement’s expiry date could be taken into account in determining whether cl 10 had been engaged: [81]-[87] (Bell P); [92] (Meagher JA); [93] (Leeming JA).

4. Thus, as the only document submitted before the Agreement’s expiry date did not represent either a “revised offer” nor an “insistence” by ISS on terms that were financially less favourable to Goodman Fielder, the primary judge correctly concluded that neither of the circumstances under cl 10 of the Agreement had been engaged: [90] (Bell P); [92] (Meagher JA); [93] (Leeming JA).

5. Accordingly, by operation of cl 8, Goodman Fielder was obliged to reimburse ISS for its due diligence costs up to the contractual limit: [90] (Bell P); [92] (Meagher JA); [93] (Leeming JA).

Judgment

1. BELL P: This appeal concerns the proper construction of a commercial contract entitled the “Letter of Intent regarding the Provision of Facilities Management Services by ISS to Goodman Fielder” (the Agreement) entered into by the appellants, Quality Bakers Australia Pty Limited and related companies (collectively, Goodman Fielder) and the respondents, ISS Facility Management Pty Ltd and a related company (collectively, ISS) on 5 February 2018.

2. The appellants belong to the Goodman Fielder Group, which is a chain of food companies which manufacture, distribute, market and supply food products across approximately 50 manufacturing and distribution sites in Australia, New Zealand and the Asia Pacific.

3. The respondents are Australian and New Zealand companies which form part of a group of companies that conducts business in approximately 65 countries, providing integrated facility services, including facility management, cleaning services, property services and catering services. The services are commonly bundled into a single contract.

4. At issue is whether, as Abadee DCJ (the primary judge) held, Goodman Fielder is liable, under the Agreement, to pay $600,000 plus GST and interest to ISS on account of ISS’s due diligence costs in respect of a proposed long-term facilities management agreement that the parties had agreed to negotiate within identified parameters and in good faith (the Proposed Agreement). In particular, what is in issue is which party should be responsible for ISS’s costs of undertaking its due diligence in circumstances where, by the Expiry Date under the Agreement, namely 14 May 2018, the parties had not entered into the Proposed Agreement.

5. The answer is, prima facie, supplied by cl 8 of the Agreement which, in clear language, was in these terms:

“Subject to clause 10, if the parties do not enter into the Proposed Agreement by the Expiry Date, Goodman Fielder will within 7 business days of receiving a valid tax invoice, reimburse the Service Provider [ISS] for actual Due Diligence Costs that are reasonably incurred by the Service Provider and limited in aggregate to AU$600,000 plus GST”.

It was ultimately not in dispute that ISS incurred costs in the sum of AUD$609,870.18.

6. Clause 10 of the Agreement provided that:

“The parties agree that Goodman Fielder will not reimburse the Service Provider for any Due Diligence Costs if the Service Provider submits a revised offer that is, or insists on entering into a Proposed Agreement on terms that are financially less favourable to Goodman Fielder on the key terms set out in Appendix 1 to this Agreement”.

7. Reduced to its core, the primary judge held that cl 10 was not engaged because ISS neither submitted a “revised offer” that was, nor insisted on entering into a Proposed Agreement on terms (insistence) that were, financially less favourable to Goodman Fielder than the Key Terms set out in Appendix 1 to the Agreement.

8. In reaching this conclusion, the primary judge held that any such “revised offer” or conduct amounting to the requisite insistence would need to have been made or to have occurred prior to the Expiry Date (the temporal issue). As such, although the parties continued to engage in negotiations after the passage of the Expiry Date, the primary judge discounted various proposals that were made by ISS to Goodman Fielder after that date. In this context, his Honour held, in a finding that was not challenged on appeal, that the Expiry Date of 14 May 2018 was not extended by agreement of the parties: at [137].

9. The only document relied upon by Goodman Fielder as purportedly engaging cl 10, which predated the Expiry Date, was a document entitled “Status Update for Facility Management Services” sent by ISS to Goodman Fielder on 11 May 2018 (the Status Update). The primary judge held that this document could not be characterised as meeting either the description of a “revised offer” or an insistence on terms that were financially less favourable to Goodman Fielder than the Key Terms set out in Appendix 1 to the Agreement (the characterisation issue).

10. Goodman Fielder challenges the primary judge’s conclusions with regard to both the temporal and characterisation issues, as well as his Honour’s conclusion that the reference to offer in the phrase “revised offer” meant an offer that was capable of acceptance in the contractual sense. Ultimately, this construction was not critical to the primary judge’s conclusion because his Honour held that even if the term had the less technical meaning contended for by Goodman Fielder, namely a commercial proposal that was sufficiently detailed to be identified as a revision of the Key Terms in the Agreement, the Status Update did not meet that description.

11. Before turning to consider the grounds of appeal and arguments advanced by Goodman Fielder in more detail, it is necessary to provide some brief and uncontroversial factual background to the dispute, as well as noting certain other terms of the Agreement.

Background to the Agreement

12. As noted by the primary judge and by Mr Giles SC who appeared on the appeal for Goodman Fielder with Mr Hutton, most of the background leading to entry into the Agreement was not contentious. Much of the following summary is derived from his Honour’s thorough judgment.

13. Goodman Fielder historically outsourced most of its facilities management services to many different service providers for each of its sites. During 2016, it considered consolidating its facilities management services towards a more centralised model by which one service provider would oversee and be responsible for the majority of Goodman Fielder’s facilities management services at its various sites in Australia and New Zealand.

14. To this end, in early January 2017, Goodman Fielder invited ISS to tender for facility management services for its Australian and New Zealand operations and, on 12 January 2017, an “Opportunity Assessment Brief” was supplied to ISS and other potential suppliers for this purpose.

15. At the outset of the tender process, Goodman Fielder communicated to ISS that it did not know what savings it could realistically expect to achieve by moving to an integrated facilities management services model. ISS communicated to Goodman Fielder in March 2017 that, while ISS’s experience was that moving from multiple subcontractors to a single service provider typically delivered savings of between 10% and 20% on baseline spend, Goodman Fielder should appoint ISS to carry out due diligence to understand both Goodman Fielder’s “baseline spend” on facilities management services, and the opportunities to achieve savings. The “baseline spend” concept is explained in further detail at [20] below.

16. By April 2017, ISS had been nominated as one of two short-listed tenderers. On 25 April 2017, Goodman Fielder supplied ISS with a “Due Diligence Request for Proposal – RF1” (RFP), involving a due diligence exercise on three sites which were said to be representative sites. This document was also sent to the other potential provider being considered by Goodman Fielder, and it was intended that both would have the opportunity to conduct due diligence on the three sites. The RFP asked for each service provider to submit a Due Diligence Report and RFP submission.

17. On 26 April 2017, some data was sent to ISS concerning Goodman Fielder’s spending across Australia and New Zealand. On 11 May 2017, Goodman Fielder provided further “spend” data to ISS, noting that “[i]t is our hope that a wider range of data will help you identify true trends and dismiss spending anomalies, the overall intent being to reduce assumptions”.

18. On 15 June 2017, ISS provided Goodman Fielder with a submission in relation to the latter’s request for information. That response featured site specific proposals for three of Goodman Fielder’s sites, being Hawkes Bay, Longburn and Moorebank. Part of the response concerned baseline spend comparisons. The client baseline was identified as $3,066,000, but once other adjustments were made, the baseline spend fell to just over $604,000. It was plain from the covering email to this submission, as well as from the submission itself, that a significant number of staff of ISS had been involved in the preparation of this submission. At about this time, ISS informed Goodman Fielder that, on the basis of the work carried out on the baseline spend for the three sites, ISS thought that the baseline of existing spend overall might be in the order of $26 million.

19. On 30 June 2017, an email from Mr Tom Dunn (Mr Dunn), Senior Commercial Manager of Goodman Fielder, to Mr James Warr (Mr Warr) of ISS acknowledged concern on ISS’s part about Goodman Fielder’s baseline spend. Mr Dunn said that:

“I realise there has been some concern over baseline spend, additionally this may have some impact as to how various providers could present offers of differing value”.

Mr Dunn requested that Mr Warr use the “baseline network spend of $35M p.a. across ANZ (55% in NZ, 45% in AUS)” in preparing its formal response to the RFP.

20. As the primary judge recorded, Mr Sean Tully, head of Goodman Fielder’s Commercial team during the relevant period, confirmed in his evidence that in 2018, Goodman Fielder budgeted to save $4.5m, which was predicated on a “baseline spend” of $35m. As explained by the primary judge at [3], the “baseline spend” concept may be regarded as the expenditure against which savings targets and guarantees could be measured for the in-scope services across Goodman Fielder’s multiple sites in Australia and New Zealand which would be the subject of a new consolidated facilities management agreement. That is, the baseline spend was the expenditure on facilities management services that ISS expected to be able to take over and make the requisite savings on.

21. On 7 July 2017, ISS issued its response to the RFP to Goodman Fielder. At page 75 of the document, ISS outlined its initial offer. Relevantly, ISS assumed a baseline spend of $26.1m, which was based upon an analysis for the three sites visited but, at page 79, it was made clear that Goodman Fielder had advised a baseline spend of $35m. At page 81, ISS set out multiple Best and Final Offer scenarios based upon this assumption.

22. By August 2017, Goodman Fielder had internally earmarked ISS as its preferred supplier and on 23 August 2017, Ms Leigh Garvan, a Commercial Manager of Goodman Fielder, sent an email to Mr Stuart Rose, Chief Commercial Officer and Director of Strategy of ISS, which attached a draft Facilities Management Services Agreement for ISS’s consideration. Thereafter, some correspondence ensued concerning the drafting of that proposed agreement.

23. Negotiations thereafter continued including in relation to Goodman Fielder’s baseline spend and updated data since the RFP.

The Agreement

24. On 5 February 2018, ISS and Goodman Fielder entered into the Agreement, described as a Letter of Intent which, as the primary judge outlined at [6], was expected to be the prelude to a longer term contract between ISS and Goodman Fielder. Under the heading “Background”, Recital B of the Agreement provided that the “parties intend to enter into good faith negotiations in accordance with the terms and conditions set out in this Agreement to finalise a long form contract for the provision by the Service Provider of a facilities management solution for the Sites (Proposed Agreement)”.

25. Recital C stated that the opportunity for ISS to conduct due diligence was to enable ISS to validate assumptions which it had made during the tender period, and to allow it to develop a detailed services scope.

26. By clause 1, Goodman Fielder authorised ISS to conduct due diligence from 5 February 2018, being the “date the last party signs this Agreement” to 14 May 2018, being the Expiry Date (unless the parties had, acting in good faith, agreed to a later date).

27. By clause 7, ISS acknowledged and agreed that:

“a.    it conducts the Due Diligence solely at its risk, and that Goodman Fielder is not responsible for, and will not pay, any Due Diligence Costs (defined in clause 9 below) other than in the circumstances set out in clause 8; and

b.    no representation has been made and no warranty is or has been expressly or impliedly given by or on behalf of Goodman Fielder in respect of the accuracy, completeness, currency, suitability or adequacy of any GF Data made available to date by or on behalf of any member of the Goodman Fielder group to the Service Provider”.

28. The terms of cl 8 have already been noted at [5] above and, read with cl 7, set out the circumstances in which Goodman Fielder would be responsible for and pay ISS’s due diligence costs. These costs were defined in cl 9 to mean “any cost or expense or losses reasonably incurred by [ISS] for the purposes of conducting the Due Diligence exercise”. The only “circumstance” referred to in cl 8 which would trigger Goodman Fielder’s obligation to pay as provided for in cl 8 was “if the parties do not enter into the Proposed Agreement by the Expiry Date”. It was not in issue that no such agreement was entered into by the parties by the Expiry Date or at all.

29. Clause 8 was expressly made subject to cl 10. The terms of cl 10 have been set out at [6] above.

30. Clauses 12A-15 of the Agreement fell under the heading “Proposed Agreement”, and relevantly provided as follows:

“[12A]    Subject to completion of the Due Diligence to the satisfaction of the Service Provider and if the Service Provider confirms the key terms of the Proposed Agreement as set out in Appendix 1, Goodman Fielder will use all reasonable endeavours to promptly enter into the Proposed Agreement in accordance with clauses 13 and 14 of this Agreement.

13.    Once this Agreement has been signed by the parties, the parties must as soon as reasonably practicable commence good faith negotiations with a view to finalising the terms and conditions of, and executing, the Proposed Agreement no later than the Expiry Date.

14.    The terms of the Proposed Agreement must:

a.    be generally based on the terms of the Facilities Management Outsourcing Agreement to be provided by Goodman Fielder to the Service Provider.

b.    incorporate the detailed services scope developed during the Due Diligence; and

c.    incorporate the key terms set out in Appendix 1.

15.    To avoid doubt, Goodman Fielder will have no obligation to purchase any of the Service Provider’s facilities management services and the Service Provider shall have no obligation to provide facilities management services unless and until the parties have signed the Proposed Agreement”.

(Clause 12A is in fact an unnumbered clause in the Agreement, but for convenience and ease of reference was referred to by the parties as cl 12A.)

31. Clause 16 provided that within 7 business days of entry into the Agreement, Goodman Fielder was entitled to invoice ISS for a AUD$3.6m “Upfront Savings Payment”. The amount of the payment was based upon an “estimate” of AUD$35m per annum for the “baseline spend” which was defined in cl 16 as “the amount expended by Goodman Fielder on the facilities management services set out in the Proposed Agreement during the year ended 31 January 2017”.

32. By cl 17, the Upfront Savings Payment was repayable if the parties did not enter into the Proposed Agreement by the Expiry Date.

33. Clause 18 indicated that the Agreement was to terminate immediately on the earlier of (a) the signing of the Proposed Agreement; or (b) the Expiry Date.

34. It is not necessary for the purposes of this judgment to reproduce the Key Terms which were referred to in Appendix 1 to the Agreement.  It is sufficient to note that, as the primary judge observed at [23] of his judgment, they were derived from scenario 4 in ISS’s response to the RFP process.

Events after execution of the Agreement

35. Soon after the Agreement was entered into, representatives of ISS and Goodman Fielder exchanged correspondence concerning the drafting and form of the proposed facilities management services agreement. On 7 February 2018, Mr Warr emailed Ms Paulina Koniecka (Ms Koniecka), Senior Commercial Manager of Goodman Fielder, a Draft Facilities Management Services Agreement.

36. From February 2018 to early May 2018, ISS carried out due diligence at sites operated by Goodman Fielder in Australia and New Zealand. This involved ISS retaining third parties (such as Huddle Projects Limited and Kingfisher Group Limited) and consultants, and diverting its own staff to oversee, manage and coordinate the due diligence process and reporting. As noted at [5] above, it was ultimately not in dispute that ISS incurred costs in the sum of AUD$609,870.18.

37. The primary judge highlighted the following exchanges between the parties in April 2018 at ([51]-[53]):

“51   On 11 April 2018, Mr Warr (for ISS) sent an email addressed to Goodman Fielder personnel with a recut of Goodman Fielder’s baseline data for Australia (the New Zealand data was still being worked on). The email contained a baseline spend analysis in a spreadsheet, which showed a Baseline Spend of a little over $23 million.

52    On 20 April 2018, Mr Mawson, Goodman Fielder’s National General Manager, sent an email to various Goodman Fielder and ISS personnel, attaching an updated project plan.

53    Between 24 April and 29 April 2018, there were several emails exchanged between ISS and Goodman Fielder concerning the baseline data. Goodman Fielder sent its proposed consolidated baseline for Australia (excluding offices) of $21.7 million. By 29 April 2018, Mr Warr, of ISS, indicated that the parties were between $616,000 and $1m ‘plus apart on the issue of Baseline Spend’. On 1 May 2018, internal Goodman Fielder emails were exchanged regarding the cases for the $35m Baseline Spend estimate.”

38. On 11 May 2018, ISS submitted to Goodman Fielder the Status Update under cover of an email from Mr Warr to Ms Koniecka and Mr Tim Carter of Goodman Fielder, which stated as follows:

“Hello Paulina and Tim,

It is with great pleasure to provide you with the attached update for the FM Services opportunity for Goodman Fielder, post the Due Diligence process. As is often the case, the presented material doesn't really highlight the amount of tireless work which has been carried out by both parties to get it to this stage. Months of work and great engagement between both parties at numerous levels.

Obviously there is still quite a way to go in regards to the commercials, which we will develop additional slides for Wednesday’s discussion as discussed earlier today, however tonight is a great step in the right direction! You will note the attached purposely excludes the impact of the commercials being negotiated, and is focussed on providing the results of the service by service analysis at each of your sites.

You will shortly receive some additional emails which contain the site specific FM Updates. Hopefully they get through given the size.

Please call at any time if you would discuss something specifically within the details provided.

Have a great weekend and looking forward to seeing you next Wednesday to step through the options in detail.” (emphasis added).

39. The front page of the presentation contained the text “For discussion purposes only – ISS Group makes no offer or submission in connection with this analysis”. The presentation slides contained a slide headed “General DD Update – ‘Now v Then’” which contained “Key Findings during DD – 2018” which were as follows:

“•   Baseline data very difficult to verify and unable to acquire scope detail for a number of services

•   Inconsistent scope and service levels across portfolio

•   Lack of formal agreements and specifications with contractors

•   Lack of governance and general process on subcontractor management / purchasing

•   High proportion of services delivered by GF Engineering – not tracked

•   Significant Opportunities to deliver work outside of the original scope”. (emphasis added).

Notes to financial slides recorded that:

“1.    The financials detailed within the slides are exclusive of the impact of the ISS Costs (e.g. management) which are to be discussed within a dedicated commercial solution session

2.    The final baseline is yet to be formally agreed between GF and ISS, with a number of minor changes to be negotiated”.

40. Also on 11 May 2018, Ms Koniecka sent an email to Mr Ian Scanlon (Mr Scanlon), Chief Financial Officer of ISS Australia, which attached a proposed side deed. In the covering email, Goodman Fielder formally requested an extension to the Expiry Date of the Agreement. Clause 4 of the proposed side deed stated that:

“As the parties are still discussing the scope of the Proposed Agreement and negotiations on the Proposed Agreement are not far progressed, the parties agree to extend the Expiry Date to 14 August 2018, or such later date as may be agreed by the parties acting in good faith”. (emphasis added)

41. On 14 May 2018, Mr Scanlon responded to Ms Koniecka’s email of 11 May 2018 as follows:

“Thank you for your email. We acknowledge that the original LoI [the Agreement] will expire on 14 May 2018.

ISS is optimistic that Goodman Fielder and ISS will be able to enter into a facility services contract which will benefit Goodman Fielder. We have invested significant time and resources in this process to date and are fully committed to continuing this process with your cooperation. 

What we have found is that the due diligence has not validated the information provided to ISS on the basis of which ISS entered into to LoI.

As such, as discussed last week, ISS cannot see any advantage to either party in extending the LoI. Similarly we do not see that the interests of either party are prejudiced if the LoI expires.

In light of this can I suggest we enter into good faith negotiations and revisit this situation following the discussions set for this week.”

42. There was no submission on appeal that the suggestion in this email that negotiations continue amounted to some waiver or gave rise to an estoppel of some kind which operated to preclude ISS from contending, consistent with cl 18 of the Agreement, that the parties’ obligations under the Agreement terminated immediately on 14 May 2018 save for those obligations (those in cll 4, 5, 6, 7, 8, 17, 20 and 21) which, by cl 23, “survive[d] the termination of” the Agreement.

Events after Expiry Date

43. On 16 May 2018, ISS provided “Additional Commercial Slides”, with one such slide carrying the title “Commercial Summary Tables” which indicated that over a 3 year term, Goodman Fielder might in fact make a loss after the savings for Goodman Fielder were compared to ISS’s costs.

44. On 5 June 2018, a meeting took place between Goodman Fielder and ISS at which Goodman Fielder provided a document titled “Commercial Update”. On subsequent dates (18 June, 3 July, 12 July and 19 November 2018), ISS provided further commercial proposals.

45. On 8 June 2018, ISS requested that Goodman Fielder ultimately repay the $3.6 million Upfront Savings Payment consistent with what the parties had agreed in cl 17 of the Agreement (see [32] above). This was done on 2 July 2018, a plain recognition that the Expiry Date had passed.

46. Almost a year later, on 27 May 2019, Mr Rose sent an email to Ms Koniecka regarding the costs incurred by ISS in carrying out due diligence at the sites. On 30 May 2019, he sent an email to Ms Koniecka attaching several documents including, but not limited to, two invoices, a summary of due diligence costs incurred by ISS in New Zealand, a summary of the due diligence costs incurred by ISS in Australia, and an overall summary of the total due diligence costs.

47. In May and June 2019, ISS and Goodman Fielder exchanged correspondence in relation to the costs, with Goodman Fielder refusing to pay ISS’s due diligence costs. That refusal led to the commencement of proceedings in the District Court of New South Wales on 26 August 2019.

The proceedings at first instance

48. ISS sued Goodman Fielder in an action for breach of cl 8 of the Agreement in failing to pay invoices as issued by ISS on 30 May 2019 in relation to the costs of performing its due diligence.

49. Goodman Fielder disputed ISS’s asserted entitlement by reference to cl 10 of the Agreement to which cl 8 was expressly made subject. It maintained that ISS had “submit[ted] a revised offer that is, or insist[ed] on entering into a Proposed Agreement on terms that are less financially favourable to Goodman Fielder than the key terms set out (in Appendix 1)”.

50. Goodman Fielder referred to some seven proposals that had been submitted by ISS, all but one of which (the Status Update of 11 May 2018) were submitted after 14 May 2018 which, by cl 1, was the Expiry Date of the Agreement absent an agreement to extend the period by which the Proposed Agreement was to be entered into. Goodman Fielder maintained at first instance (although not on appeal) that there had been such an extension. It contended that all seven of the proposals were “less financially favourable” to Goodman Fielder within the meaning of cl 10 of the Agreement and that, accordingly, Goodman Fielder was not obliged to pay ISS’s due diligence costs.

51. ISS contended that the only relevant “proposal” was that of 11 May 2018 because it was made prior to expiry on 14 May 2018, and that it was not “a revised offer” within the meaning of cl 10 of the Agreement because it was not an “offer” at all. ISS also contended that, in the alternative, it did not constitute or evince an “insist[ence] on entering into a Proposed Agreement on terms that are financially less favourable to Goodman Fielder on the key terms set out in Appendix 1 to [the Agreement].”

52. The parties joined issue on the “proposals” that could be taken into account, with Goodman Fielder contending that all proposals made at least up until the time that ISS sent its invoice for due diligence costs on 30 May 2019 could be taken into account. The parties also joined issue on the characterisation of the proposals as “offers”, ISS contending that an offer had to be “one capable of acceptance” and Goodman Fielder maintaining that it was sufficient if what was contended to be a “revised offer” was a commercial proposal that was sufficiently detailed to be identified as a revision to the Key Terms.

53. Goodman Fielder also contended that even if the 11 May 2018 “proposal” was not a “revised offer”, whether capable of acceptance or not, it represented or evinced ISS “insisting on entering into a Proposed Agreement” on terms financially less favourable to Goodman Fielder than the Key Terms that had been set out in the Agreement.

The primary judgment

54. As noted at the outset of this judgment, the primary judge rejected Goodman Fielder’s contention that the Expiry Date of 14 May 2018 specified in cl 1.1 of the Agreement was extended “as agreed by the parties acting in good faith”: at [137]. The consequence of this finding was that, in circumstances where it was not disputed that no facilities management agreement had been entered into by 14 May 2018 then, subject to the operation of cl 10, Goodman Fielder was obliged to reimburse ISS for its actual due diligence costs, up to the contractual limit of $600,000 plus GST, under cl 8: at [145].

55. At [147]-[152], the primary judge held:

“147    By its natural operation, cl 8 exerted pressure upon Goodman Fielder to enter into a proposed agreement. That is, unless a proposed agreement was concluded by 14 May 2018 (or any agreed extended date for expiry), then subject to cl 10, Goodman Fielder was obliged to reimburse ISS for its Due Diligence Costs upon receipt of a tax invoice issued by ISS. Once the Due Diligence Agreement had expired, there was no time limit upon ISS issuing that tax invoice.

148    By cll 18(b) and 23, once the Expiry Day had passed, the Due Diligence Agreement was terminated, and although some provisions survived, there was no on-going obligation on either party to further negotiate entry into a proposed agreement. One of the provisions which survived was cl 8. Clause 10 was not expressly stated to survive, although Goodman Fielder contends that it survived indirectly. That is to say, Goodman Fielder says that if there was any temporal limit in cl 10, it only operated once ISS issued its tax invoice.

149    Counsel for Goodman Fielder submitted that cl 10 was distinct from cl 8 in terms of any temporal requirement. He submitted that, unlike cl 8, cl 10 did not refer to any Expiry Date. Second, each provision favoured a different date: the temporal obligation in cl 8 was only directed to the time Goodman Fielder had to pay an invoice rendered by ISS, whereas cl 10 should be considered from the date when the invoice was issued (which was in May 2019), otherwise, arbitrary results could be produced. Both clauses, he submitted survived termination.

150    It is true that the exception in cl 10 falls to be assessed after ISS has issued an invoice and that the issue of that invoice occurs only after the expiry of the Due Diligence Agreement. However, the issue of the invoice (in cl 8) is justified by circumstances which occurred during – and not after – the due diligence period, and the exception entitling Goodman Fielder to refuse to pay the invoice should, in my view, also be based on circumstances occurring within the due diligence period. In other words, clause 10 is tethered to clause 8. In my view, the effect of Goodman Fielder’s construction is to try to sever that connection. The relevant temporal connection in cl 8 is not the period (7 days) that Goodman Fielder had to pay an invoice rendered under that provision, but the period in which circumstances occurred that gave rise to ISS’ entitlement to render the invoice. That period was the term of the Due Diligence Agreement, being 5 February 2018 to 14 May 2018. ISS’ entitlement to render a tax invoice was referable to the fact that notwithstanding that it had incurred costs and negotiated in good faith towards an agreement with Goodman Fielder in the period between 5 February 2018 and 14 May 2018, no long term proposed agreement had been entered between the parties by the expiry of that agreement. Clause 10 provided a dispensation for Goodman Fielder from paying any invoice rendered on the factual predicate that no proposed agreement had been entered into during the term of the Due Diligence Agreement, if certain (alternative) circumstances arose during that period.

151    I agree with the submission of Counsel for ISS that textual support for the above view is provided by cl 23 (read with cl 18(b)). Upon the termination of the Due Diligence Agreement, i.e. 14 May 2018, the parties’ obligations which informed the scope of the exception in cl 10 (relevantly in cll 12-14 and incorporation of the Key Terms in Appendix 1) did not survive. There was therefore no benchmark ‘Key Terms’ against which either of the circumstances in cl 10 could be compared once the Due Diligence Agreement had expired. It was immaterial that an invoice was rendered after the Expiry Date.

152    This means that the exceptional circumstances in cl 10 upon which Goodman Fielder was entitled to rely, properly construed, were to have occurred during the period of the Due Diligence Agreement; which expired on 14 May 2018.”

56. With respect to the construction of the exceptional circumstances in cl 10, the primary judge held that the Court should not be oblivious to the commercial realities driving an exception like cl 10, observing (at [155]-[156]) that:

“155    …Here, the parties (both large and sophisticated enterprises) had devoted much time and incurred much expense in arriving at a state of affairs as at 5 February 2018 where they were on the threshold of entering into a longer term agreement. In my view, it is the commercial realities which impel the operation a provision like cl 10. Here, although the parties were on the threshold of an agreement as at 5 February 2018, they still remained uncommitted. If, in the space of just over 3 months, ISS did not choose to put an offer whose terms were as financially favourable to Goodman Fielder as the Key Terms, it risked losing a valuable business opportunity for itself, and also risked having wasted the time and expense it had incurred getting to the point it reached on 5 February 2018. It might well be the case that the quantification of the loss of this business opportunity could substantially have exceeded the amount of its Due Diligence Costs; especially when combined with ISS’ costs prior to 5 February 2018 which were irrecoverable under the subject agreement. Goodman Fielder had not confined itself to negotiating with ISS to the exclusion of other competitors; even if there were practical and commercial reasons which might make it difficult for it turn to others. In effect, ISS had a strong commercial incentive to put an offer incorporating and responsive to the ‘Key Terms’ that might get the negotiating parties closer to the finishing line. If it did, which was a matter for ISS’ choice, then cl 10 had work to do. For Goodman Fielder, of course, it had, through the legal if not practical guaranteed incorporation of the Key Terms, a very favourable bargaining hand, which it did not want to lose and it risked the prospect that if no agreement was entered by the end of the Due Diligence Agreement (which was susceptible of extension beyond 14 May 2018) it might have to start all over again, either with a different services provider or with ISS, with a reduced bargaining position.

156    In the circumstances which have occurred, it is the latter of these possibilities that have eventuated. But that was the result of the terms of the Due Diligence Agreement negotiated between two large enterprises, very probably represented by substantial law firms, and the commercial forces operating upon each party. Under the guise of fostering a businesslike interpretation, the Court should not lightly re-write the operation of contractual provisions if the language and context does not permit the language to be read in the way that a party, dissatisfied with the result, contends. The context, commercial purposes and circumstances known to the parties at the date of the agreement may inform, but are ultimately subordinate, to the text; not the other way around.”

57. The primary judge turned to the construction of the terms of cl 10 and held that the reference to “offer” was to an offer capable of acceptance in a contractual sense. His Honour concluded that the “Status Update” of 11 May 2018 did not meet this description. This was a conclusion which Mr Hutton, who appeared for Goodman Fielder at first instance, accepted. Thus, on his Honour’s preferred construction, this meant that it did not fall within the first of the two contingencies referred to in cl 10: at [183].

58. Against the possibility that the “offer” referred to in cl 10 of the Agreement did not need to be an “offer capable of acceptance”, the primary judge also held that he would not have characterised the Status Update as constituting a “revised offer” in some less technical, more attenuated sense as advanced by Goodman Fielder, namely a commercial proposal that was sufficiently detailed to be identified as a revision to the Key Terms. At [184]-[186], the primary judge stated that:

“184    …A ‘proposal’ would have to advance the prospect of a future agreement being entered. Circulation of a discussion paper or analysis would not suffice to amount to a ‘proposal’ for the purpose of cl 10, since it would be unclear and uncertain what was actually being proposed for Goodman Fielder’s consideration (if not actual acceptance). I do not regard the writing (‘For Discussion purposes only – ISS Group makes no offer or submission in connection with the analysis’) as determinative for the reason previously stated. Labels are not conclusive. Nevertheless, the covering email attaching the ‘status update’ described the document as ‘presented material’. What was presented on 11 May 2018 was different in form, to, ‘Commercial proposals’ supplied to Goodman Fielder on 18 June 2018 (Exhibit A, vol 3, p 1306) and on 12 July 2018 (Ex A, vol 3, p 1336) (the latter which was expressed to be subject to ISS Board Approval). Labels are inconclusive, but even on Goodman Fielder’s expansive interpretation of an ‘offer’ under cl 10, it is very doubtful whether what was presented on 11 May 2018 satisfied the broadest conception of the word.

185    The covering email expressly indicated that it excluded the ‘impact of commercials’ which were then still ‘being negotiated’. That indication about the exclusion of commercials in the email was repeated (at page 23) in the status update. Further, as Counsel for ISS submitted, there were other indications in the document that information was omitted which meant that it was too incomplete to constitute a proposal, even in its broadest sense, including most significantly the Baseline Spend (Exhibit A, vol 3, p 1236, vol 3, p 1242, vol 3, p 1251, and vol 3, p 1261). On that matter, the Total Facilities Management Contract sum of $24.7m was only spoken of as being ‘potential’, affected by Additional Services ‘TBC’. ISS’ costs remained ‘to be discussed’.

186    For a document, of this kind and in this context, to omit commercial information is a tell-tale sign that if it contained any commercial proposal at all, it fell short of amounting to an offer. Without it being construed as an offer, it is unnecessary to consider whether it amounts to a ‘revised’ offer.”

59. At [188]-[189], the primary judge continued:

“188    In my opinion, the document of 11 May 2018 is objectively, fairly characterised as an interim analysis supplied to Goodman Fielder; but one which, because of the omitted commercial information, was heavily qualified analysis. At its highest, it was an update which served only to generate discussion, which is what occurred prior to 14 May 2018 and, again, on 16 May 2018 (after the due diligence period had expired). Its delivery could not objectively have been understood by Goodman Fielder as substantially advancing the parties towards agreement; let alone be capable of acceptance according to what was contained within it. The omission of the information probably would have raised questions for Goodman Fielder. As it happened, this was consistent with how ISS subjectively intended the document to be understood. Although that is not determinative, it lends some weight to the analysis.

189    A reasonable business person in Goodman Fielder’s position could not have understood the provision of this document as amounting to a ‘revised offer’ as I have interpreted that expression. It was so amorphous so as to preclude serious consideration by Goodman Fielder to accepting it.”

60. The primary judge also rejected Goodman Fielder’s alternative submission, namely that, by reason principally of the Status Update, ISS was “insist[ing] on entering into a Proposed Agreement on terms that are financially less favourable to Goodman Fielder”. His Honour considered the meaning of this aspect of cl 10 of the Agreement at [173]-[179] of his judgment, treating it as covering a “situation where ISS wants one, or more than one, term falling short of a package of essential terms, to be included in a proposed agreement.” At [177]-[179], the primary judge held:

“177    In colloquial terms, the single or multiple terms represent a ‘sticking point’ as to whether a proposed agreement is to be entered into at all. It connotes intransigence on ISS’ part.

178    Whether ISS insisted on a term or terms being included in the proposed agreement is a question of substance. No particular form needs to be attached to the indication: it can, for example, be implied or inferred by conduct, such as where a term has been repeatedly advanced and repeatedly rebuffed during the course of a negotiation.

179    Further, it is not just the insistence of ‘terms’ which the second part of the exception in cl 10 is concerned about. It must, in my view, be the insistence of terms which are inconsistent to, derogate from, or dilute the practical effect or operation of the Key Terms in Appendix 1. This is the concept of financial favourability referred to below.”

61. His Honour noted the “immediate difficulty” for Goodman Fielder in its alternative argument lay in being unable to “identify, with precision, which term, or terms, ISS ‘insisted’ upon for inclusion in any proposed agreement within the period of due diligence”: at [194]. At [198]-[199], his Honour concluded:

“198    It is true that certain Key Terms were omitted from the 11 May 2018 update, which is relevant to the aspect of whether the proposal (i.e. offer) as a whole is less financially favourable. This was relevant to the issue of ‘favourability’ of the proposal overall. But there is no term identified as being a substitute for the omitted Key Terms and, still less, nothing to suggest that any substituted term was ‘insisted’ upon by ISS for entry into a proposed agreement.

199    Plainly, as I have already noted, there is a question whether the Baseline Spend presented by ISS on 11 May 2018 was less financially favourable than what was capable of being calculated in the Key Terms, but that was because ISS intimated to Goodman Fielder that it was uncertain and incomplete: the category of ‘Additional Services’ was not quantified. It was not insisting upon a Baseline Spend figure on 11 May 2018, as it was still trying to figure it out. At page 17 of the proposal (Exhibit A, vol 3, p 1236), the figure of $24.7m was identified but was on its face an estimate (hence the word ‘potential’), subject to the quantification of the Additional Services. I do not see any persistent demands by ISS, inconsistent with or derogating or diluting the operation of the Key Terms. There is no indication of the sort of intransigence on the part of ISS signifying to a reasonable entity in Goodman Fielder’s position its demand to have a term derogating from the Key Terms. The Baseline Spend figure remained uncertain by the expiry of the Due Diligence Agreement.”

62. There was no contest by Goodman Fielder as to the reasonableness of the due diligence costs actually incurred by ISS between February and 14 May 2018, and the primary judge held that Goodman Fielder was liable to pay ISS $600,000 plus GST, together with interest and costs.

Grounds of appeal

63. Goodman Fielder challenged the primary judgment on the following grounds:

“1    The primary judge erred in finding that, on the proper construction of clause 10 of the Due Diligence Agreement:

a.    the words ‘submits a revised offer that is ... financially less favourable to Goodman Fielder on the [Key Terms]’ were only engaged if ISS made a legally binding offer to Goodman Fielder (J[163]), and ought instead to have found that those words were engaged if ISS provided to Goodman Fielder a commercial proposal that was less financially favourable to Goodman Fielder on the Key Terms;

b.    the words ‘insists on entering into a Proposed Agreement on terms that are financially less favourable to Goodman Fielder on the [Key Terms]’ had the meaning attributed to them in J[173]-J[179], and ought instead to have found that those words were engaged if ISS:

i.    did not put forward to Goodman Fielder a commercial proposal that was at least equally financially favourable to Goodman Fielder as the Key Terms; or

ii.    indicated to Goodman Fielder that it was not open to accepting a Proposed Agreement that was at least equally financially favourable to Goodman Fielder as the Key Terms.

2    The primary judge erred in finding that:

a.    on the proper construction of clause 10 of the Due Diligence Agreement, in determining whether ISS had submitted a revised offer that was, or insisted on entering into a Proposed Agreement on terms that were, financially less favourable to Goodman Fielder on the Key Terms, ISS's conduct after the Expiry Date (being 14 May 2018) was not to be taken into account (J[146]-[152]); and

b.    by reason of subparagraph (a), all proposals submitted by ISS after 11 May 2018 were to be excluded from consideration (J[216]).

3    The primary judge erred in finding that neither of the circumstances in clause 10 of the Due Diligence Agreement had been established (J[201]) and ought instead to have found that:

a.    ISS's conduct involved it submitting a revised offer that was, or insisting on entering into a Proposed Agreement on terms that were, financially less favourable to Goodman Fielder on the Key Terms, within the meaning of clause 10 of the Due Diligence Agreement; or

Particulars

The primary judge found that, if he was wrong about the contractual construction issues raised by Grounds 1a and 2 above, then the proposals made after 14 May 2018 were less financially favourable to Goodman Fielder on the Key Terms (J[218]).

b.    alternatively, if Appeal Ground 2 above is decided against Goodman Fielder, ISS's conduct in the period up to 14 May 2018, including the submission of the 11 May 2018 proposal, involved it submitting a revised offer that was, or insisting on entering into a Proposed Agreement on terms that were, financially less favourable to Goodman Fielder on the Key Terms.

Particulars

i.    It was common ground that ISS did not put forward to Goodman Fielder, before 14 May 2018 or at any time, a commercial proposal that was at least equally financially favourable to Goodman Fielder on the Key Terms, which will engage cl 10 if the construction in Appeal Ground 1.b.i. above is accepted.

ii.    Further or in the alternative, the primary judge ought to have found, but did not find, that ISS's conduct up to 14 May 2018 objectively indicated to Goodman Fielder that ISS was not open to accepting a Proposed Agreement that was at least equally financially favourable to Goodman Fielder on the Key Terms, which finding will engage cl 10 if the construction in Appeal Ground 1.b.ii. above is accepted.”

Consideration

Ground 1

64. Goodman Fielder made the general submission that:

“the primary judge’s approach failed to construe cl 10 in the context of the [Agreement] as a whole, erroneously construed the language used, sought semantic exactitude when the imprecise drafting of cl 10 made it impossible, and made commercial nonsense of the parties’ bargain by giving cl 10 an operation that depended on the form of the parties’ communications before the contractual Expiry Date rather than the substance of their commercial positions on the Key Terms following completion of the due diligence”.

65. As to ground 1(a), relating to the primary judge’s holding that confined the words “revised offer” in cl 10 to a legally binding offer rather than any commercial proposal that was sufficiently detailed to be identified as a “revision” to the “Key Terms” and that was “financially less favourable” than the Key Terms, Goodman Fielder built upon its general submission set out above, contending that:

“cl 10 is a clear case where strict literalism, or semantic exactitude, is not possible. In common with much of the [Agreement], the grammar and use of language is imperfect. Further, the judge’s approach operates idiosyncratically against the objective interests of both parties. For instance, taking a strictly literal approach, the mere submission of a single ‘revised offer’ by ISS that was on terms financially less favourable to Goodman Fielder than the Key Terms would result in ISS bearing the Due Diligence Costs, even if immediately thereafter (and before the Expiry Date) ISS told Goodman Fielder that it was in fact prepared to agree to the Key Terms. A reasonable businessperson would not interpret cl 10 to make it effectively a trap for the unwary.”

66. The example given in support of the assertion that the primary judge’s interpretation operated “idiosyncratically against the objective interests of both parties” is not helpful. It does not in any way reflect what occurred in the present case, and does not provide any reason as to why the primary judge’s interpretation of the expression “revised offer” was incorrect nor does it bear upon the meaning to be given to that expression. Further Goodman Fielder’s submissions do not explain how the primary judge’s interpretation of the phrase “revised offer” made cl 10 “a trap for the unwary”. “Unwary”, in any event, would be a most inapposite description of both of the sophisticated commercial parties to the Agreement.

67. Goodman Fielder’s preferred interpretation of “revised offer”, namely a “commercial proposal that was sufficiently detailed to be identified as a ‘revision’ to the Key Terms”, is more uncertain than that preferred by the primary judge because of the obvious room for debate as to the meaning of “sufficiently detailed”. Such a concept readily lends itself to differences of view and scope for disputation which it might be supposed commercial parties would not have intended.

68. In any event, it is not strictly necessary to resolve the question as to whether or not the expression “revised offer” meant something less than a “legally binding offer” (to use the language of ground 1(a) of the Notice of Appeal) capable of acceptance that was favoured by the primary judge, or the more open-ended “commercial proposal that was sufficiently detailed to be identified as a ‘revision’ to the Key Terms” because I agree with the primary judge for the detailed reasons his Honour gave at [184]-[189] (see [58]-[59] above) that the Status Update of 11 May 2018 simply did not meet this description of a “revised offer”.

69. For the same reason, Goodman Fielder’s submission that as a matter of ordinary English language, “something described as an ‘offer’ may or may not be legally binding” and that “it does not follow from the reference to ‘terms’ in cl 10 that the parties were concerned with legally binding offers only [because] [i]t is common to see the expression ‘commercial terms’ used in contradistinction to a legally binding agreement” is ultimately not to the point.

70. The primary judge’s analysis of the character of the Status Update was not the subject of any serious challenge by Goodman Fielder on appeal. Mr Giles advanced the argument that the 11 May 2018 document should be read in conjunction with further “power point” slides which were furnished by ISS to Goodman Fielder on 16 May 2018 (see [43] above), after the Expiry Date under the Agreement had passed, on the basis that the covering email to the Status Update of 11 May 2018 had foreshadowed that further slides containing some financial information would be forwarded the following week.

71. If, as I consider to be the case, any “revised offer” of the requisite character, in order to disentitle ISS from recovery of its due diligence costs pursuant to cl 8 of the Agreement, would have to have been made prior to the Expiry Date (see further at [81]-[87] below), it was not legitimate to take the additional slides supplied to Godman Fielder on 16 May 2018 into account. That Mr Giles sought to do so was tacit recognition of the fact that the Status Update was, as the primary judge said (at [189]), “so amorphous so as to preclude serious consideration by Goodman Fielder” and, “[a]t its highest, it was an update which served only to generate discussion”: at [188].

72. As to ground 1(b), Goodman Fielder submitted that the primary judge should have found that the words in cl 10 “insists on entering into a Proposed Agreement on terms that are financially less favourable to Goodman Fielder on the [Key Terms]” would be engaged if ISS:

1. did not put forward to Goodman Fielder a commercial proposal that was at least equally financially favourable to Goodman Fielder as the Key Terms; or

2. indicated to Goodman Fielder that it was not open to accepting a Proposed Agreement that was at least equally financially favourable to Goodman Fielder as the Key Terms.

   73. Dealing with the first of these two suggested meanings, it is simply impossible as a matter of basic English to reconcile a party’s failure to do something as that same party “insisting” on a particular outcome.

   74. Both in this aspect of ground 1(b) and in his submissions, Mr Giles appeared to suggest that ISS was bound in the due diligence period, that is to say, between 5 February 2018 when the Agreement was entered into and 14 May 2018, to revert to Goodman Fielder as to whether or not it agreed with or confirmed the Key Terms, and that the Status Update of 11 May 2018 should be construed in this light. This was notwithstanding a concession made by Mr Hutton at first instance and recorded by the primary judge at [153] that good faith did not mandate that ISS put any offer to Goodman Fielder during the period of the Agreement.

   75. The primary judge considered that that concession was correctly made, as do I. ISS was not obliged during the due diligence period either to confirm that it was content with the Key Terms referred to in Appendix 1 to the Agreement or to submit an alternative, revised offer, although it was at liberty to do so. One position that was open under the Agreement was neither to confirm that it was content with the Key Terms nor to advance a revised or further offer that was on different terms. This is the position which, on the evidence, ISS took. Any suggestion that this entailed a breach of a contractual duty of good faith was eschewed and there may have been good commercial reasons for ISS to take this course, including that it was still working through its assessment of the potential engagement as at 14 May 2018 and/or that the due diligence that had been undertaken to that point in time still left it with uncertainty and questions about Goodman Fielder’s sites and the requirements of the potential engagement.

   76. In this context, it is not without relevance to note that one of the points made in the Status Update of 11 May 2018, described as a “Key Finding”, was that “Baseline data very difficult to verify and unable to acquire scope detail for a number of services”: see [39] above. Further, the language of the proposed but never executed side deed also of 11 May 2018 and drafted by Goodman Fielder noted that “negotiations on the Proposed Agreement are not far progressed”: see [40] above.

   77. Goodman Fielder submitted in writing that:

   “Clause 10 is to be placed into the scheme of the [Agreement] taken as a whole. In that regard, an important consideration is that ISS was to ‘confirm’ the Key Terms, or not confirm them, following Due Diligence (cl 12A) and by the Expiry Date (cll 1, 8, 13 and 18). Whether ISS confirmed the Key Terms affected the nature of the parties’ joint ongoing obligation to negotiate a Proposed Agreement in good faith with a view to finalising and executing it by the Expiry Date (cl 13). If ISS ‘confirmed’ the Key Terms then the form of Proposed Agreement would be one ‘incorporating’ the Key Terms, as contemplated by cl 14. It was only if ISS did not ‘confirm’ the Key Terms that the form of Proposed Agreement that was to be negotiated could be one that was ‘less financially favourable to Goodman Fielder on the Key Terms’ as contemplated by cl 10. Further, it was not open to either party to abandon its obligation to negotiate in good faith (although, of course, no agreement might eventuate even if good faith negotiations were pursued). One or other form of Proposed Agreement was required to be negotiated with a view to it potentially being finalised and executed by the Expiry Date (cl 13).” (emphasis in original).

   78. Whilst it is plainly correct and is indeed trite that cl 10 fell to be construed in the context of the Agreement as a whole, the statement that “ISS was to ‘confirm’ the Key Terms, or not confirm them, following Due Diligence (cl 12A) and by the Expiry Date” overlooks the third possibility that I have referred to at [75] above. In short and contrary to Goodman Fielder’s written submissions, ISS did not have a binary choice, still less a binary obligation, either to confirm or not to confirm the Key Terms within the due diligence period. In the absence of any suggestion that the position ISS took (which was not to take a definitive position one way or the other within the due diligence period) was a breach of its good faith obligations under cl 13 of the Agreement, Goodman Fielder’s submission that “it was not open to either party to abandon its obligation to negotiate in good faith” leads nowhere.

   79. Dealing now with the second of the two suggested meanings of the words “insists on entering into a Proposed Agreement on terms that are financially less favourable to Goodman Fielder on the [Key Terms]” set out at [72] above, namely “indicated to Goodman Fielder that it was not open to accepting a Proposed Agreement that was at least equally financially favourable to Goodman Fielder as the Key Terms”, it is also not possible to reconcile this posited interpretation with the language of cl 10 of the Agreement.

   80. Not only does an “indication” that a party is “not open” to certain terms lack the quality of insistence, but it does not accommodate the fact that cl 10 is concerned with the party in ISS’s position insisting that certain terms form part of “a Proposed Agreement”. As the primary judge held, the “immediate difficulty” for Goodman Fielder in its alternative argument lay in being unable to “identify, with precision, which term, or terms, ISS ‘insisted’ upon for inclusion in any proposed agreement within the period of due diligence”: see [61] above.

Ground 2

81. As to ground 2, namely that the primary judge erred in finding that only conduct prior to the Expiry Date could be taken into account in determining whether cl 10 had been engaged, the conduct which Goodman Fielder sought to have taken into account were the various proposals submitted to it by ISS after 14 May 2018 (see [44] above). This was forensically highly significant because it was accepted at first instance that all of these proposals were on terms that were financially less favourable to Goodman Fielder than the Key Terms in the Agreement.

82. Goodman Fielder submitted that the primary judge was in error for the following reasons:

“54    First, it is not consistent with the language of cl 10. Clause 10 does not refer to the Expiry Date. Under the Letter of Intent, the Expiry Date determines a number of matters: it ends the period during which ISS is authorised to conduct the Due Diligence (cl 2) and it ends the period during which the parties are required to engage in good faith negotiations (cl 13) but there is nothing to suggest that, in deciding whether cl 10 has been engaged, only pre- Expiry Date circumstances are to be taken into account.

55    Secondly, cl 8 refers to the Expiry Date (that being the date after which ISS can issue an invoice seeking reimbursement) but favours a different date. Clause 8 imposes an obligation on Goodman Fielder to pay a tax invoice with respect to Due Diligence Costs within 7 business days of receipt. Clause 10 creates an exception to that obligation. The logical date for testing whether Goodman Fielder has an obligation to reimburse the Due Diligence Costs, or is within the exception in cl 10, is the date when the tax invoice referred to in clause 8 is issued or, alternatively, falls to be paid, not the Expiry Date.

56    Thirdly, an interpretation which requires that conduct after the Expiry Date be ignored is apt to produce arbitrary results more than one which fixes on the date of the invoice or the date required for payment. For instance, consider the position if ISS had made an offer in the same or better terms than the Key Terms after the Expiry Date but before it issued its invoice, which offer was rejected by Goodman Fielder. If ISS’s construction were correct, that offer would have to be ignored in deciding whether ISS was entitled to be reimbursed for its Due Diligence Costs – ISS would therefore be required to bear its Due Diligence Costs even though it had not ultimately sought to depart from the Key Terms. Again, the Court should favour a construction that allocates responsibility for Due Diligence Costs based on the substantive commercial positions taken by the parties.

57    Fourthly, both cl 8 and cl 10 are directly (in the case of cl 8) or indirectly (in the case of cl 10 – which is part and parcel of cl 8 and operates ‘subject’ to it) expressed to survive termination (clause 23). That provides a further reason not to limit cl 10 to things done or not done before the Expiry Date.”

83. The first of these submissions overlooks the fact that cl 10 must be read with cl 8. Clause 10 is effectively an exception to cl 8. The liability to which cl 8 refers must arise immediately following the passing of the Expiry Date. It is as simple as that. It is determined by reference to whether or not the Proposed Agreement had been entered into by that time. If it had not, Goodman Fielder was liable for ISS’s due diligence costs (subject only to the auditing process contemplated by cl 11) unless, prior to the Expiry Date, one of the two contingencies referred to in cl 10 had occurred.

84. As to the second of Goodman Fielder’s submissions, the timing of the issue of the tax invoice referred to in cl 8 does not affect the fact of the liability to reimburse ISS; rather, it goes to the time frame in which that liability must be discharged. It would be wholly arbitrary if a contractual liability under a contract that had terminated could turn on events occurring after that date and by reference to the timing of the issue of a tax invoice.

85. The example given by Goodman Fielder in para 56 of its submissions is not at all persuasive. ISS would, on the primary judge’s construction, be entitled to reimbursement of its due diligence costs at the Expiry Date. It would not “qualify” for that contractual benefit by anything it did or did not do after the Expiry Date. The suggested perversity or arbitrary result in fact only arises on Goodman Fielder’s preferred construction of cl 10 which the primary judge correctly rejected.

86. As to Goodman Fielder’s fourth point and contrary to it, cl 10 is not included in the string of clauses which, by cl 23, survived termination of the Agreement.

87. Finally, cl 10 in terms refers to a “revised offer” in respect of the Proposed Agreement. The Proposed Agreement contemplated by the Agreement had to be executed by the Expiry Date. If it were not, cl 18 of the Agreement provided that the obligations of the parties under it terminated (subject to the clauses including cl 8 that survived termination). That is a further powerful textual indication that conduct that may have engaged cl 10 had to occur prior to the Expiry Date.

Ground 3

88. As to ground 3, Goodman Fielder submitted that:

“If Grounds 1 and 2 are established then it is permissible, in deciding whether cl 10 has been triggered, to look to all seven of the proposals submitted by ISS. In that event, so long as the Court is persuaded that ‘offer’ is not confined to a legally binding offer (Ground 1.a.), the primary judge’s uncontested factual finding at J[218] (Red 1:85V-85Y) that the proposals were financially less favourable is sufficient to dispose of the appeal. ISS will have submitted an offer (indeed, several offers) that was ‘financially less favourable on the [Key Terms]’ and thus triggered cl 10.”

89. It may be accepted that this submission would succeed if grounds 1 and 2 were established but, for the reasons given above, I do not consider that they have been.

90. Further, and for the reasons already given, the primary judge was correct to reject Goodman Fielder’s submission that the Status Update of 11 May 2018 engaged cl 10 of the Agreement with the consequence that Goodman Fielder was not obliged to pay ISS’s due diligence costs.

Conclusion

91. For these reasons, the appeal must be dismissed with costs.

92. MEAGHER JA: I agree with Bell P.

93. LEEMING JA: I agree with Bell P.

**********

Decision last updated: 30 April 2021