Tasmanian Land Company Pty Ltd v Van Dairy Group Pty Ltd
[2022] TASFC 6
•2 September 2022
[2022] TASFC 6
| COURT: | SUPREME COURT OF TASMANIA (FULL COURT) |
| CITATION: | Tasmanian Land Company Pty Ltd v Van Dairy Group Pty Ltd |
| [2022] TASFC 6 | |
| PARTIES: | TASMANIAN LAND COMPANY PTY LTD |
| v | |
| VAN DAIRY GROUP PTY LTD | |
| FILE NO: | 502/2022 |
| JUDGMENT | |
| APPEALED FROM: | Tasmanian Land Company Ltd v Van Dairy Group Pty Ltd |
| [2022] TASSC 6 | |
| DELIVERED ON: | 2 September 2022 |
| DELIVERED AT: | Hobart |
| HEARING DATE: | 22 August 2022 |
| JUDGMENT OF: | Estcourt J, Geason J, Martin AJ |
| CATCHWORDS: |
Contracts – General contractual principles – Construction and interpretation of contracts – Interpretation of miscellaneous contracts and other matters – Sale agreement for purchase of dairy farm and exclusive milk supply agreement – Provision made in post-closing price adjustment for income paid to the vendor in advance of completion – Construction of clause which provided for ongoing accounting of income received after completion – Whether that clause required compensation for vendor in respect of prospective benefits paid to purchaser which changed the basis upon which the post-closing adjustment had been calculated – Clause does not apply to prospective benefits.
Aust Dig Contracts [120]
Equity – General principles – Unjust enrichment.
Aust Dig Equity [1100]
Restitution – Generally – On the basis of unjust enrichment – No qualifying or vitiating factor identified –
Financial windfall – Purchasing party entitled to benefits of ownership of assets.
Aust Dig Restitution [1002]
REPRESENTATION:
Counsel:
Appellant: C Gunson SC, J Sawyer Respondent: G R Donaldson QC, P H Murray
Solicitors:
Appellant: Clayton Utz Respondent: K & L Gates
| Judgment Number: | [2022] TASFC |
| Number of paragraphs: | 46 |
Serial No 6/2022
File No
502/2022
TASMANIAN LAND COMPANY PTY LTD v VAN DAIRY GROUP PTY LTD
| REASONS FOR JUDGMENT | FULL COURT ESTCOURT J |
GEASON J
MARTIN AJ
2 September 2022
Order of the Court:
1 Appeal dismissed.
Serial No 6/2022 File No 502/2022
TASMANIAN LAND COMPANY PTY LTD v VAN DAIRY GROUP PTY LTD
| REASONS FOR JUDGMENT | FULL COURT ESTCOURT J |
2 September 2022
The appeal and the background
1 The appellant, the Tasmanian Land Company Pty Ltd, has appealed against a decision of Brett J of 9 February 2022 (Tasmanian Land Company Ltd v Van Dairy Group Pty Ltd [2022] TASSC 6), whereby his Honour dismissed the appellant's claim against the respondent, under the terms of a sale agreement between them, for additional payments as they related to milk produced by the appellant in the first nine months of the 2015-16 season, after the price for milk had been prospectively increased by the purchaser of the milk from the respondent, Fonterra Milk Australia Pty Ltd (Fonterra).
2 The learned primary judge set out the essential facts of the action at [1]–[4] of his reasons for
judgment, as follows:
"1 In 2015, the plaintiff sold its dairy farming business to the defendant. The sale included a number of dairy farms and related assets. The purchase price was $275 million, subject to a post-closing adjustment. The sale agreement was entered into on 20 November 2015, and closing of the sale took place on 31 March 2016.
2 The assets sold included the benefit of an exclusive milk supply agreement (the EMSA) between companies through which the plaintiff conducted the dairy farming business, and a milk processor, Fonterra Milk Australia Pty Ltd (Fonterra). Under this agreement, the plaintiff agreed to supply milk exclusively to Fonterra for 10 years commencing 1 July 2011. The price of the milk was determined by Fonterra from time to time, but guaranteed under the EMSA to not fall below a benchmark price. This price was determined on a seasonal basis according to the milk price paid by a comparable and larger milk processor operating in Victoria, Murray Goulburn. The season was between 1 July and 30 June each year. The EMSA specified the process for determination of the milk price. The price was nominated by Fonterra at the start of each season, and reviewed, and, if necessary, adjusted at regular intervals throughout the season. At the end of the season, any shortfall between the price actually paid throughout the year and the benchmark price was to be paid to the supplier as a lump sum, but the supplier was not required to repay any excess. The reviews responded to prevailing market conditions, but it can be inferred that an important consideration was to calibrate the actual payments so that the average across the season remained in the desired relationship with the anticipated average benchmark price. Mid-season increases in the actual price were described as 'step-ups' and reimbursed to the supplier on a retrospective basis from the beginning of the year. The EMSA also noted the possibility of decreases, although these were not applied retrospectively. However, identification in the latter part of the season of an anticipated decrease in the benchmark price could have the practical effect of a sharp decline in the farm gate price for the balance of the year, because of the need to bring down the average price actually paid across the whole season to the desired level.
3 This was the situation which pertained in the 2015-16 season. The opening price announced by Fonterra and paid by it throughout the bulk of the season was the subject of a significant decrease, which was announced in, and took effect from, May 2016. This was about one month after the closing of the sale agreement. The decision to reduce the overall price for that season resulted from a severe decline in market conditions. This had been reflected in an earlier announcement by Murray Goulburn, which predicted a sharp decline in the benchmark price. The decrease in the milk price significantly disadvantaged the defendant, because the practical effect was that the defendant would, for the balance of the season, bear the full burden of the average
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reduction across the whole year. The plaintiff, of course, had received a much higher actual price for milk supplied before closing than the new anticipated average price. However, the contract provided for a post-closing adjustment of the purchase price. After negotiation, the parties agreed that the plaintiff would compensate the defendant by way of a lump sum adjustment in the defendant's favour in the sum of $2.2 million to account for the disadvantage sustained by it as a result of the post-closing price decrease. This adjustment was achieved by showing the payment as reflecting 'income in advance' received by the plaintiff prior to closing, and this was included as an item in the defendant's favour in the post-closing accounts prepared as the basis for the broader contractual post-closing adjustment. This process was finalised in July 2016.
4 In May 2017, Murray Goulburn took certain steps which were intended to ameliorate the impact of the reduction of the price which it paid to its suppliers in the 2015-16 season. Fonterra responded soon after by agreeing to pay its suppliers, including the defendant, an extra payment of 40¢ per kg/MS (per kilogram of milk solids) in addition to the price which would normally be paid under the EMSA for milk supplied to it during the 2017-18 season. The defendant, in fact, received such payments for milk supplied during that year. For ease of reference, I will hereafter describe this arrangement, and the actual payments made pursuant to it, as "the additional payments". The plaintiff's case is that the additional payments, although calculated on milk produced and supplied during the 2017-18 season, were in fact intended to reverse the reduction in the milk price in the 2015-16 season, which was the basis for the payment to the defendant of $2.2 million in the post-closing adjustment. The plaintiff argues that the defendant should pay to it the amount received by the defendant under this arrangement, at least in respect of milk supplied during that part of the 2017-18 season which corresponds to the period prior to closing in the 2015-16 season."
3 The appellant argued at the hearing of the action that it should succeed:
(a)
Pursuant to a provision in the sale agreement which provided for payment to it of a "step-up" or "closing price adjustments" in the milk price for the 2015-16 season to the extent that the same "relates to" milk supplied by it in the period prior to the closing of the contract.
(b) Pursuant to an implied term in the contract providing for compensation in such circumstances.
(c) Because it was subrogated to the defendant's right to receive the additional payments, at least during the part of the 2017-18 year which corresponded to the period prior to closing in the earlier season, on the basis that the defendant would be unjustly enriched by retention of both those payments and the closing adjustment of $2.2 million.
4 The respondent, on the other hand, argued that although the circumstances which led to the decision to make the additional payments, responded to the price reduction in the 2015-16 year, and Murray Goulburn's subsequent action to ameliorate the effect of the reduction on its suppliers, that response was, in fact, the provision of a prospective benefit to its suppliers in respect of milk production in the 2017-18 year. The respondent's position was that having purchased the assets of the business, including the benefit of the EMSA, it was entitled, as the owner of the business, to the additional payment for milk it had produced and sold to Fonterra in 2017-18, and that the motivation for that payment was irrelevant to its entitlement.
5 It disputed that the express provision of the sale agreement relied upon by the appellant (clause 7.1), was applicable in its terms, or that there was an implied term in the contract as claimed. It disputed also that it had been unjustly enriched by the receipt and retention of both the income in advance adjustment and the additional payments. And it argued that the $2.2 million adjustment was properly payable under the contract, and that the additional payments were a benefit of its subsequent ownership of the business. It submitted that the appellant was not entitled to restitution, whether by way of subrogation or otherwise.
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6 The learned primary judge accepted each of the submissions of the respondent and rejected the corresponding contentions of the appellant to the contrary. He dismissed the appellant's action.
7 The appellant's notice of appeal is as follows:
"1 The learned primary judge erred in that having found:
a
that in May 2017, Murray Goulburn took certain steps which were intended to ameliorate the impact of the reduction of the price it paid to its suppliers in the 2015-16 season (PJ [4]);
b
that Fonterra Milk Australia Pty Ltd (Fonterra) responded soon after by agreeing to pay its suppliers including the respondent an extra payment of 40 cents per kg/MS in addition to the price that would normally be paid under the Exclusive Milk Supply Agreement (EMSA) for milk supplied to it during the 2017-18 year (Additional Payments) (PJ [4], [5], [24]);
c that if Fonterra had decided to make the Additional Payments
calculated on milk actually supplied during the 2015-16 season then:
i
clause 7.1 of the Sale Agreement 'would clearly require the [respondent] to pay to the [appellant] a share of the back payment calculated by reference to milk supplied prior to closing' (PJ [37]); and
ii
the Additional Payments would 'without doubt, amount to a step up or closing price adjustment' under clause 7.1 of the Sale of the Agreement (PJ [37]); and that retired farmers received the Additional Payments from Fonterra as a lump sum calculated based on production figures achieved by the retired farmers during the 2015-16 season (PJ [24]),
the primary judge ought to have found that:
e the Additional Payments 'related to' the 2015-16 season; f the Additional Payments received by the respondent amounted to a step up or closing price adjustment under clause 7.1 of the Sale Agreement; and g clause 7.1 of the Sale Agreement required the respondent to pay the
Additional Payments received by it to the appellant.2 The learned primary judge erred in finding that price decreases under the EMSA were not applied retrospectively (PJ [47]).
3 The learned primary judge erred:
a in finding that after negotiation, the parties agreed that the appellant would compensate the respondent by way of a lump sum adjustment in the respondent's favour in the sum of $2.2m to account for the disadvantage sustained by it because of the post-closing decrease (PJ [3] and [51]); and b should have found that the lump sum adjustment of $2.2m was an adjustment to the sale price calculated in accordance with clause 4.2 of the Sale Agreement and not a payment by way of general accord and satisfaction or otherwise compensatory in nature. 4 The learned primary judge erred in finding that the Additional Payments did not 'relate to' milk supplied in the period prior to 'closing' within the meaning of clause 7.1 of the Sale Agreement (PJ [38] and [39]).
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5 The learned primary judge erred in finding that the appellant did not plead subrogation (PJ [46] and [48]).
6 The learned primary judge erred in finding (in effect) that the foundation of subrogation is contractual rather than equitable (PJ [47]).
7 The learned primary judge erred in that having found that:
a
the respondent would effectively receive double compensation for the inequity it suffered because of the May 2016 price decrease (PJ [48]);
b
in practical terms, the respondent will benefit from both the income in advance item in the post-closing adjustment, and the Additional Payments (PJ [48]);
the primary judge should have found that the respondent's entitlement to receive the
Additional Payments has been subrogated to the appellant."
Grounds 1 and 4
8 The learned primary judge considered the appellant's contractual claim and the relevant facts at [9]-[33] of his reasons as follows:
"The milk price
6 I have already described the general basis on which the milk price was fixed under the EMSA. By definition, the EMSA includes the actual document executed by the parties, together with a milk supply handbook published by Fonterra from time to time, and an opening price letter provided at the commencement of each season. The role of the letter is explained in the handbook. As the name suggests, it nominates the opening price for the season. Part 10 of the handbook contains information concerning pricing and payments for milk. The price paid depends not on volume but on the weight of the fat and protein components of the milk. Hence, the price is expressed not on a per litre basis, but rather per kilogram of milk solids (kg/MS). The handbook makes the point that there is not a single farm gate milk price, but rather the price actually received by the supplier will depend on the quality and composition of the milk provided to Fonterra.
7 Variations of the price during a season are also dealt with in Part 10. A step- up is 'generally backdated and paid retrospectively for milk supplied from the beginning of the season'. It is noted that retrospective payments will only be made to ongoing suppliers or those who have retired from dairy farming. The intention is to exclude those who unilaterally withdraw from the agreement in favour of a different supplier.
8 The handbook also notes the possibility of 'a mid-season price decrease', but asserts that a decrease is rare.
9 The guarantee of a minimum average payment fixed by the benchmark price,
and the mechanism for the end of season adjustment is provided for by cl 3.1 of the
EMSA document. That clause provides as follows:
'3.1 Benchmark Price
(a)
Fonterra will pay Supplier for Milk supplied under the Agreement each Season a price that is not less than the Benchmark Price.
(b)
At the end of each Season, the parties will compare the actual price paid by Fonterra to Supplier for Milk supplied during the Season with the Benchmark Price for the Season. If the actual price paid by Fonterra is lower than the Benchmark Price for the Season, Fonterra will pay Supplier the amount
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of the shortfall calculated in respect of all Milk supplied under the Agreement during the Season. Fonterra will pay the amount of the shortfall (if any) within two months after all of the information that is necessary to determine the benchmark Price becomes publicly available.'
10 According to the definition of 'benchmark price' contained in the agreement, its determination depends on the milk price paid by the 'volume leading milk processor' (as identified from time to time by Fonterra) in Victoria. As already noted, at all times relevant to this case, the volume leading processor was Murray Goulburn.
11 There is no provision for a supplier to repay any of the payments made to it during the course of the season, once the benchmark price has been determined at the end of the season. It was for this reason that it was in Fonterra's interests to ensure that it regularly reviewed payments made during the course of the season to ensure that the average actual price paid during the year matched as closely as possible the anticipated benchmark price.
12 The EMSA provides for other payments made by way of incentive and adjustment. With one exception, these are not relevant to this case.
The 2015-16 season
13 The opening price letter for the 2015-16 season was dated 29 June 2015. It nominated an opening average farm gate milk price of $5.60 per kg/MS. It forecast the likelihood of an increase in the price to between $5.80 and $6 per kg/MS, on the basis of an anticipated recovery in global prices in the first half of 2016. This prediction proved to be inaccurate.
14 The price remained at $5.60 per kg/MS until 5 May 2016. On that day, Fonterra notified its suppliers by email that the current farm gate milk price would be reduced from $5.60 per kg/MS to $5 per kg/MS, applied retrospectively throughout the whole season. In order to achieve this retrospective reduction, the prospective payment during May and June would be reduced to $1.91 per kg/MS. However, on 13 May 2016, Fonterra revisited this decrease by increasing the price for the months of May and June 2016 by $2.50 per kg/MS. The result was an effective price paid over those two months of $4.41 per kg/MS, which took the average price for the 2015-16 season to $5.13 per kg/MS.
15 Public statements made by officers of Fonterra at the time explained the price decrease as being driven by global market conditions. This is consistent with similar action taken by Murray Goulburn at around this time and public information released by that company to explain its decisions. Murray Goulburn had also until this time paid a farm gate milk price of $5.60 per kg/MS to its suppliers. In a supplier briefing dated 27 April 2016, it advised that this price was no longer achievable and lowered its forecast for the season to a price of between $4.75 and $5 per kg/MS. In the same announcement, Murray Goulburn advised that it would seek to maintain the effective average milk price at $5.47 per kg/MS across the season, by introducing a mechanism known as the "Milk Supply Support Package" (MSSP). The MSSP, in essence, was a compulsory loan of the difference between the average price actually paid throughout the year and the reduced price which would be determined at the end of the year. The package provided for the MSSP component of the actual payments to be recovered from future milk payments over the ensuing three financial years. The rationale was to reduce the impact of the price decrease by spreading it across that time period rather than drastically reducing the actual payment to ensure full recovery by the end of the 2015-16 season.
16 The final result was described by the chairman of Murray Goulburn in the company's annual report for the year in the following way:
'In the end MG delivered an average cash price for milk to suppliers of $5.53 per kg/MS in FY 16, made up of the final FMP of $4.80 per kg/MS and 0.73 cents of MSSP support.'
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17 Fonterra also introduced a support package to assist its suppliers to cope with the sharp price decrease. However, it was of a different nature to that which applied under the Murray Goulburn MSSP. Whereas the MSSP was imposed on all of Murray Goulburn's suppliers, Fonterra made available a voluntary loan, known as the 'FASL'. Suppliers were able to borrow 'up to 60c/kg/MS based on milk supplied in the past 12 months'. The loan would be paid in addition to base payments for milk supplied during the balance of the season. Repayments were not required until July 2017 and thereafter would be deducted from monthly milk payments at a rate which depended on the individual circumstances of each supplier. The voluntary nature of the FASL meant that Fonterra's suppliers had the option of maintaining cash flow by accepting the loan, or alternatively bearing the brunt of the reduced payments immediately. In the end, only about half of Fonterra's suppliers accessed the loan. Others sought to minimise the impact by reducing production for the remainder of the season.
18 The evidence suggests that over the ensuing months there was considerable backlash against both companies with respect to the sharp price decreases. The backlash and controversy was reflected in parliamentary investigations by the Australian Senate and the Tasmanian Legislative Council.
The sale agreement
19 The sale agreement was entered into by the parties on 20 November 2015. As one would expect, it is a relatively complex document that was drafted by lawyers. The initial purchase price of $275 million was payable by way of a non-refundable deposit of $20 million, payable by 26 November 2015, with the balance payable at closing. Closing under the contract occurred on 31 March 2016.
20 Unsurprisingly, cl 6.4 of the agreement provided that upon closing, 'title to,
possession of, property in, and the benefit and risk of the Business and the Assets'
passed to the defendant.
21 Clause 4.2(c) provided for the post-closing adjustment of the purchase price. The calculation of the adjustment required the preparation of closing accounts relating to various aspects of the assets which were being sold under the agreement. The contractual scheme was that the accounts prepared after closing would give both parties the opportunity to calculate with precision the actual value of the specified assets. The accounts were then to be compared to fixed sums which comprised provisional constituents of the initial purchase price in respect of those assets, and adjustments made accordingly. Once the aggregate final adjustment had been calculated, any residual payment was to be made within three business days of the date on which the closing accounts were agreed or otherwise determined in accordance with the provisions of Schedule 4. Schedule 4 sets out in some detail the process and requirements in respect of the preparation of the closing accounts. That process required the defendant to prepare and deliver draft closing accounts to the plaintiff 'by no later than 30 business days after closing'. The plaintiff was then required to notify the defendant in writing within 15 business days as to whether it accepted the accounts. If it did not accept the accounts, then the process prescribed a timeline for negotiation and the opportunity for referral of any dispute for independent determination.
22 As will be apparent from the history already discussed, the retrospective decrease of the milk price imposed by Fonterra occurred approximately one month after the closing of the contract. A dispute arose between the parties as to whether the defendant should be compensated for the effect of the price decrease as part of the post-closing adjustment. The defendant's position was that the timing of the price decrease meant that it would bear the full brunt of the decrease, because it was averaged across the entire year, and hence the plaintiff had until closing received a milk price which was higher than the end of year average price. The price paid to the defendant was commensurately lower. After negotiations, the parties agreed that an adjustment should be made in the purchaser's favour in the sum of $2,200,000 for this reason. The adjustment was shown in the closing accounts as 'income in advance'. Income in advance is included as a specific item in the draft closing account contained in Schedule 4 but is not defined in the contract. The parties' agreement
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appeared to accept that the plaintiff had had the benefit of income which, as a result of the retrospective price decrease, became income paid 'in advance' of the ultimate entitlement to be determined at the end of the season. This is consistent with the contents of a letter written by the defendant to the plaintiff dated 28 July 2016 in which it noted that the closing accounts 'reflect income received in advance by (the plaintiff) in respect of the price paid by Fonterra for milk solids supplied by (the defendant)'. The letter also notes that the payment of the adjustment amount is 'in full and final settlement of any amount due and payable under clause 4.2(c) of the Agreement'. It can be inferred that the plaintiff agreed to those terms.
The forgiveness of the MSSP and Fonterra's reaction
23 On 2 May 2017, Murray Goulburn announced that it would cease all future repayments of the MSSP and reimburse current and retired suppliers for payments already deducted. In press releases placed into evidence, it explained this decision as a consequence of its recognition 'of the unintended impact of the MSSP'. The decision followed advice received from a consulting firm. That advice recommended an abandonment of the recovery of payments due by suppliers under the MSSP as part of a raft of measures designed to address a loss of milk supply during the 2017 season which, in turn, was having a significant impact on the efficacy of Murray Goulburn's business. This was a significant step, the negative impact on Murray Goulburn's profit was estimated to be in the vicinity of $148 million. It is obvious that Murray Goulburn took this expensive measure for the predominant reason of ensuring the maintenance of milk supply as an essential precondition to the future viability of its business.
24 On 10 May 2017, in an email which I infer had been sent by the milk supply
manager of Fonterra to the company's suppliers, the following announcements were
made:
• It was noted that the forecast full year farm gate milk price range was $5.30 to $5.70 per kg/MS for the 2017-2018 season. • Fonterra would 'also pay an additional payment of 40 cents per kg/MS on top of our forecast full year price range for season 2017/2018'. It was noted that this would bring the full year price range to between $5.70 and $6.10 per kg/MS. • The email explained that the 'additional 40 cent payment' was introduced as a response to Murray Goulburn's 'recent announcements including the decision to forgive its Milk Supply Support Package'. The email noted that in the light of this announcement 'we will also pay an additional payment 40 cents per kg/MS next season'. • Ongoing suppliers would have the option to receive the payment as a lump sum advance paid by 31 July 2017. • Retired suppliers who did not supply any other company after retirement, would also receive the payment as a lump sum. It is clear from other documents that, in contrast to the position in respect of ongoing suppliers, this payment would be calculated on the basis of production figures achieved by the retired supplier during the 2015-16 season. 25 In a joint letter to suppliers dated 12 May 2017, the Managing Director and General Manager Milk Supply of Fonterra explained that the decision to pay the additional 40¢ per kg/MS in 2017-18 was taken after consideration of Murray Goulburn's 'recent announcements including the decision to forgive its … MSSP'. It described the additional payment as 'the most fair and equitable response'. It also explained why Fonterra had decided to pay the additional payment on future production, rather than retrospectively on production during the 2015-16 season:
'Every supplier was affected differently by last season's step down, and we know that there were a range of different business decisions made. We knew that a retrospective payment couldn't cater for all of the different scenarios. By paying this forward, we
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believe that farmers will have the best possible opportunity to make the most of this payment. Having access to this payment now enables farmers to reduce or pay off FASL debt where they have one, or use the cash to underpin their business.'
26 This topic was also addressed in another Fonterra document clearly intended for publication, dated May 2017 and entitled "Global Dairy Update Australia". The document contains what is asserted to be a summary of discussions between office holders, which included the managing director and general manager of Fonterra and suppliers during an information tour. That document includes the following passages:
'Why did you decide to pay it on next season's volumes, rather than 2015/16?
Many made decisions after our price revision that impacted milk volumes – some dried off early or sold or culled cows, meaning that May and June 2015/16 are not a true reflection of regular milk volumes for those months.
After consultation with BSC and the Supplier Forum, paying the 40 cents/kgMS on next season's milk provides opportunity to increase production and capture more of the benefit of the additional payment.'
27 In a further document produced by Fonterra dated 15 May 2017 and entitled 'The Facts – Australian Milk Pricing Announcement', Fonterra dealt with the question of why it had decided to provide an additional payment to suppliers rather than forgive its support loans (FASL). It explained this decision as follows:
'Why is Fonterra not forgiving its support loan?
Unlike Murray Goulburn, our support loan was optional around 40% of our suppliers took out a loan and there was significant variation in the amount borrowed among that 40%.
There are farmers who did not take out a loan and they were just as affected by last year's milk price revision. If we forgave the loan, only 40% of our farmers would benefit from that decision and it would be inequitable for our total supply base.'
Additional payments to defendant during 2017-18 season
28 The parties have produced slightly different calculations of the aggregate sum paid by Fonterra to the defendant during the 2017-18 season, by way of the additional payments. The defendant calculates a gross payment of $3,423,247.24, and the plaintiff a gross payment of $3,112,040 for the same period. Because the plaintiff's claim is based on the lesser sum, it is not necessary for me to resolve this discrepancy. In respect of this sum, the plaintiff's company secretary, Mr Taylor, has calculated the amount attributable to the first nine months of the 2017-18 season at $2,266,760 on a weighted percentage split basis in respect of milk solids contained in the milk supplied during that period.
29 It is uncontroversial that the defendant applied for and received payments in advance, in accordance with the arrangement proposed by Fonterra. It is also uncontroversial that these advances are irrelevant to the resolution of this case. They were truly in the nature of a short term loan, and repayment of the advances was recouped by Fonterra from monies which became payable from time to time under the additional payment arrangement.
The plaintiff's claim under the sale agreement
30 The plaintiff asserts that the defendant is contractually bound to pay to it the aggregate sum received by the defendant by way of additional payments during the first nine months of the 2017-18 season. It claims that this obligation arises from the express or alternatively implied terms of the sale agreement. In submissions, counsel for the plaintiff suggested alternative relief, in particular that in order to give effect to the contractual position, the defendant should refund to the plaintiff the income in
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advance payment contained in the closing adjustment. As will be apparent from the
foregoing discussion, the relevant sums are approximately equal.31 Clause 7 of the sale agreement is headed 'Milk Price Step Up'. Its terms are as
follows: '7 MILK PRICE STEP UP 7.1 Any milk step up and closing price adjustment for the milk price for the year to 30 June 2016 will be paid to TLC to the extent that it relates to milk supplied by the Group in the period prior to Closing. For the avoidance of doubt, the parties agree that the intention and purpose for this clause 7 is to accurately and fairly reflect the milk price and payment mechanisms in force at the time of Closing.
7.2 the Purchaser will use its best endeavours to collect any milk step up or closing price adjustment for the Group on the following basis:
(a) Collection of Funds: funds paid by the Fonterra Co-Operative Group and received by the Purchaser from the collection of milk step ups or closing price adjustment will be paid into a separate account and remitted to the VDL Account monthly; (b) Monthly Report: the Purchaser will give TLC a monthly report summarising the amounts collected (under clause 7.2(a)) in that month and any other matters material to the collection; and (c) No Interference: TLC will not interfere with the Purchaser's collection of the funds paid by the Fonterra Co-operative Group under this Clause 7, but may, at any time, following written notice to the Purchaser, take over collection of the milk step ups and closing price adjustments.'
32 The plaintiff's claim under the express terms of the contract turns upon the construction of this provision, in particular cl 7.1. The plaintiff submits that the additional payment in respect of milk to be supplied during the 2017-18 season constitutes a milk step up and/or closing price adjustment 'for the milk price for the year to 30 June 2016', and should accordingly be paid to the plaintiff 'to the extent that it relates to milk supplied … in the period prior to closing'. The plaintiff submits that the words 'relates to' should be interpreted broadly and beneficially, and on that interpretation, there is the requisite nexus between milk supplied during the first nine months of the 2015-16 season and the additional payments. The basis of the argument is that these payments were clearly intended to provide retrospective compensation for, and effectively reversed, the price decrease relating to the 2015-16 season. The plaintiff's argument is that the payments received by the plaintiff for milk supplied during that period had only been characterised as income in advance and therefore paid over to the defendant under the closing price adjustment of the contract, because of the price reduction which flowed from the reduction of the benchmark price to $4.80 kg/MS. However, when Murray Goulburn forgave the MSSP, it effectively added .73¢ kg/MS to the benchmark price, bringing it from $4.80 to $5.53 kg/MS. Hence, Fonterra was obligated to match this, and did so by paying the extra 40¢ kg/MS. This can be inferred from the quantum of the additional payment. When 40¢ per kg/MS is added to the actual average price paid by Fonterra for the 2015-16 season, $5.13 kg/MS, the result matches precisely the revised benchmark price actually paid by Murray Goulburn.
33 The defendant argues that the additional payment does not constitute a milk step up or closing price adjustment within the meaning of cl 7.1 and, in any event, is not related to milk supplied during the 2015-16 season. The defendant argues that although the additional payment might have been motivated by a perceived need to rectify the effect of the price decrease in respect of the earlier season, the means chosen by Fonterra to address the problem was to put in place prospective arrangements in respect of milk to be supplied in the future, in particular during the 2017-18 season. The parties' mutual obligations under the sale agreement had, by this
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time, been carried into effect in full, and the defendant was entitled to the benefit of the assets which it purchased, including its rights under the EMSA and its ongoing relationship with Fonterra. As a matter of record, the defendant had been formally substituted for the plaintiff and its associated companies as a party to the EMSA under a deed of novation dated 14 December 2016. Finally, the defendant argues that there is no legitimate basis upon which to revisit the closing adjustment under the contract. The plaintiff has not sought in its pleadings to attack or set aside that process or its result. The agreement and payment of the adjustment constituted a full and final settlement of the parties' rights under the contract. Any perceived unfairness to the plaintiff arising from the change of attitude on the part of Fonterra is simply a consequence of the business implications of the sale of the assets, and the coincidence of prevailing market conditions."
9 After adumbrating the relevant principles of construction of commercial contracts (with which neither party quarrel), the learned primary judge held at [35]-[42] of his reasons as follows:
"35 The application of these principles to this case requires that cl 7 be construed according to its commercial purpose, and cohesively with the balance of the contract. In my view, the commercial purpose of the clause is to ensure that the plaintiff receives the benefit of changes in the milk price, irrespective of when they occur, which relate to milk supplied prior to closing. Hence, the clause contemplates an operation which is not limited by the timing or finality of closing, or even the post- closing price adjustment. This would seem to follow from the provision for discrete payment and a separate collection and payment mechanism under cl 7.2. Had it been intended that any such rights be resolved finally with settlement of the closing accounts, the issue could have been left for resolution under the process contemplated by cl 4.2 and Schedule 4. Those provisions include adjustment of 'Working Capital', which includes components such as 'income in advance' and trade receivables. Payments due by Fonterra for milk supplied prior to closing, but not then paid, would therefore be adjusted under this process. It can therefore be concluded that cl 7 was intended to have a more extensive application, which can have effect beyond the post- closing adjustment.
36 The terms 'milk step up' and 'closing price adjustment' are not defined in the sale agreement. However, their meaning can be determined by considering what 'a reasonable business person' in the position of the parties to this contract 'would have understood the terms to mean', at the time of entry into the contract. In my view, the construction of these terms is also assisted by other aspects of the text of the provision, in particular, the final sentence of cl 7.1 which expressly states that its intention and purpose is to 'accurately and fairly reflect the milk price and payment mechanisms in force at the time of closing'. The only relevant payment mechanisms in force at that time were those contained in the EMSA. Both terms can be clearly identified as references to specific mechanisms contained in the EMSA. A 'step up' is referred to under cl 10.3 of the handbook which is incorporated as part of the EMSA by definition. As already discussed, these are price increases in the discretion of Fonterra applied during the year after a periodic review, and 'generally backdated and paid retrospectively for milk supplied from the beginning of the season'. The reference to a closing price adjustment, although not defined and referred to in those terms, can only be the adjustment made in the case of a shortfall between the amount actually paid by Fonterra during the year and the benchmark price determined at the end of the year. This is provided for in cl 3.1(b) of the EMSA. The purpose of cl 7.1 is to ensure that the plaintiff receives the benefit of any payment received under either mechanism by the defendant after closing, but referable to milk supplied by the plaintiff prior to closing.
37 The question, therefore, is whether the payment by Fonterra of the additional payments on milk supplied in the 2017-18 season amounted to a step up or closing price adjustment that 'relates to milk supplied … in the period prior to closing'. Having regard to the analysis of the clause already discussed, there is no reason why a reversal of the price decrease after closing and resolution of the post-closing accounts could not fall within this definition, and hence lead to a payment back to the plaintiff. For example, if Fonterra had decided to make a back payment calculated at 40¢ kg/MS on milk actually supplied during the 2015-16 season, the clause would clearly
11 No 6/2022
require the defendant to pay to the plaintiff a share of the back payment calculated by reference to milk supplied prior to closing. A payment of that nature would, in my view, without doubt, amount to a step up or closing price adjustment.
38 The difficulty for the plaintiff's case, however, is that that is not how Fonterra chose to deal with the problem which arose from Murray Goulburn's forgiveness of the MSSP. There is no question that an inference arises from all of the evidence that the additional payment was intended to rectify and reverse the problems and losses suffered by suppliers as the result of the price decrease, and further was a reaction and response to the decision taken by Murray Goulburn. The choice of 40¢ kg/MS was clearly intended to provide an equitable link to the notional increase in the benchmark price. However, Fonterra was paying this as an additional price for milk which would be produced by the defendant in the future. It differed in a critical way to the step up and/or closing price adjustment contemplated by cl 7.1. The payment contemplated by cl 7.1 is an aggregate sum, calculated by the multiplication of the adjusted price per kg/MS on the milk produced by the supplier at the time during the 2015-16 year. The adjustments to the price can occur through the mechanisms of step up or a closing price adjustment, but must in my view be applied to milk produced by the plaintiff prior to closing.
39 This construction is consistent with the commercial purpose of the agreement. Clause 7 is intended to regulate the ongoing relationship of the parties in the light of a situation where the underlying assets had been sold and transferred between them. It is a transitional provision, which maintains the rights of the vendor beyond the final completion of the sale. It operates as an exception to the fundamental commercial purpose of the contract, which is to transfer the benefit and risk of the assets to the defendant in exchange for monetary consideration. Because of this purpose, the clause should be construed in a way which provides the parties with certainty and finality, and accordingly should be applied with precision, according to its terms. On this construction, its operation is limited to payments calculated in respect only of milk produced and supplied by the plaintiff to Fonterra prior to closing. The clause is, in my view, intended to provide a mechanism for the defendant to account to the plaintiff for money received by the defendant after closing, effectively to the use of the plaintiff, which was paid as consideration for milk produced by the plaintiff prior to closing. It applies where the payment arises because of an adjustment to the price for milk supplied in that year, flowing from and calculated by reference to one of the mechanisms referred to in the clause. Its operation goes no further than that. In particular, it will not apply to a benefit arising in respect of milk produced by the defendant after closing, irrespective of the reason for the conferral of that benefit.
40 This outcome is also consistent with the expectations of a reasonable business person. It is completely understandable that the plaintiff should receive the benefit of any prospective adjustment in the milk price on milk actually produced by it, and in respect of quantities which were completely under its control. However, in respect of the additional payments, the amount received by the defendant, depended on the work which would be performed by the defendant in the future and over an extended period. It would be achieved by the prospective use by the defendant of the assets which it had purchased from the plaintiff. The ultimate aggregate payment would be determined, not just by decisions taken by the defendant, but by a variety of potential external factors. It is inconsistent with the commercial purpose of the agreement that the plaintiff should receive the benefit of a payment made for milk produced by the defendant in such circumstances.
41 The plaintiff argues that notwithstanding such an analysis, the arrangement in substance responds to the definitions in the clause. It argues that the additional payment relates to milk supplied by the plaintiff in the 2016 year prior to closing, notwithstanding that Fonterra has chosen to assess the payment on the basis of future production. This argument, however, does no more than identify Fonterra's motivation for the additional payments. There is no real doubt that Fonterra felt obligated to match the remedial step taken by Murray Goulburn, if only to keep faith with its ongoing suppliers and retain their loyalty. As already noted, the choice of the rate of 40¢ per kg/MS was closely linked to the ultimate price effectively paid by Murray Goulburn. However, the decisions of both companies were also just as clearly
12 No 6/2022
related to their ongoing and future relationships with suppliers. Further, and in any event, Fonterra's motivation has nothing to do with the contractual relationship between the parties. The critical question is not what Fonterra wanted to achieve by the additional payments, but whether those payments fell within the ambit of cl 7. In my view, for the reasons already discussed, they did not do so.
42 It follows that the defendant is not obligated by the terms of the sale
agreement to pay to the plaintiff the additional payments received by it in respect of
milk production during the 2017-18 season."
10 The appellant submits the learned primary judge erred in that having found that retired farmers were still entitled to the $0.40/kgMS additional payment calculated by reference to the volume of milk produced in the 2015-2016 season, despite not producing any milk in the 2017-2018 season, he failed to find that the payment to the respondent was a payment that "relates to" that season and therefore was a step up or closing price adjustment under cl 7.1 of the sale agreement for the 2015-2016 season.
11 The appellant submits that by virtue of retired farmers being entitled to the additional payment, calculated on 2015-2016 season figures, it is clear the additional payment "relates to" the 2015-2016 season and that if the additional payment was purely a promotion or other bonus, retired farmers who had no intention, or means, to continue to supply Fonterra, would not have received the payment.
12 The appellant's argument runs that the payment was for the same purpose regardless of whether a particular farmer was retired or continuing to supply Fonterra. There may have been a connection to the 2017-2018 season, in that the calculations were based on that season for continuing farmers, but the payment would never have been made if it were not for the price decrease in the 2015-2016 season.
13 The appellant contends that even if it was found that the connection was indirect, that would still be sufficient for the payment to be one that "relates to" the 2015-2016 season and the milk produced by the appellant and that it follows that the additional $0.40/kgMS payments received by the respondent from Fonterra were captured by the terms of cl 7.1 and the primary judge erred in failing to so find.
14 The respondent submits as follows:
"[T]he Appellants attach no meaning to the words in clause 7.1, "Any milk step up and closing price adjustment for the milk price for the year to 30 June 2016". The Appellants ignore these words and urge a construction as if the clause was expressed as follows:
'Any milk step up and closing price adjustment for the milk price for the year to 30 June 2016 [money received by the Respondent] will be paid to [the Appellant] to the extent that it relates to milk supplied by [the Appellant Group] in the period prior to Closing. For the avoidance of doubt, the parties agree that the intention and purpose for this clause 7 is to accurately and fairly reflect the milk price and payment mechanisms in force at the time of the Closing."'
15 The respondent points out that cl 7.1 requires first, that the monies received by the respondent must be a step up or a closing price adjustment, second, that the monies received by the respondent must be a step up or a closing price adjustment for the milk price for the 2015-2016 season and third, that having regard to the final sentence of the clause, the monies received by the respondent that are to be paid to the appellant are designed to reflect the milk price and payment mechanisms in force at the time of the closing of the sale agreement, that is 31 March 2016.
16 The respondent submits that it follows that if the monies received by the respondent were not "a step up or a closing price adjustment" then cl 7.1 is not engaged. Further, that if the monies received by the respondent were not a step up or a closing price adjustment for the milk price for the 2015-2016 year, the clause is not engaged. And finally, if the sum received by the respondent does
13 No 6/2022
not reflect or is not in respect of the milk price and payment mechanisms in force at the time of the
closing, cl 7.1 is not engaged.17 The respondent observes that:
"A step up is an increase in the opening price 'as the Season progresses' for 'milk supplied from the beginning of the Season'. A step up can only be made during a Season in respect of that Season. As the last sentence of clause 7.1 of the Sale Agreement makes plain, the intention and effect of clause 7.1 was that if there was a retrospective step up after Closing (31 March 2016), say an increase in price of $0.20 per kgMS for all milk supplied during the Season, the Appellant would receive this $0.20 per kgMS for milk supplied from 1 July 2015 until Closing. Clause 7.1 was necessary to deal with this scenario because a retrospective step up after Closing but before the end of the Season would not be (or not necessarily be) reflected in the Closing Accounts. The learned primary judge gave this (with respect, correct) meaning to 'step up' at [36] of the Judgment.
As to 'closing price adjustment', the mechanism in clause 3.1(b) of the EMSA is different to a step up. A step up bears no relation to the Benchmark Price with which clause 3.1(b) of the EMSA deals. A step up by Fonterra during a Season will not be based on the final averaged Murray Goulburn price, which is the Benchmark Price. The intent and effect of clause 7.1 of the Sale Agreement re closing price adjustment is that if there was a closing price adjustment in terms of clause 3.1(b) of the EMSA in respect of the 2015/2016 Season, such that the Benchmark Price was higher than the actual price, then the Fonterra payment pursuant to clause 3.1(b) of the EMSA would be paid to the Appellant in respect of milk supplied prior to Closing and to the Respondent in respect of milk supplied after Closing. As with step ups, clause 7.1 operates on closing price adjustments because they are retrospective from the end of the 2015/2016 Season and clause 7.1 enshrines that the Appellant derived the benefit of retrospective change in respect of milk supplied up to Closing."
18 In my view the respondent's submissions ought to be accepted. The payment made by Fonterra to the respondent in the 2017-2018 season were not, in terms of cl 7.1, a step up or closing price adjustment, as those terms must be understood in the sale agreement. That the learned primary judge was also of the view that the payment was not one which, in terms of the clause, "relates to" milk supplied by the appellant in the period prior to the closing, is to my mind immaterial, (although, in my view correct, for the reasons given by his Honour).
19 That Fonterra decided to make the payments in the 2017-2018 season because of hardship experienced by suppliers in earlier years does not, as the respondent submits, satisfy the requirement of the clause, notwithstanding that for retired farmers the payment was calculated by reference to the 2015-2016 season.
20 I find no error in the learned primary judge's essential dispositive reasoning. Grounds 1 and 4
should fail.
Ground 2
21 The appellant submits that his Honour was inconsistent in his characterisation of the price decreases, at times finding that they were applied retrospectively but at others declaring that they were not. And the appellant further submits that he erred in finding, at times, that the price decrease was not retrospective, in the sense that it did not create a liability.
22 This ground to my mind discloses no error in the learned primary judge's essential dispositive reasoning and fails accordingly.
Ground 3
23 The appellant submits that the learned primary judge was wrong to conclude at [51] of his reasons that "the income in advance payment was legitimately made after negotiation and in full and final settlement of the parties' rights under the contract", and says that such a finding was inconsistent with earlier findings in those reasons. It is submitted that his Honour should have found, consistently
14 No 6/2022
with the letter that accompanied the payment of the adjustment amount, that the payment was only "in full and final settlement of any amount due and payable under clause 4.2(c) of the Agreement", and that the negotiation and subsequent agreement did no more than ascertain the final purchase price in accordance with the contractual mechanism for doing so.
24 There is nothing in this ground.
25 I accept the respondent's submission that the learned primary judge did not hold that the appellant's claim based on cl 7.1 of the sale agreement failed because it had agreed the post-closing adjustment amount pursuant to the regime in the sale agreement. His Honour accepted at [35] of his reasons that cl 7.1 of the sale agreement "contemplates an operation which is not limited by the timing or finality of closing, or even the post-closing price adjustment". That is to say, that it operated outside of the post-closing adjustment regime. Nothing stated at [51] relates to the appellant's claim based on cl 7.1.
Grounds 5, 6 and 7
26 The appellant submits that when Fonterra made the additional payments to its suppliers, the effect was to restore the suppliers to the position that they would have been in had Fonterra met its contractual obligations for the 2015-2016 season. That is, to say that the decision by Murray Goulburn to forgive the MSSP had the flow on effect of increasing the price paid by Murray Goulburn to its suppliers to $5.53/kgMS and although it occurred after the conclusion of the 2015-2016 season, the consequence was to increase the benchmark price under the EMSA to $5.53/kgMS. Fonterra had only paid its suppliers $5.13/kgMS and in turn had paid $0.40/kgMS below the benchmark price for the entirety of the 2015-2016 season.
27 The submission runs that in the language of equitable subrogation, both the appellant and the respondent were the creditors of Fonterra because they had a cause of action against Fonterra for breach of the EMSA by Fonterra underpaying the benchmark price by$0.40/kgMS in the 2015-2016 season. The sale of the business, including the assignment of the EMSA, by the appellant to the respondent, and the mechanism employed by Fonterra to reduce the average price paid for the 2015- 2016 season had the consequence of the respondent effectively being responsible for the entirety of the price correction or adjustment imposed by Fonterra. That included the period prior to closing when the appellant had derived the benefit of payments over the intended final price. When the closing price adjustments were agreed under cl 4.1 of the sale agreement the result was to recognise as income in advance the income received by the appellant during that part of the 2015-2016 season where the appellant had been paid more than the closing price. It is submitted that the closing price adjustment resulted in an equitable distribution between the appellant and the respondent of the consequences of the reduced closing price paid by Fonterra and the respondent received the benefit of that equity.
28 Thus, the argument goes, when the respondent received the benefit of the $0.40/kgMS additional payment it received a benefit from Fonterra that the appellant had already paid as a consequence of the closing price adjustment, and the double receipt of the same benefit by the respondent, without accounting to the appellant for the amounts paid by it to the respondent, resulted in the respondent being double compensated. That is, once by the appellant via the final purchase price ascertainment mechanism in the sale agreement, and then a second time by Fonterra by the additional payment.
29 The appellant submits that those circumstances resulted in the respondent having an obligation to account to the appellant for all amounts of the additional payment received by the respondent from Fonterra referrable to milk supplied by the appellant in the 2015-2016 season up to the sum of the $2.2 million purchase price adjustment in respect of income in advance. As a consequence, it is said, the appellant was subrogated to the respondent's rights to receive that amount.
30 The appellant further submits as follows in its written submissions:
"This is analogous to the discharge of a debt by a third party but involves a two stage consideration. The first stage is when Fonterra reduced the closing price for the 2015/2016 season. The consequence was that the appellant and the respondent
15 No 6/2022
effectively owed Fonterra the amount required to reduce the average milk price paid under the EMSA for the 2015/2016 season. Fonterra resorted to a self-help mechanism to recover that debt by deducting the amount that it calculated as owing from milk supplied for the remainder of the season. The consequence was that the respondent would pay the entirety of the debt jointly owed by the appellant and the respondent. If the circumstances were left there the respondent could have recovered against the appellant its share of the joint debt. Instead, cl4.1 of the Sale Agreement provided for that recovery by the acknowledgement of the amounts in excess of the closing price received by the appellant as Income in Advance.
The second stage is to consider the consequences of Fonterra's payment of the $0.40/kgMS additional payments. The primary judge found that 'there is no question that an inference arises from all of the evidence that the additional payment was intended to rectify and reverse the problems and losses suffered by suppliers as a result of the price decrease' and that there was 'no real doubt that Fonterra felt obliged to match the remedial step taken by Murray Goulburn'. The primary judge also found that 'if Fonterra had decided to make a back payment calculated at 40c kg/MS [sic] on milk actually supplied during the 2015-16 season, [clause 7.1 of the Sale Agreement] would clearly require the [respondent] to pay to the [appellant] a share of the back payment calculated by reference to milk supplied prior to closing'. The primary judge had found earlier in the primary judgment that Fonterra had announced on 10 May 2017."
31 As noted by the respondent, there appear to be two bases advanced by the foregoing submissions for the subrogation said to arise from the respondent's receipt of the 2017 payment.
32 The respondent submits that the first explanation of the subrogation case is that Fonterra breached the Fonterra agreement by incorrectly setting the benchmark price; that is, the benchmark price (based on the Murray Goulburn price) should have been higher than it was set by Fonterra. As a result, the appellant had a cause of action against Fonterra for damages for breach of contract. The damages would be assessed at $0.40 per kgMS for every kgMS supplied by the appellant from 1 July 2016 to 31 March 2016. The novation of the EMSA as part of the sale resulted in "the respondent effectively being responsible for the entirety of the price correction or adjustment imposed by Fonterra" and the 2017 payment was in effect a payment that compensated the respondent for the loss suffered by the appellant by reason of the breach of the Fonterra agreement by Fonterra.
33 As to that, the respondent submits there are a number of problems.
34 First, the respondent submits, to make out that claim the appellant would had to have run a case at trial that it had a cause of action against Fonterra for "breach of the EMSA by Fonterra underpaying the benchmark price". It did not advance such a case but had that case ever been put, Fonterra would have had to have been a party. Fonterra was not a party and the respondent says that the appellant had never suggested that it was required to be. The respondent did not insist on joinder, because this case was not put.
35 In any event, the respondent submits that the appellant's suggestion that Fonterra breached the EMSA is erroneous. The contention is that Fonterra breached the EMSA by not meeting the benchmark price and the benchmark price was defined in the EMSA; "for a Season, the milk price paid by [Murray Goulburn] … (as declared in the final end of Season letters sent by that processor to its suppliers)". There is, the respondent submits, no evidence of the contents of Murray Goulburn's end of season letters. If they exist, they were not put in evidence.
36 Further, the respondent submits, that for the appellant to prove that Fonterra breached the EMSA, it would need to have led evidence of the benchmark price and of the "actual price" paid for milk supplied by the appellant and respondent during Season 2015-2016 and it did not do so.
37 Second, the respondent says, there is no basis, "in fact or law or reason", for the assertion that the respondent was "effectively responsible for the entirety of the price correction or adjustment imposed by Fonterra".
16 No 6/2022
38 Third, the respondent says that not a single fact in this action could lead to a finding, which was not sought at trial in any event, that the respondent assumed an obligation to discharge any liability owed by Fonterra to the appellant.
39 The respondent's submissions appear to me to be correct.
40 The respondent then submits that the second basis for the contended subrogation contained in the appellant's written submissions, namely unjust enrichment, reflect the appellant's pleaded case.
41 The respondent says that this claim fails for the reasons expressed by the learned trial judge, in particular at [51] of his reasons.
42 There his Honour said:
"51 In addition to mistake, duress or illegality, some cases have also recognised a total failure of consideration as such a factor. But, in this case, the plaintiff has not identified a 'qualifying or vitiating factor' sufficient to establish the claim of unjust enrichment. It is the absence of legal entitlement to receive or retain the benefit which is critical. Nothing of that nature is alleged here. The income in advance payment was legitimately made after negotiation and in full and final settlement of the parties' rights under the contract. It was clearly justified on the basis of the contractual rights and obligations of each party at the time. In respect of the additional payments, the defendant was entitled to the fruits of its ownership of the assets and its production of milk in the 2017-18 year. The strongest argument available to the plaintiff is that the basis upon which the income in advance payment was made has altered to the extent that it is now inequitable and unjust for the defendant to retain that payment. However, something more than a windfall gain to the defendant will be necessary to establish a 'qualifying or vitiating factor', sufficient to ground restitution."
43 In my view the learned primary judge did not err in the reasoning by which he disposed of this aspect of the appellant's claim. The claims of subrogation and unjust enrichment must fail. I would dismiss grounds 5, 6 and 7 of the notice of appeal.
Disposition
44 I would dismiss the appeal.
17 No 6/2022
File No 502/2022
TASMANIAN LAND COMPANY PTY LTD v VAN DAIRY GROUP PTY LTD
| REASONS FOR JUDGMENT | FULL COURT GEASON J 2 September 2022 |
45 I have had the advantage of considering the judgment of Estcourt J. I agree with his Honour's conclusions and the reasons therefor. There is nothing I wish to add.
18 No 6/2022
File No 502/2022
TASMANIAN LAND COMPANY PTY LTD v VAN DAIRY GROUP PTY LTD
| REASONS FOR JUDGMENT | FULL COURT MARTIN AJ 2 September 2022 |
46 I agree that the appeal should be dismissed for the reasons given by Estcourt J.
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