United Beverage Co-Packers Pty Ltd v Proclear International Pty Ltd; Proclear International Pty Ltd v United Beverage Co-Packers Pty Ltd (No 4)

[2024] NSWSC 1455

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

United Beverage Co-Packers Pty Ltd v Proclear International Pty Ltd; Proclear International Pty Ltd v United Beverage Co-Packers Pty Ltd (No 4) [2024] NSWSC 1455

Hearing dates:

16-19, 23-24 September, 9, 22-24 October 2024

Date of orders:

21 November 2024

Decision date:

18 November 2024

Jurisdiction:

Equity - Commercial List

Before:

Stevenson J

Decision:

Proclear’s claims fail; UBC entitled to judgment for unpaid invoices

Catchwords:

CONTRACTS – breach of contract – where agreement formed between plaintiff customer and defendant manufacturer for the manufacture of protein water beverages in accordance with identified specifications – whether defendant manufacturer overcharged plaintiff customer concerning identified ingredients – whether defendant manufacturer in breach of alleged certification agreement concerning supply to ALDI stores

CONTRACTS – construction – interpretation – meaning of “clear protein beverage” – whether defendant manufacturer breached obligations of exclusivity by manufacturing for third parties “clear” protein water beverages

CONTRACTS – implied terms – terms implied in fact – where ‘mould’ issue was found in the protein water beverages manufactured by the defendant manufacturer for the plaintiff customer – where cause of the ‘mould’ issue in dispute – whether ‘mould’ issue caused by environmental factors at the defendant manufacturer’s factory or by reason of spores in ingredient supplied by plaintiff customer – whether an implied term of the agreement that the product would be suitable and safe for human consumption and free from contamination, regardless of whether mould caused by spores in ingredient supplied by plaintiff customer – whether implied term would be reasonable and equitable – whether defendant manufacturer otherwise breached express term concerning quality control procedures

EQUITY – breach of confidence – necessary quality of confidence – material in public domain – whether defendant manufacturer breached obligations of confidence by manufacturing for and assisting third parties to make protein water beverages – whether an identified “formula” was confidential information – where each element in that “formula” was in the public domain – whether combination of those elements was nonetheless confidential – whether the “formula” was a ”formula” for the purposes of the agreement

Legislation Cited:

Court Suppression and Non-Publication Orders Act 2010 (NSW)

Cases Cited:

Australian Medic-Care Company Ltd v Hamilton Pharmaceutical Pty Ltd [2009] FCA 1220

Berry v CCL Secure Pty Ltd (2020) 271 CLR 151; [2020] HCA 27

BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266

Cessnock City Council v 123 259 932 Pty Ltd [2024] HCA 17

Chaina v The Presbyterian Church (NSW) Property Trust [2008] NSWSC 290

Coco v AN Clark (Engineers) Ltd (1968) 1A IPR 587

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; [1982] HCA 24

Commonwealth Bank of Australia v Barker (2014) 253 CLR 169; [2014] HCA 32

Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434; [1987] FCA 266

Dart Industries Inc v Decor Corporation Pty Ltd (1993) 179 CLR 101; [1993] HCA 54

Dr Martens Australia Pty Ltd v Bata Shoe Co of Australia Ltd (1997) 75 FCR 230; [1997] FCA 505

Filby v TEG Live Pty Ltd [2023] NSWCA 320

Fraser v Thames Television Ltd [1984] QB 44; [1983] 2 WLR 917; [1983] 2 All ER 101

Hart v Macdonald (1910) 10 CLR 417; [1910] HCA 13

Hexiva Pty Ltd v Lederer [2006] NSWSC 318

Malec v JC Hutton Pty Ltd (1990) 169 CLR 638; [1990] HCA 20

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37

Sellars v Adelaide Petroleum NL; Poseidon Ltd v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4

TAL Life Ltd v Shuetrim; MetLife Insurance Ltd v Shuetrim (2016) 91 NSWLR 439; [2016] NSWCA 68

Talbot v General Television Corporation Pty Ltd [1980] VR 224

Texts Cited:

Collins Dictionary, 5th Australian ed (2003)

Concise English Oxford Dictionary, 4th ed (2004)

J D Heydon, Heydon on Contract (2019, Thomson Reuters Lawbook Co)

Macquarie Dictionary, 9th ed (2023)

Macquarie Dictionary, online ed, accessed 13 November 2024

P Herzfeld and T Prince, Interpretation (3rd ed, 2024, Thomson Reuters Lawbook Co)

The Oxford English Dictionary, 2nd ed, Vol VI (1989)

Webster’s New Twentieth Century Dictionary Unabridged, 2nd ed (1979)

Category:

Principal judgment

Parties:

Proceedings 2021/352878
United Beverage Co-Packers Pty Ltd (Plaintiff)
Proclear International Pty Ltd (Defendant)

Proceedings 2021/363563
Proclear International Pty Ltd (Plaintiff)
United Beverage Co-Packers Pty Ltd (First Defendant)
RJ8 Enterprises Pty Ltd (Second Defendant)
Michael Gordon (Third Defendant)

Representation:

Counsel:

Proceedings 2021/352878
P T Russell (Plaintiff)
T Alexis SC / B Michael (Defendant)

Proceedings 2021/363563
T Alexis SC / B Michael (Plaintiff)
P T Russell (Defendants)

Solicitors:

Proceedings 2021/352878
Vincent Young (Plaintiff)
Hall and Wilcox (Defendant)

Proceedings 2021/363563
Hall and Wilcox (Plaintiff)
Vincent Young (Defendants)

File Number(s):

2021/352878
2021/363563

Publication restriction:

Attachment referred to at [63] redacted pursuant to s 7 of the Court Suppression and Non-Publication Orders Act 2010 (NSW)

JUDGMENT

Introduction

1. In 2012 Mr Boden Lazar, a director of the plaintiff, ^[1] Proclear International Pty Limited, began looking for an alternative protein drink to the heavy, dairy like protein beverages then available in Australia.

   1. In proceedings 2021/363563, which I will call the “Main Proceedings”.

2. Mr Lazar claims that he conceived a protein water beverage, said to be unique in the Australian market, known as “Bodie’z Protein Water”.

3. On 2 April 2017, Proclear entered a Manufacturing Agreement (“the Agreement”) with the first defendant, ^[2] United Beverage Co-Packers Pty Limited (“UBC”) to manufacture “the Product” as defined in the Agreement in accordance with the “Specifications” referred to in the Agreement.

   2. In the Main Proceedings.

4. The second defendant, ^[3] RJ8 Pty Limited, also executed the Agreement, although it is not named as a party to it.

   3. In the Main Proceedings.

5. The third defendant ^[4] is Mr Michael Gordon, a director of UBC and RJ8. Mr Gordon and his companies assisted with the formulation of Bodie’z Protein Water.

   4. In the Main Proceedings.

6. Proclear claims that:

1. UBC and RJ8 breached obligations of confidence, in the Agreement and in equity, by manufacturing for and assisting third parties to make protein water beverages;

2. UBC and RJ8 breached obligations of exclusivity in the Agreement, during the course of the Agreement and during the 12-month post-contract restraint period, by manufacturing for third parties, beverages in the “Product Category” specified in the Agreement; and

3. UBC manufactured and supplied Proclear with beverages that exhibited mould and were thereby not fit for sale or consumption.

7. Proclear also makes two discrete claims regarding over charging and an agreement to obtain a particular food certification.

8. In separate proceedings, which were heard together with the Main Proceedings, UBC claims an amount for unpaid invoices.

9. The claims made by Proclear against Mr Gordon personally were abandoned during final submissions.

Decision

10. Proclear has not made out any of its claims against UBC.

11. UBC is entitled to judgment in the amount claimed.

The Agreement

12. Under the Agreement, Proclear appointed UBC “to manufacture the Product at [UBC’s] premises in accordance with the Specifications in Schedule 4”. ^[5]

    5. Clause 3.1.

13. Proclear agreed to provide UBC “the Specifications for the sole purpose of manufacturing the Product in accordance with this Agreement”. ^[6]

    6. Clause 3.3.

14. It is common ground that no Specifications were attached to the Agreement at the time it was executed.

15. There is controversy as to how and when Specifications were agreed. As Proclear’s case was ultimately developed, ^[7] it is not necessary to resolve that question.

    7. See [29] below.

16. The Agreement defined “Product” to mean “the products described in the Schedule 1”.

17. Schedule 1 was in the following form:

“PRODUCTS

1. 30g Clear Protein RTD ^[8] Berry Flavour 450ml and 500ml

2. 30g Clear Protein RTD Kiwi Flavour 450ml and 500ml

3. 20g Clear Protein RTD Orange Flavour 450ml and 500ml

4. 20g Clear Protein RTD Citrus Flavour 450ml and 500ml

5. 15g Clear Protein RTD Berry Flavour 450ml and 500ml

6. 15g Clear Protein RTD Lemon Lime Flavour 450ml and 500ml

7. 15g Clear Protein RTD Orange Flavour 400ml and 500ml

Products can be added to the schedule at the discretion of the customer however different pricing may apply.”

8. “Ready to drink”.

18. The Agreement provided for a “Product Category” which was defined to mean, relevantly:

“… clear protein beverages whether in RTD or powder form …”.

19. The Agreement provided that Proclear “must provide all Unique Ingredients”. ^[9]

    9. Clause 4.1.

20. The expression “Unique Ingredients” was defined to mean any ingredient that is not a “Non-Unique Ingredient”, that is any ingredient that is not a “generic ingredient such as water or sugar”.

21. I shall refer to other relevant terms of the Agreement as necessary in the context of my consideration of the claims made by Proclear.

The breach of confidence claim

22. In their closing submissions, Mr Alexis SC, who appeared with Mr Michael for Proclear, described this as Proclear’s “principal claim”.

23. As articulated in its Further Amended Commercial List Statement, Proclear’s claim was expressed in terms of “Trade Secrets”, an expression not used in the Agreement.

24. The relevant allegation is that “UBC and RJ8 have disclosed or used the Trade Secrets to assist third parties” and that:

1. “UBC has used Trade Secrets to manufacture products for third parties”; and

2. “RJ8 has used the Trade Secrets to consult to and assist third parties in the formulation of protein water beverages capable of being manufactured by UBC using the Trade Secrets”. ^[10]

10. At [C24].

The provisions in the Agreement concerning confidentiality

25. Proclear alleges that by this conduct, UBC and RJ8 breached cll 11.3 and 11.5 of the Agreement.

26. Those clauses provided, relevantly:

“11.3   Each party undertakes to the other party that the first party (the receiving party) will:

(a)   hold, treat and maintain the Confidential Information of the other party (the disclosing party) in full confidence, acknowledging it to be valuable property of the disclosing party;

(b)   take all steps as may be necessary to safeguard the confidentiality of the Confidential Information of the disclosing party including maintaining electronic security;

(c)   not directly or indirectly disclose the Confidential Information of the disclosing party to any third party without the prior written consent of the disclosing party;

…

11.5   The receiving party:

(a)   confirms that the sole use which the receiving party may make of the Confidential Information of the disclosing party is to use the Confidential Information of the disclosing party in the course and for the purpose only of performing its obligations under this agreement; and

(b)   must not use the Confidential Information of the disclosing party other than as specified in this clause 11.5 without the prior written consent of the disclosing party.”

27. “Confidential Information” was defined to mean, so far as concerns Proclear, “the items specified in clause 11.1”.

28. Clause 11.1 provided that UBC acknowledged that, relevantly, the following “is information confidential to [Proclear]”:

“(c)   the Specifications (and any modifications, improvements and changes to them), formulas, suppliers and process information; and

(d)   information which comes into [UBC]’s possession, pursuant to, or as a result of, or in the performance of this agreement, whether such information relates to the business, sales, marketing or technical operations, Intellectual Property Rights, financial position or management of the Customer, the clientele of the Customer, related body corporate of the Customer or otherwise …”. (Emphasis added.)

29. It emerged during closing submissions that Proclear accepted that the only relevant part of this definition of Confidential Information is the word I have emphasised: “formulas”. Proclear does not contend that UBC has misused any Confidential Information that may form part of the “Specifications”, any “process information” or which came into its possession pursuant to or as a result of the Agreement.

30. Clause 11.9(c) of the Agreement provided that the “obligations in this clause 11 do not apply to a part of the Confidential Information … which is in or comes into the public domain.”

31. This is a critical provision, for reasons which will emerge below.

The allegedly confidential information – the “MFI-20 Formula”

32. Proclear’s claim is now confined to UBC’s and RJ8’s alleged use of what the parties referred to as the “MFI-20 Formula” to manufacture products for third parties.

33. Prior to delivery of Proclear’s opening submissions, the claim made by Proclear was much wider and was particularised to include what the parties referred to as “Finished Product Specifications”.

34. The MFI-20 Formula is said to be “[t]he following combination of ingredients, formulation and techniques for the manufacture of clear protein water beverages”:

“1.    Pre-acidified protein is used, with phosphoric acid or other acidulants to reduce the pH of the beverage;

2.    Antifoam is used as the first ingredient in the batching stage to reduce excessive foaming;

3.    The beverage is to have a pH range of typically approximately 3.2 but not higher than 4. The pH level is adjusted where necessary to achieve the target pH level by the use of acidulants, per 1 above;

4.    Pasteurisation temperature of approximately 92.5°C, and a short pasteurisation time (between approximately 30 and 90 seconds);

5.    A ‘cold flash’ pasteurisation process is used, with Velcorin used to sterilise the beverage as described at [22] of Mr Lazar’s confidential affidavit of 7 April 2023.”

35. In their closing submissions, Mr Alexis and Mr Michael emphasised the following three matters in relation to the MFI-20 Formula:

1. “It is the combination of the above components and processes to make protein water which Proclear claims is confidential, not each individual component or process in isolation. … Insofar as the defendants contend that individual elements are in the public domain, that does not establish that their combination, when used to make protein water, is in the public domain.” (Emphasis in original.)

2. “Acidulants are used to reduce the pH level “where necessary”. So, for example, if a beverage’s pH level would already be at the requisite pH range because the particular pre-acidified protein used has a sufficiently low pH, such that acidulants are not used to reduce the pH, acidulants are not a requirement of the Formula to make protein water in those circumstances.” (Emphasis in original.)

3. “The pH range, pasteurisation first strike temperature, and pasteurisation time are expressed as approximates. So, for example, a pH of (say) 3.0 rather than 3.2 would still fall within element [3] of the Formula. Similarly, a pasteurisation time of (say) 100 seconds rather than 90 seconds, with a first strike temperature of 94°C rather than 92.5°C, would still fall within the pasteurisation time and temperature in element [4].”

36. In closing address, Mr Alexis said:

“… the critical part of the information is how it’s used together to make the product. And your Honour, the important context for that, critically and before the manufacturing agreement commenced, is that no-one else was doing it.

No-one else was making protein water using the cold flash pasteurisation process, and when the manufacturing agreement commenced, the only customer that UBC was doing this for was Proclear. And so, your Honour, this debate about the significance or the importance or the critical nature of the combined use of these elements needs to be understood, with respect, in that context. It was special, in that sense. It was something new.”

37. A short time later, Mr Alexis said that the MFI-20 Formula “reflects the method that was used to manufacture our product”. Mr Alexis took me to batch sheets which appear to show that the elements in the MFI-20 Formula were amongst the elements used to make Proclear’s “Bodie’z” product.

38. It is common ground that it is not possible to make a “clear protein beverage”, or any Bodie’z product, using only the five elements in the MFI-20 Formula.

39. There is a dispute, to which I will return, as to whether the MFI-20 Formula was, in truth, a formula at all.

40. As to the provenance of the MFI-20 Formula, Mr Alexis accepted that he and Mr Michael had:

“… prepared [the MFI-20 Formula] as part of our opening submissions to try … and distil onto one page what was said to be the essence of the method that was confidential to the manufacture of Bodie’z products.”

41. Mr Alexis accepted that “there is no document like a batch sheet which distils the essential part of the method into the document like [the MFI-20 Formula]”.

42. Mr Alexis submitted, however, that this was “not the point” and that the fact that there was no such document “cannot of itself lead to the result that the information is not confidential”.

43. So much may be accepted.

44. But, as I set out below, there are other problems.

Confidential Information under the Agreement

45. There was a dispute about the proper construction provisions of the Agreement relating to Confidential Information. The dispute concerned what was said to be a tension between cl 11.1, referred to above, and cl 11.2, which dealt with the Confidential Information of UBC, and the relationship between those two clauses and cl 5.2, which dealt with improvements or modifications to the formulation of product.

46. Because Mr Alexis and Mr Michael accepted that none of the elements in the MFI-20 Formula comprised “process information”, ^[11] it is not now necessary to resolve that dispute.

    11. See [29] above.

Equitable duty

47. In addition to relying on the provisions in the Agreement to which I have referred, Proclear alleges UBC and RJ8 are in breach of an equitable duty of confidence.

48. It is common ground that the relevant principles are set out in the judgment of Gummow J in Corrs Pavey Whiting & Byrne v Collector of Customs (Vic). ^[12] These were recently summarised by the Court of Appeal in Filby v TEG Live Pty Ltd, ^[13] as follows:

    12. (1987) 14 FCR 434 at 443; [1987] FCA 266.

    13. [2023] NSWCA 320 at [112] (Stern JA, White JA and Simpson AJA agreeing).

1. the plaintiff must be able to identify with specificity, and not merely in global terms, that which is said to be the information in question;

2. the information must have the necessary quality of confidence;

3. the information must have been received by the defendant in such circumstances as to import an obligation of confidence; and

4. there must be an actual or threatened misuse of the information.

Some technical expressions

49. A number of expressions were used in the evidence, including the MFI-20 Formula, discussion of which is useful at this point.

Protein water

50. “Protein water” was not defined by the parties beyond what Mr Lazar has said in his affidavit of 6 April 2023, as follows:

“In early 2013, I started to develop a new product in which I was able to create a protein drink with a water-like consistency, unlike the heavy dairy consistency of the traditional protein shakes on the market at the time…”. (Emphasis added.)

Co-pack manufacturer

51. A “co-packing manufacturer” is a contracting manufacturer to which a company, such as Proclear, might outsource the manufacturing and shipping of products. As Mr Russell, who appeared for UBC stated, it is used to described “contractors who do the manufacturing for you”. UBC was co-packing manufacturer. It manufactured the Bodie’z products for Proclear, as well as a number of other products for third parties.

pH

52. There was no evidence before me as to what “pH” means. There was no dispute that, for the purpose of these proceedings, it has its ordinary meaning as “a measure of acidity” with “pure water ha[ving] a pH of 7, acidic solutions … lower pH values and alkaline solutions higher values.” ^[14]

Acidulants

14. Macquarie Dictionary, online ed, accessed 13 November 2024.

53. An “acidulant” is a product used to reduce the pH of a product. Examples of acidulants include phosphoric acid and hydrochloric acid.

Pre-acidified protein

54. “Pre-acidified protein” are proteins that are pre-acidified, that is, proteins that have a lower pH.

Whey protein isolate

55. “Whey protein” is a type of pre-acidified protein. “Whey protein isolate” is a whey protein that has a protein content concentration greater than 90%.

Hot fill process of pasteurisation (“Hot Fill Process”)

56. A Hot Fill Process is a method of food packaging that uses heat to sterilise a product and its container. It was used by a Western Australian company, Planet Sales Pty Limited, from 2013 to manufacture a protein beverage product for a company associated with Mr Lazar. The process involves treating the beverage to a high heat for a short period, pouring it into the bottles while still hot, and then allowing it to cool in the bottle.

Cold flash process of pasteurisation (“Cold Flash Process”)

57. Cold Flash Process is a method of food packaging that also seeks to sterilise or pasteurise a product. The process involves exposing the product briefly to heat and then to rapid cooling before pouring it into the bottle. It was the process used by UBC at its Unanderra factory. I discuss both Hot Fill Process and Cold Flash Process further below. ^[15]

    15. From [109].

Is the MFI-20 Formula a “formula” for the purpose of clause 11.1(c) of the Agreement?

58. Mr Alexis and Mr Michael submitted that the MFI-20 Formula is said by Proclear to be the “core formula used to make Bodie’z protein water”.

59. As I have said, it is common ground that it is not possible to make a protein beverage using only the five elements of the MFI-20 Formula.

60. The ordinary meaning of “formula” is, relevantly, a “recipe or prescription”, ^[16] “a prescription or detailed statement of ingredients; a recipe”, ^[17] “a list of ingredients with which something is made”, ^[18] “a method, pattern, or rule for doing or producing something, often one proved to be successful”, ^[19] or a “list of materials and directions for preparing a dish or drink”. ^[20]

    16. Macquarie Dictionary, 9th ed (2023) at 611.

    17. The Oxford English Dictionary, 2nd ed, Vol VI (1989) at 89.

    18. Concise English Oxford Dictionary, 4th ed (2004) at 547.

    19. Collins Dictionary, 5th Australian ed (2003) at 639.

    20. Webster’s New Twentieth Century Dictionary Unabridged, 2nd ed (1979) at 1505.

61. Care must be used when considering words used in an agreement by reference to dictionary definitions. Thus, it has been said: ^[21]

“It is trite that a dictionary definition will not itself resolve a dispute about construction. It is not clear that anyone had ever suggested otherwise. The purpose of a dictionary is to identify the ordinary meaning or meanings of words, not whether the words of the document bear their ordinary meaning, or some other meaning.”

21. P Herzfeld and T Prince, Interpretation (3rd ed, 2024, Thomson Reuters) at [20.40], referring to the doubt expressed by Leeming JA as to the utility of resorting to dictionary definitions in TAL Life Ltd v Shuetrim; MetLife Insurance Ltd v Shuetrim (2016) 91 NSWLR 439; [2016] NSWCA 68 at [80] (Beazley P and Emmett AJA agreeing).

62. Neither party referred to authority dealing with the meaning of “formula”. My own research has revealed that, in Chaina v The Presbyterian Church (NSW) Property Trust, ^[22] Hoeben J said, in the particular context of that case, that “the formula will identify the component parts of a product and their quantity”. ^[23] Similarly, in Australian Medic-Care Company Ltd v Hamilton Pharmaceutical Pty Ltd,^[24] Finn J, in the particular context of that case, referred to a “production formula which listed the ingredients of the product and their proportions”. ^[25]

    22. [2008] NSWSC 290.

    23. At [24].

    24. [2009] FCA 1220.

    25. At [626].

63. Mr Russell pointed to a document that Mr Gordon prepared in or around October 2014 to enable Planet Sales to manufacture a beverage using the Hot Fill Process to which I referred at [56] above. That document was in the form attached to this judgment. [Attachment Redacted]

64. Mr Russell submitted, and I accept, that this document can be said to be a “formula”, in the sense of these definitions. It is a list of the ingredients, and the quantities or proportion of those ingredients, needed to create a product.

65. As one cannot make any product using the five elements of the MFI-20 Formula, I am not persuaded that it can be said to be a “formula” for the purpose of cl 11.1(c) of the Agreement.

66. In any event, there are further problems.

The five elements of the MFI-20 Formula

67. As I have said, Mr Alexis accepted in closing oral submissions in reply that each of the five elements of the MFI-20 Formula is in the public domain.

68. The critical question is thus whether the combination of the five elements is, nonetheless, the subject of an obligation of confidence.

69. It is nonetheless necessary to look at each of the five elements of the MFI-20 Formula in some detail.

70. In large part, the following analysis is drawn from Mr Russell’s closing submissions. They were not challenged, nor indeed addressed, in Mr Alexis’s and Mr Michael’s submissions in reply.

First element – pre-acidified protein, with acidulants where necessary to reduce pH

Pre-acidified protein

71. The pre-acidified protein used in the Bodie’z products was whey protein isolate. The whey protein isolate used was originally Hilmar 9420, ^[26] then Agropur/Davisco ^[27] and finally, Fonterra. ^[28]

    26. From 2017 to late 2018.

    27. From late 2018 to late 2020.

    28. From October 2020.

72. Mr Lazar agreed in cross-examination that whey protein isolate is a commonly used ingredient in beverages and in food.

Use of acidulants to reduce pH of the beverage

73. This is also a well-known process.

74. A document published by the United States Dairy Export Council in 2006 entitled “U.S Whey Proteins in Ready-to-Drink Beverages” states that “[w]hey protein’s strong buffering capacity requires the use of considerable amounts of acid in the formulation to bring the starting pH from around 6.5 down to 3.5 or lower”, and that a common acidulant used to achieve this includes phosphoric acid.

75. Product and application bulletins issued by Hilmar for a variety of “flavoured protein waters” specify, as a part of the formulation “procedure”, the addition of acidulants, including phosphoric acid, to reduce the pH of the beverage.

76. On 20 November 2017, Mr John Forbes, from MPD Dairy Products, sent an email to Mr Gordon enclosing product and application bulletins for a number of Hilmar products, including a “Clear Hi-Protein Sport Drink” showing, under the heading “Procedure”, the use of phosphoric acid or other acidulants to reduce the pH level of the beverage.

77. Mr Lazar had received similar specifications earlier from Mr Forbes.

78. These are not confidential matters. They were matters that Hilmar, as the manufacturer of the whey protein isolate, published in relation to the product.

79. These matters were all in the public domain.

80. Mr Gordon gave evidence that, in any event, UBC’s use of acidulants in relation to the products manufactured by third parties was for the purpose of affecting the flavour of the product, not to reduce the pH level. Mr Gordon was challenged about that on the basis that it appears that the amount of acidulants used by UBC in the products manufactured for third parties was the same or “substantially the same”, regardless of flavour. But Mr Gordon, who is deeply experienced in this field, did not accept that “the amount of citric acid [varies] depending upon the flavour of the beverage being produced”, or that the variations posited were “small variations”. I see no reason not to accept his evidence.

Second element – antifoam as first ingredient in batching stage to reduce excessive foam

Antifoam generally

81. There was no dispute about the following matters, which appear from the evidence of Dr Geoffrey Smithers, the expert food biochemist called on behalf of UBC.

82. Antifoam has been used in the manufacture of beverages and foods for at least 80 years. Its function is to reduce or prevent foaming during the manufacturing process. It is a processing aid the use of which is regulated by the Food Standards Code. A wide range of antifoams is commercially available.

83. Mr Gordon knew of antifoams from as early as 2002. He learnt of antifoams in his dealings with other drink manufacturers for whom he had acted as a co-pack manufacturer long before he met Mr Lazar in 2013.

84. In the course of those dealings, Mr Gordon became aware of the use of antifoam as an ingredient to reduce or prevent product foaming out of the top of the bottle during the manufacturing process.

85. The use of antifoam is therefore not confidential to Proclear. It is in the public domain.

The use of antifoam by UBC in the manufacture of Bodie’z

86. During the trials of Bodie’z products at UBC’s factories before the execution of the Agreement, antifoam was used in the batching process.

87. After the trial run in February 2017, and before the Agreement, Mr Gordon raised with Mr Lazar the problem that the product was foaming too much in the batching tank and suggested putting in antifoam first to see whether it assisted with the foaming. Mr Gordon confirmed this in cross-examination:

“Q. You said to Mr Lazar after the first trial, I think it was, of a run of Bodie’z, ‘We have issues with the product foaming in the batching tank. Once we add antifoam to the batching tank, the foaming starts to come down’. Do you agree with that?

A. Yes, sir.

Q. You went on to say, ‘We’ll trial putting in antifoam first to see if it helps’. Do you agree with that?

A. Okay, yes, sir.”

88. Mr Gordon confirmed that he then advised Mr Lazar that putting in antifoam first reduced the foaming, and that antifoam was then added as the first ingredient in the batching process when batching Bodie’z products at that time:

“Q. Later on, having done that, you said to him words to this effect: ‘Putting the antifoam in first significantly reduces the foaming’ or something to that effect?

A. Sure.

Q. It was after that conversation that antifoam was added as the first ingredient when batching Bodie’z products; is that right?

A. At that point in time, it’s possible, sir.”

89. Mr Gordon was taken to UBC’s batch sheets for 2017 production runs of Bodie’z products which listed antifoam as the first ingredient in the list of ingredients, and he confirmed that, in 2017, antifoam was batched as the first ingredient:

“HIS HONOUR

Q. Antifoam goes in first; is that how I read this? When it says--

A. With these batches, your Honour, the volumes are relatively low. I am quite confident we would have done that in a single mixing tank blend, and as such, yes, the antifoam went in first with this process that was used in 2017.

Q. Then citric acid, then sodium citrate, et cetera?

A. Yes, sir. Yes, your Honour.”

90. Mr Gordon elaborated that where the volume of the production run was higher so that it could not be batched in a single tank, ^[29] antifoam would be batched first, and it would also be repeated during the batching process:

“HIS HONOUR

Q. Mr Gordon, I’ll just see if I’ve got this right - on the batching sheets we’ve looked at so far, antifoam is listed as the number one - first ingredient, and I think you’ve told me that that meant that it would go in first, subject to, I think, how much - how many litres was involved?

A. Yes, sir.

Q. Right, and, I think you said, with 10,000 litres, antifoam would not necessarily go in first; is that the idea?

A. It would go in first and then - and be repeated. It wouldn’t - it wouldn’t all go in at once; it may go in multiple times.

Q. I think where we’re looking at a 4,000 litre batch sheet, you said it would all go in at once at the beginning?

A. Yes, your Honour.”

29. For example, 10,000 litres.

91. However, this evidence distracted attention from the fact that, from 2017 to March 2019, UBC used a batching tank during the batching of ingredients. It was when the batching tank was in use that antifoam, in powder or liquid form, was batched first or in stages, depending on the size of the manufacturing run.

92. However, both Mr Gordon and his business partner, Mr James Lovric, gave evidence that after UBC changed from using a batching tank to using a powder funnel and emulsion pump in about March 2019, UBC’s standard batching process changed to batching dry ingredients before wet ingredients to prevent the dry ingredients sticking to the side of the funnel during batching. That practice continues today.

93. Antifoam is a wet ingredient.

94. Thus, from March 2019, antifoam was batched with the wet ingredients and not batched in accordance with the MFI-20 Formula.

95. Further, Mr Gordon’s unchallenged evidence was that in relation to UBC’s manufacture for third parties, antifoam was not ever batched as the first ingredient. I return to this below.

96. Thus, the fact that antifoam was, at the outset, “used as the first ingredient in the batching stage”, was not because of any Confidential Information used to manufacture the Bodie’z products, but because of Mr Gordon’s suggestion that this was an appropriate course to follow, bearing in mind the particular machinery used by UBC for the batching process. When that process changed, antifoam was no longer used as the first ingredient. These were mechanical matters which could not be said to be confidential.

Third element – target pH range for the beverage, adjusted where necessary by the use of acidulants

97. In about 2015, Mr Gordon was advised by Victus International Pty Ltd, a provider of ingredients to the natural food industry, including Velcorin, that all whey protein isolate powders contain ammonia, and that the Velcorin may react with the ammonia to cause a carcinogenic byproduct if not treated with phosphoric acid to lower their pH to a pH of 3.2 or less.

98. On 21 August 2015, a representative of Victus passed on to Mr Gordon a letter from the manufacturer of Velcorin, LANXESS Deutschland GmbH, confirming that Proclear’s products were suitable to manufacture with Velcorin but strongly recommending that the pH be adjusted to a pH of 3.2.

99. On 18 July 2017, a representative of Victus sent Mr Gordon a “Velcorin suitability information sheet” stating that Velcorin was only “partially suitable” for products having a pH greater than 4, or for products with a protein content.

100. As a result of that information, Mr Gordon caused UBC to manufacture all products containing whey protein isolate with a pH of less than 3.2.

101. Thus, in UBC’s manufacturing process, pH 3.2 represented the limit rather than the target for UBC’s whey protein isolate beverages.

102. Thus, there has never been a “pH range of typically approximately 3.2 but not higher than 4” for Proclear’s product as asserted in the third element of the MFI-20 Formula.

103. Further, UBC has not used any such pH range when manufacturing the allegedly infringing products for third parties.

Fourth element – pasteurisation times and temperatures

Pasteurisation generally

104. Dr Smithers gave unchallenged evidence about this matter as follows.

105. Pasteurisation is a “foundational food processing technique” to enhance shelf life and render a food or beverage safe to consume.

106. Pasteurisation has been used commercially in Australia for more than a century and is one of the most recognised and accepted food processing technologies.

107. Dr Smithers described pasteurisation as the technique of heating a beverage to 72°C for 15 seconds, or for an equivalent time-temperature combination; for example, 79°C for 2 seconds; 63°C for 30 minutes.

108. The primary aim of pasteurisation is to ensure that the perishable product being treated is safe, with the secondary aim being to extend shelf life to allow for transport and distribution.

Hot Fill Process and Cold Flash Process

109. I have referred above to the difference between the Hot Fill Process used by Planet Sales in Western Australia and the Cold Flash Process used at the UBC factory. ^[30]

     30. See above [56]-[57].

110. Dr Smithers gave the following uncontested evidence concerning Cold Flash Process.

111. The Cold Flash Process, sometimes referred to as High Temperature Short Time (“HTST”) treatment, is a process that includes a very short thermal exposure and rapid cooling of the product once treated. The term “flash pasteurisation” is often used. The key features of Cold Flash Process are:

1. exposure to high temperatures, at more than 72°C, for a relatively short time; ^[31]

2. rapid cooling of the product to lower temperatures, dependent upon the product being treated and the downstream packaging requirements; and

3. treatment of the liquid in a continuous manner.

   31. Seconds, rather than minutes.

112. The Cold Flash Process is one of the most typical and widely used technologies in food processing, including in the manufacture of beverages.

113. Cold Flash Process has been used in Australia for milk processing for more than 70 years and by juice manufacturers in Australia for at least 50 years.

114. Thus, this fourth element of the MFI-20 Formula is in the public domain and the information that Mr Gordon and UBC had about it was given to them without any restrictions as to its use.

UBC’s pasteuriser

115. There was no challenge to the following evidence, summarised in Mr Russell’s closing submissions.

116. UBC’s pasteuriser is a machine consisting of a series of pipes that continuously heat and cool the product as the product passes through the pipes. There is no tank or other area where the product is collected, heated and then released for filling. The product is continuously pasteurised as it flows through the pasteuriser.

117. Heating and cooling of the product occurs in different sections of pipes in the pasteuriser. Using settings at first strike 92.5°C, second strike 85°C, third strike of 16°C, and a flow rate of 2,500L/hour, those sections are:

1. the “First Recovery Section”, where the product is heated to 70-80°C over about 56 seconds. Pasteurisation commences in this section when the product temperature exceeds 65°C;

2. the “Pasteurisation Section”, where the product is heated to the first strike temperature, usually 92.5°C, over about 66 seconds;

3. the “holding section”, where the product is held at about 92.5°C for about 71 seconds;

4. the “Hot Fill Section”, where the product is cooled to the second strike temperature, usually 85°C, over about 5 seconds. Again, the product is still pasteurising at this point as the temperature exceeds 65°C;

5. the “Second Recovery Section”, where the product is cooled to 44°C-45°C over about 40 seconds. In this section, the product eventually ceases to be higher than the temperatures required for pasteurisation; and

6. the “Cooling Section”, where the product is chilled to the third strike temperature, usually 16°C, over about 19 seconds. This is the “flash” cooling in Cold Flash Process.

118. Neither Bodie’z products nor any other pasteurised product manufactured by UBC are pasteurised for the time and temperature alleged in the MFI-20 Formula.

119. The strike points and flow rate are set by an operator using a touch screen on the pasteuriser by selecting a “recipe”. The recipe is a set of pre-saved temperature and flow rate specifications which are saved by bottle, as I discuss below. ^[32]

     32. At [125].

120. Further, if the product is not immediately required for filling, it will be returned to the pasteuriser to be pasteurised again. This means the product may go through the pasteuriser more than once.

UBC’s default settings

121. UBC has always used and continues to use the following “Default Settings” as its standard settings on the pasteuriser for all pasteurised products:

1. a first strike point of 92°C - 95°C;

2. a second strike point of 85°C;

3. a third strike point of 10°C - 16°C; and

4. a flow rate of 2,500L - 4,000L/hour.

122. UBC has only changed the Default Settings where:

1. specifically instructed by the customer to do so; or

2. there was some other good reason to do so, such as to enhance the flavour of a beverage, and the customer agrees to that change.

123. The Default Settings were chosen by Mr Gordon.

124. Further, the Default Settings are used as the pasteurisation settings across all of UBC’s pasteurised products.

125. The Default Settings are not specific to Bodie’z products or to Proclear. Rather, as I have said above, the default settings are pre-saved in the pasteuriser’s touch screen as “recipes” referring to bottles sizes. The “recipes” do not refer to a particular product and are common across all products in a particular bottle size.

126. These pasteurisation temperatures and times were adopted for all pasteurised beverages manufactured by UBC and were adopted before any product of Proclear was manufactured at UBC.

127. Thus, as Mr Russell submitted, the fourth element of the MFI-20 Formula is a process used by UBC in its factory for all pasteurised beverages and is not one used specifically for Bodie’z products.

128. It appears that Mr Lazar was happy with the product produced by pasteurising at the Default Settings and those settings were used thereafter.

Fifth element – Cold Flash Process with Velcorin to sterilise the beverage

129. As I have set out, in closing submissions Mr Alexis submitted that it was the making of protein water using the Cold Flash Process that was the “something new”.

130. Dr Smithers gave uncontested evidence that Velcorin has been used in the manufacture of alcoholic and non-alcoholic beverages for more than 40 years, and in Australia since the 1990s. It has been used in a range of beverages, including fruit and vegetable juice and juice products, water based flavoured drinks, formulated beverages, wine, comprising sparkling, fortified and fruit and vegetable wine, and mead and cider.

131. UBC’s factory at Unanderra was set up to use the Cold Flash Process, and that process was used to manufacture all of Bodie’z products.

132. But this was not something unique to Bodie’z products.

133. UBC used the Cold Flash Process for all the non-carbonated products that it manufactured.

134. There is now no dispute that, like all the other elements in the MFI-20 Formula, the use of the Cold Flash Process, with Velcorin used to sterilise the beverage, is a matter that is in the public domain.

Public domain

135. There now being no dispute that each of the five elements of the MFI-20 Formula is in the public domain, the contest comes down to whether, nonetheless, the combination of those elements, when used together, is confidential.

136. Mr Alexis and Mr Michael emphasised the following passage from the judgment of Stern JA in Filby v TEG Live: ^[33]

“Over and above specificity, as is well established, there can be no breach of confidence in revealing to others something which is already common knowledge. However, something which has been constructed solely from materials in the public domain may nonetheless possess the necessary quality of confidentiality.” (Emphasis added.)

33. Supra at [119] (with White JA and Simpson AJA agreeing)

137. Her Honour referred to the decision of Megarry J, as the Vice Chancellor then was, in Coco v AN Clark (Engineers) Ltd, ^[34] where his Lordship said: ^[35]

“Something that has been constructed solely from materials in the public domain may possess the necessary quality of confidentiality: for something new and confidential may have been brought into being by the application of the skill and ingenuity of the human brain. Novelty depends on the thing itself, and not upon the quality of its constituent parts. Indeed, often the more striking the novelty, the more commonplace its components.”

34. (1968) 1A IPR 587.

35. At 590.

138. Her Honour also referred to the observations of Harris J in Talbot v General Television Corporation Pty Ltd,^[36] that a “commercial twist” or “particular slant” may give something a quality which takes it “out of the realm of public knowledge”, ^[37] and to the observations of Hirst J in Fraser v Thames Television Ltd,^[38] that it is not necessary that the elements of a concept be unique if the concept itself is novel or consists in “a significant twist or slant to a well-known concept”. ^[39]

     36. [1980] VR 224.

     37. At 231.

     38. [1984] QB 44; [1983] 2 WLR 917; [1983] 2 All ER 101.

     39. At 66.

139. Stern JA did not need to consider this question further because her Honour found that the relevant information, being about a particular manner of promoting a concert tour, although capable of commercial application, was not unique and did not “give publicly available information such a ‘commercial twist’ that the information that [Mr Filby] conveyed had the necessary quality of confidence”. ^[40]

     40. At [120] (with White JA and Simpson AJA agreeing).

140. That appears to me to be the situation in this case.

141. It is not obvious to me why the combination of the five elements of the MFI-20 Formula, each of which is in the public domain, can be said to be confidential or to attract an obligation of confidence.

142. Returning to what Mr Alexis emphasised as being “something new”, that is the making of protein water using the Cold Flash Process, this was simply the product of the application of the processes that Mr Gordon caused UBC to apply to all beverages that it manufactured.

143. I see no “significant twist or slant to a well-known concept” that would render the use of this publicly known information the subject of an obligation of confidence.

144. There is no evidence before me that the combination of the elements of the MFI-20 Formula is a confidential matter.

145. Proclear called no expert to say so.

146. In closing submissions, I asked Mr Alexis whether Mr Lazar had made any such assertion.

147. Mr Alexis pointed to the following passage from Mr Lazar’s confidential affidavit of 7 April 2023:

“There are several key elements of the formulation and manufacturing method which enable Bodie’z protein water to be made, which have not been disclosed by Proclear and are not publicly known. The combination of these elements is highly commercially sensitive to Proclear, and if disclosed would provide a recipe or blueprint for making the product.”

148. What then followed in Mr Lazar’s affidavit, under the heading “Pre-acidified proteins and adjustment of pH level”, “Temperature and timing of pasteurisation”, “Batching of antifoam” and “Use of cold fill pasteurisation with Velcorin” were the first, fourth, second and fifth elements, respectively, of the MFI-20 Formula.

149. As it is now common ground that it is not possible to make any of Bodie’z products in those manners, ^[41] they do not “provide a recipe or blueprint for making the product”.

     41. See [38] above.

150. Although Mr Lazar asserted that the “combination of these elements” was “highly commercially sensitive” to Proclear, he did not address the question, now proven by UBC and accepted by Proclear, that the elements Mr Lazar described were in the public domain. Nor did Mr Lazar assert, let alone prove, that he had brought to bear some “commercial twist” or “new slant” that would somehow render the combination of these publicly known elements confidential to Proclear. I do not see the use of these well-known elements to manufacture a protein water as being sufficient to attract an obligation of confidence to the resultant combination. As with Mr Filby, Mr Lazar’s “blueprint” may well have been “capable of commercial application”, ^[42] but I am not persuaded it had the necessary quality of confidence.

     42. See [139] above.

151. It may well be, as Mr Alexis and Mr Michael, submitted, that Bodie’z products are the dominant protein water in the market.

152. It is also true that the development of the technique that includes the elements in the MFI-20 Formula was undertaken over a number of years. There was no dispute about this, and the parties devoted many paragraphs of their submissions to this topic.

153. However, as I have explained, the ideas that came to be incorporated into the MFI-20 Formula were born of knowledge openly communicated to Mr Gordon from third parties and passed on by Mr Gordon to Mr Lazar.

154. In the context of Mr Gordon devising the formula, in the true sense of the word, set out at [63]-[64] above, for the manufacture by Planet Sales in Western Australia of a protein water for an entity associated with Mr Lazar, Mr Lazar and RJ8 entered a “Mutual Service Agreement” in about July 2013. Planet Sales manufactured the product, using the Hot Fill Process, for a number of years.

155. There is no executed copy of this document in evidence. Evidently, a number of iterations were circulated.

156. The version in evidence provides that RJ8 was to provide “R&D services to create 1 line with 3 varieties of a product conceived and owned by Boden Lazar” and that:

“The product to be fully developed for the purposes of marketing and sales is a ‘functional’ water with natural flavours, no artificial colours and natural sweeteners with the added component of clear protein. The intent is to develop and appropriately formulate and package a product based on the concept conceived by [Mr Lazar] and confidentially shared with RJ8.” (Emphasis added.)

157. I do not see that this takes matters any further. No breach is alleged of this agreement. Mr Alexis accepted in argument that such rights and obligations that the parties may have had under it have now merged in the Agreement, which now sets out the metes and bounds of the parties’ rights and obligations. For the reasons I have set out, to the extent that any “concept conceived by [Mr] Lazar and confidentially shared with RJ8” is now to be found in the MFI-20 Formula, it does not have the requisite quality of confidence.

Lack of specificity?

158. Mr Russell submitted that, in any event, the MFI-20 Formula lacked the requisite degree of specificity to attract an equitable obligation of confidence.

159. In that regard, Mr Russell focused on the words “typically” and “approximately” as set out in the third and fourth elements of the MFI-20 Formula.

160. I do not find it necessary to make any finding about this submission, save to say that no party suggested that the equitable duty of confidence could, in the circumstances of this case, range more widely than that specified in the Agreement.

The unreasonable restraint of trade defence

161. Mr Russell submitted that the provisions of cll 11.3 and 11.5 in the Agreement constituted unreasonable restraints of trade that are contrary to public policy and unenforceable against UBC.

162. The submission was pressed only faintly, comprising one paragraph out of the 440 paragraphs in Mr Russell’s submissions.

163. I do not find it necessary to resolve this question, save to observe that to the extent that there was information confidential to Proclear the subject of the Agreement, it is hard to see why restraints against the use by UBC or RJ8 of that Confidential Information could offend public policy.

The position of RJ8

164. As I have said, RJ8 is not named as a party to the Agreement. Indeed, “parties” is defined in the Agreement to mean Proclear and UBC, not RJ8.

165. However, RJ8 executed the Agreement and is the subject of a number of obligations, including, as I discuss below, the obligation in cl 10.8 not to manufacture for any third party products within the definition of “Product Category”.

166. Mr Russell submitted that, nonetheless, RJ8 is not bound by the obligations of confidence in cll 11.3 and 11.5 because it is “neither referred to nor the subject of the provisions of cl 11”.

167. Mr Russell’s point was that although cl 11.1 contains an acknowledgment by UBC, described there as the “Manufacturer”, that certain information is confidential to Proclear, described there as the “Customer”, subcll 11.3 and 11.5 do not refer to the “Manufacturer” or to the “Customer” but rather to the “receiving party”.

168. However, I think it clear that when the parties referred to the “receiving party” they were using a generic expression intended to include any party to the Agreement who received Confidential Information.

169. Although RJ8 is not named as a party to the Agreement, because it signed the Agreement and is the subject of specific obligations under it, it is, in my opinion, a “party” to the Agreement.

170. However, Mr Russell raised a wider point later in his submissions as follows:

“RJ8’s formulas are process agnostic, meaning the formulas are developed by hand without any manufacturing process information. RJ8 does not use information about pasteurisation times, pasteurisation temperatures or the use of the process aids (eg Velcorin) when it researches, develops and formulates beverages. This means that the combination of steps recorded in MFI-20 does not capture or reflect the work that RJ8 does and charges for.

As a result, RJ8 has not used or misused the information recorded in MFI-20. RJ8 has also not breached clause 11.3 or 11.5 of the Manufacturing Agreement or any equitable obligation of confidence to Proclear.” (Footnotes omitted.)

171. Mr Alexis and Mr Michael made no response to that submission.

172. In view of my earlier conclusions, it is not necessary for me to decide this point, but it does appear from Mr Russell’s submissions that Proclear has not established any breach by RJ8 of its obligations under cll 11.3 and 11.5.

Breach

173. In light of my conclusions as to the question of confidential information, it is not necessary for me to express any view as to whether, assuming the MFI-20 Formula was confidential, there has been a breach by either UBC or RJ8 of their obligations under the Agreement.

174. In closing submissions, Mr Alexis submitted that, assuming that the MFI-20 Formula was confidential, there was no doubt that UBC was using it in breach of its obligations under the Agreement.

175. However, this overlooks Mr Gordon’s evidence, in his affidavits of 27 September 2023 and 23 September 2024, that:

1. in relation to five of the allegedly contravening products, Kolagen Plus, ProH20, Enrg.Pro, Performance Inspired and International Protein, antifoam was not batched first, and the product was not pasteurised at 92.3°C for about 30-90 seconds;

2. the Kolagen Plus product did not use pre-acidified protein at all; and

3. for the remainder of the allegedly contravening products, while pre-acidified protein was used, acidulants were added to affect flavour and not to reduce the pH of the beverage.

176. Thus, although it is not necessary for me to decide this question, it appears that even if the MFI-20 Formula was confidential, it has not been misused by UBC.

Relief

177. Again, in view of my conclusions concerning the MFI-20 Formula, it is not necessary for me to deal with the relief sought by Proclear.

178. However, I will deal with that question, albeit briefly.

Account of profits

179. In relation to its claim for breach of the equitable duty of confidence, Proclear elected for an account of profits.

180. Proclear claimed an amount of $753,006.39, or alternatively $624,586.24, against UBC and $2,877.45, or alternatively $5,987.75, against RJ8.

181. There was no dispute about the relevant principles. As Mr Alexis and Mr Michael submitted, the remedy of an account of profits is confined to profits actually made. Overheads may be deducted where the defendant can demonstrate they are attributable to obtaining the relevant profit. If the overheads would have been incurred in any event, they will not be deducted. ^[43]

     43. Dart Industries Inc v Decor Corporation Pty Ltd (1993) 179 CLR 101 at 114-5 (Mason CJ, Deane, Dawson and Toohey JJ); [1993] HCA 54.

182. The onus of proving the costs to be taken into account in the determination of profit, such as overheads, lies on the defendant, partly because the facts relevant to the incurring of such costs will lie peculiarly within the defendant’s knowledge. ^[44]

     44. Ibid at 118 ((Mason CJ, Deane, Dawson and Toohey JJ).

183. Where, as is the case here, there is no order for the separate determination of damages, evidence on the account of profits must be adduced as part of the trial. ^[45]

     45. Dr Martens Australia Pty Ltd v Bata Shoe Co of Australia Ltd (1997) 75 FCR 230 at 237 (Goldberg J); [1997] FCA 505; Hexiva Pty Ltd v Lederer [2006] NSWSC 318 at [59]-[60] (Brereton J).

184. Proclear calculated the revenue earned by UBC by reason of its manufacture of the allegedly contravening products by reference to the invoices UBC sent to the relevant parties. There was no dispute about that.

185. There was a dispute as to whether UBC had established the costs of goods sold and overheads attributable to that revenue.

186. UBC’s evidence in relation to those matters comprised spreadsheets that Mr Gordon exhibited to one of his affidavits. Those spreadsheets were evidently prepared for the purpose of the proceedings. Mr Gordon was not able to say that he had played any role in their preparation.

187. Mr Alexis and Mr Michael submitted that it was difficult to see from the spreadsheets what costs and overheads are attributable to UBC’s manufacture of the allegedly contravening products. Further, it was submitted, some expenses related to payments made by UBC to related entities for the use of manufacturing equipment and premises in circumstances where the detail of those expenses was not clear.

188. I was not taken to the detail of these matters in closing submissions.

189. Ultimately, Mr Russell submitted:

“If the Court is minded to grant an account of profits, and in light of the manner in which the case has developed, it would be just and equitable to give all parties an opportunity to properly deal with the account of profits issue on the case that is now alleged by Proclear”.

190. In view of my conclusions as to the MFI-20 Formula, it is not necessary that I consider this further.

Damages

191. Alternatively, on its contractual claim, and only if it did not obtain an account of profits, Proclear sought damages against UBC for the loss of opportunity to sell Bodie’z products into the same market in which the allegedly contravening products were sold.

192. There was no dispute as to the relevant principles. It was necessary for Proclear to show, on a balance of probabilities, that there was “a real (more than negligible) possibility” of that opportunity. ^[46]

     46. See, for example, Berry v CCL Secure Pty Ltd (2020) 271 CLR 151 at 170; [2020] HCA 27 at [29] (Bell, Keane and Nettle JJ); recently cited in Cessnock City Council v 123 259 932 Pty Ltd [2024] HCA 17 at [157] (Edelman, Steward, Gleeson and Beech-Jones JJ).

193. The loss of the chance or opportunity is capable of being compensated even if the probability of the plaintiff being able to exploit it is less than 50/50. ^[47]

     47. J D Heydon, Heydon on Contract (2019, Thomson Reuters LawBook Co) at [26.100], citing Sellars v Adelaide Petroleum NL; Poseidon Ltd v Adelaide Petroleum NL (1994) 179 CLR 332 at 349; [1994] HCA 4 (Mason CJ, Dawson, Toohey and Gaudron JJ).

194. Once that is established, then:

“[U]nless the chance is so low as to be regarded as speculative – say less than 1 per cent – or so high as to be practically certain – say over 99 per cent – the Court will take that chance into account in assessing the damages.” ^[48]

48. Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 at 643 (Deane, Gaudron and McHugh JJ); [1990] HCA 20; adopted in Sellars v Adelaide Petroleum NL (supra) at 350 (Mason CJ, Dawson, Toohey and Gaudron JJ).

195. This is usually done by discounting the loss by a percentage, although this is not essential.

196. Proclear’s case was that for every unit of the allegedly contravening products sold, there was at least a real prospect of a Bodie’z product being sold to the same consumer.

195. There is no direct evidence to support this submission, although it does appear that the Bodie’z product was the only other protein water in the market.

196. Proclear sought to establish its damage by calculating its net profit per bottle, multiplying that figure by the total number of contravening products sold, and discounting the result by 40% to reflect the prevailing contingencies.

197. There is no dispute that, in principle, this was the appropriate manner to assess Proclear’s damages, assuming that the MFI-20 Formula was confidential.

198. There was some debate as to the precise figures and as to the appropriate percentage discount, bearing in mind the different outlets at which the contravening products were sold compared to those used for the Bodie’z product.

199. The range of damages resulting from the parties’ competing contentions was between $298,642.73 and $367,026.45.

200. I do not consider it necessary for me to consider this matter further.

Conclusion

203. Proclear’s claim in relation to UBC’s and RJ8’s alleged misuse of Proclear’s Confidential Information fails.

The exclusivity claim

204. Clause 10.8 of the Agreement provided:

“As a material condition of the [Agreement] and during the term of this agreement and for a period of twelve (12) months thereafter, [UBC] and RJ8 will not manufacture or consult to or assist any 3rd party in the Product Categories …”.

205. As I have mentioned, “Product Category” was defined to mean, relevantly, “clear protein beverages”.

206. “Product” was defined to mean “the products described in the Schedule 1”. I have set out Sch 1 at [17] above. It listed seven Bodie’z clear protein beverages with various flavours.

207. Proclear contends that UBC and RJ8 manufactured for third parties a variety of “clear protein beverages” in contravention of this promise.

The 12-month period

208. UBC’s and RJ8’s obligations under cl 10.8 only endured during the 12-month period following the termination of the Agreement.

209. There is a dispute between the parties as to when the Agreement was terminated. UBC contends the termination took place on 7 December 2021. Proclear contends that the termination took place on 24 January 2022.

210. It is not necessary for me to decide which of these contentions is correct because, as Mr Alexis made clear during closing submissions, the amount that Proclear seeks to recover from UBC and RJ8 does not depend on whether its contention as to when the Agreement was terminated is correct.

211. UBC also contends that the Agreement was abandoned as early as 7 December 2021 “if not before”. Again, it is not necessary that I come to any decision about that.

“Clear protein beverage”

212. The critical issue that arises is what, as a matter of construction, the parties meant by the expression “clear protein beverage”.

213. There was no dispute as to the relevant principles.

214. The meaning of a contract is:

“… that which the language of the document, read in light of its context … and the purpose of the document, would convey to a reasonable person in the position of the makers of the document.” ^[49]

49. Herzfeld and Prince, Interpretation (supra) at [19.60].

215. Further, as has been correctly stated: ^[50]

“… the only relevant meaning is that which the text conveys. This follows from the need to ascertain the intention expressed in the document. Although … context and purpose are relevant, ultimately the court must attribute meaning to the words actually used.” (Emphasis in original.)

50. Ibid.

216. The leading modern statement concerning the importance of context and purpose is in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd ^[51] as follows: ^[52]

     51. (2015) 256 CLR 104; [2015] HCA 37.

     52. At [46], [48]-[49] (French CJ, Nettle and Gordon JJ).

“The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context … and purpose.

…

Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

However, sometimes, recourse to events, circumstances and things external to the contract is necessary.”

The parties’ competing contentions – Proclear

217. In its Amended Summons, Proclear sought a declaration that:

“… the clear protein beverages referred to in the Product Category are protein beverages that are clear or translucent, but not opaque, as exhibited by the flavours and colours of the beverages specified in schedule 1.”

218. That is how Mr Alexis opened Proclear’s case. Thus he said:

“The parties are at issue on the proper construction of the product category definition, as I’ve indicated. And our submissions, as I think I’ve already mentioned, is that clear protein beverage means a beverage containing protein, which is either clear or translucent, but not opaque the milkshake-type illustration. And that is illustrated by the products listed in the schedule.”

219. However, in closing submissions, Mr Alexis and Mr Michael sought to develop an alternative and preferred construction of Product Category which was captured in a proposed Second Further Amended Commercial List Statement as:

“Beverages with pre-acidified protein added.”

220. In support of that contention, Mr Alexis and Mr Michael pointed to evidence suggesting that the parties understood that the expression “clear protein” was a synonym for pre-acidified protein.

221. Otherwise than inferentially, by reason of a reference in Proclear’s opening submissions as to the use “in the industry” of the term “clear protein”, and questions that Mr Alexis asked Mr Gordon in cross-examination, this amended case had not been foreshadowed. It was contrary to the way the case was pleaded and had been opened. Unsurprisingly, Mr Russell informed me that he would have conducted his case differently, and would have, in particular, cross-examined Mr Lazar differently, had he understood this to be Proclear’s case. I refused leave to Proclear to amend its case in this way.

The parties’ competing contentions – UBC

222. UBC’s contention as to the proper construction of the expression “clear protein beverage” is set out in its Amended Commercial List Response as follows:

“… a clear beverage in that its clarity was such that when one looked through the beverage in their clear bottle one could see, distinguish and identify shapes and objects on the other side.”

223. In closing oral submissions, Mr Russell submitted that “clear” in this context meant something more than “not opaque”.

224. Thus, as framed in the parties’ pleaded cases, the debate focused on the word “clear”. Leaving aside Proclear’s attempt to raise, at the last moment, the “clear protein” point, there was no dispute about what “protein” or “beverage” meant, it being common ground that the allegedly contravening products manufactured by UBC for third parties were “protein beverages”.

225. The definitions of “Product” and “Product Category”, together, suggests that the parties intended that a “clear” protein beverage was one that had the kind of clarity exhibited by the seven “products” specified in Sch 1.

226. Indeed, this was acknowledged by Proclear in that it contended that the beverages in the Product Category are clear, translucent, but not opaque “as exhibited by the flavours and colours of the beverages specified in schedule 1”.

227. I have compared Bodie’z products of the kind specified in Sch 1 of the Agreement with products manufactured by UBC allegedly in breach of cl 10.2.

228. Each is translucent. But the Bodie’z products are distinctly more so. The liquid in the Bodie’z products is not cloudy and it is possible, indeed easy, to read the writing on the other side of the bottle by looking through the liquid in the bottle.

229. A comparison of the protein water beverages manufactured by UBC for other parties, and the Bodie’z products referred to in Sch 1 of the Agreement, shows that they are quite different. Bodie’z products are brightly translucent. They are, on any view, “clear”. The allegedly contravening products are quite distinct and although also translucent, are cloudy in appearance.

230. Ultimately, the question is one of impression, but my conclusion is that the product manufactured by UBC for the third parties is not “clear” in the way that the liquid in the Bodie’z products is. I find this to be obvious at first glance at the products.

231. The parties’ competing contentions show that the expression “clear protein beverage” is ambiguous. Indeed, in Mr Alexis’s and Mr Michael’s opening written submissions, it was accepted that the expression was “somewhat ambiguous”. ^[53]

     53. At par 74.

232. To the extent that this permits examination of evidence extrinsic to the Agreement, ^[54] Mr Gordon gave this evidence about a conversation he had with Mr Lazar in 2013:

“On another occasion in about mid to late 2013, [Mr Lazar] visited me at my house in Killara where I conducted my R&D work at the time. [Mr Lazar] was sitting at the breakfast bar and I was in the kitchen. I began to mix a prototype of the product by adding whey protein isolate powder with water. I then added in citric acid, then flavours and then colours. As I was adding the colours, I added Keith Harris’ Neutral Cloud to the protype, which is a clouding agent to make the drink less clear. As I added the clouding agent, [Mr Lazar] and I had a conversation during which words were said to the following effect:

[Mr Lazar]:   ‘What did you just do?’

[Mr Gordon]:   ‘I added a clouding agent.’

[Mr Lazar]:   ‘I don’t want that in there.’

[Mr Gordon]:   ‘I’m worried it will look like lolly water without a clouding agent. That will detract from the all natural brand you want.’

[Mr Lazar]:   ‘No. I want it as clear as possible. Don’t use that.’”

54. See the discussion in Herzfeld and Prince, Interpretation (supra) at [29.40] and following, especially at [29.120].

233. Mr Lazar deposed that he had no recollection of Mr Gordon “ever adding a clouding agent when conducting testing on Bodie’z products” and denied having the above conversation.

234. However, Mr Lazar gave this evidence in cross-examination:

“Q. In the course of the development of this formula, you were over at Mr Gordon’s place one day when he was first developing it, and he put in a clouding agent, didn’t he, in front of you?

A. No.

Q. Do you deny that?

A. Yes.

Q. He also said to you at the time when you asked, ‘Why did you do that?’ He said, ‘Because I don’t want it looking like lolly water.’

A. No.

Q. And you said to him, ‘Take it out. I want it to be as clear as possible.’ Do you agree with that?

A. No.

Q. You didn’t want it to be as clear as possible?

A. You asked if I asked him to take something out.

Q. Was it your intention at the time when you created this beverage - sorry, when it was created for you, was it your intention that this beverage has as its unique identifier that it be clear in solution?

A. Yes.

Q. To do that it needs to be as clear as possible, doesn’t it?

A. Yes.”

235. Thus, whether or not the conversation to which Mr Gordon deposed took place, Mr Lazar’s position was that he wanted the Bodie’z beverages to be “as clear as possible”.

236. Mr Lazar’s evidence that he wanted the Bodie’z beverages to be “as clear as possible” is available to assist in understanding what the parties meant when they used the expression “clear protein beverage”, and favours the construction contended for by UBC. It is not part of their negotiations leading to the making of the Agreement, as the Agreement was not yet in the contemplation of the parties. It is, however, an objective fact, known to both parties, when the Agreement was later created. It is, at least, consistent with my view as to what the Agreement means.

237. In closing submissions, Mr Alexis submitted that I should be hesitant to attribute to the parties a meaning to the expression “clear protein beverage” which would result in any question of breach being determined by fine distinctions based on subjective impressions of clarity.

238. But the commercial sense of UBC’s construction was illustrated by evidence that Mr Lazar gave in cross-examination.

239. In cross-examination, Mr Russell showed Mr Lazar bottles of Bodie’z products and bottles of the allegedly contravening products.

240. That led to this exchange between Mr Lazar and Mr Russell, and then with me:

“Q. You say the clarity is the same? I just asked you before about the other three that you were handed and you said that was the clarity for your product at the time. Are you saying that those would have had the same clarity at the time as--

A. I can - I can see the label on the back side of this product and I can see the label on the back side of this product.

…

HIS HONOUR

Q. Is that the test for clarity? You can see the label on the other side of the bottle? In your view?

A. It’s never needed to be defined before. The protein that’s used is defined as a clearer protein from the manufacturer.

Q. I’ve got to decide what’s clear and what’s not. Are you saying that if you can see the writing on the other side of the bottle that’s sufficiently clear, and if you can’t it’s not.

A. I wanted to make sure the products were distinctly different to the traditional milky protein shakes on the market.

Q. I’m just going to ask you to go back to my question. Was it sufficiently clear for your purposes in 2017 if you could read the writing on the other side of the bottle?

A. Honestly, I’d never thought of it in that way. This is a product that we were intending to make a product that was a clear protein water.

Q. But you just said, ‘I can see the label on the back side of this product’. So I’m asking you now, because now is when I’ve got to decide this, can you say whether back in 2017, if you could read the label on the other side of the bottle, that was clear.

A. Honestly, your Honour, it wasn’t something that came into the thought process at the time.”

241. This evidence is not admissible to show what the parties meant by the expression “clear protein beverage” in the Agreement. I do not take it into account in that way, particularly because Mr Lazar said it was not “something that came into the thought process at the time”.

242. But Mr Lazar’s readiness to identify the requisite degree of clarity by reference to an ability to “see the label on the back side of this product” is an answer to Mr Alexis’s submission set out at [237] above.

243. My conclusion is that the products manufactured by UBC for third parties are not “clear protein beverages”.

244. This aspect of Proclear’s claim fails.

The unreasonable restraint of trade defence

245. Mr Russell contended the provisions of cl 10.8 of the Agreement constituted an unreasonable restraint of trade, particularly because:

“… UBC carries on business as a co-pack manufacturer. UBC manufactures and bottles beverages for third parties (such as Proclear) to sell to their customers. UBC does not sell any beverages to any customer of Proclear. Proclear does not manufacture and bottle beverages for third parties to sell to their customers.

… RJ8 carries on a business of providing beverage innovation, development and formulation services to third parties (like Proclear) so that they can manufacture and sell those beverages to their customers. RJ8 does not provide any of its services to any customer of Proclear. Again, Proclear does not carry on business of providing beverage innovation, development and formulation services to third parties so that they can manufacture and sell those beverages to their customers.

… accordingly, there is no relevant customer connection or goodwill of Proclear that could properly be the subject of and protected by the restraint in clause 10.8.”

246. I see substance in this contention but in view of my conclusions as to “clear protein beverage” I do not need to consider it further.

Relief

247. As with its case concerning confidential information, Proclear calculated its damages resulting from UBC’s and RJ8’s alleged breach of cl 10.8 by reference to loss of a chance for Proclear to sell Bodie’z products to customers who purchased allegedly contravening products.

248. Proclear contended that it would have made a net profit of $1.4975 for each bottle sold and thus, multiplying that figure by the number of allegedly contravening products sold, it lost a real or not negligible chance to earn $251,471.63. Proclear contended that the appropriate discount for that figure was, again, 40%, leaving a claim for damages of $150,882.17.

249. There was little dispute about these calculations.

250. In any event, it is not necessary that I form any final view about them.

The mould claim

251. From November 2017, Proclear began to become aware of and receive complaints from customers about what appeared to be mould in the Bodie’z products.

252. Thus:

1. on 22 November 2017, Mr Lazar became aware of an issue in one bottle of Bodie’z product;

2. in March 2018, a complaint was received in respect of one bottle;

3. in August 2018, a complaint was received in respect of a further bottle;

4. in April 2019, a complaint was received in respect of a further bottle;

5. in September 2019, a complaint was received in respect of a further bottle;

6. on 9 November 2019, a complaint was received in respect of a further bottle;

7. on 15 November 2019, a complaint was received in respect of a further bottle;

8. from November 2019, Proclear made a number of further complaints to UBC;

9. by November 2020, Proclear contended that the total number of bottles affected by mould was 16,608; and

10. Proclear’s evidence is that it has found 20,562 bottles manufactured in 2020 contained mould, and 24,475 bottles manufactured in 2021 are said to contain mould.

253. On behalf of UBC, Mr Russell submitted that Proclear had not established that the problem with these bottles was in fact caused by mould. Because of other conclusions to which I have come, it is not necessary for me to resolve that question. Accordingly, I will refer to it as the “mould” issue.

254. There is a dispute as to what has caused the mould issue.

255. Proclear contends that the mould issue was caused by environmental factors, including by reason of the door of UBC’s Unanderra factory being left open during construction on an adjoining site.

256. UBC contends that the mould issue had been caused by spores in a Unique Ingredient supplied by Proclear, the Fonterra protein powder.

Clause 14.5

257. The Agreement contained no express term dealing with “mould”.

258. However, cl 14.5 of the Agreement provided:

“[UBC] will not be liable for any costs arising due to the spoilage of Products, raw materials or packaging, as long as they are manufactured within specification, stored or handled, in accordance with good industry practice. The clause specifically excludes any damage or harm arising from [UBC’s] failure to store, handle and transport the products in accordance with good industry practice.”

259. Clause 14.5 limited UBC’s liability for “spoilage” of products, as long as they were manufactured, handled, and stored as set out in that clause.

260. Mr Alexis and Mr Michael submitted, and I accept, that this clause is not enlivened because the development of mould in Bodie’z products cannot be described as “spoilage”. The natural meaning of “spoilage”, in the context of cl 14.5, is the result of a product becoming unfit for use, rather than being inherently unfit for use by reason of some factor inherent in the product or its production.

261. Whether the mould was caused by an environmental issue at the factory, or because of spores in the Fonterra protein powder, it was caused by such an inherent factor.

262. Clause 14.5 is not engaged.

The alleged implied term of product fitness

263. Critical to Proclear’s case concerning mould is its contention that there is to be implied into the Agreement the following term:

“The Product would be suitable and safe for human consumption, and free from contamination, including for a reasonable period after receipt by Proclear assuming appropriate storage of the Product.”

264. In closing submissions, Mr Alexis said that the alleged existence of this implied term is “at the heart of the case on mould”.

265. Indeed, it is.

266. If such a term were to be implied, and a breach established, it would not be necessary for Proclear to prove why the mould occurred. The onus would then be on UBC to prove that it was caused by spores in the Fonterra protein powder.

267. On the other hand, if no such term were to be implied, the onus would be on Proclear to prove the cause of the mould issue and to establish that this represented a breach by UBC of the Agreement.

The entire agreement clause

268. Clause 22.1 of the Agreement provided:

“This document records the entire agreement between the parties about its subject matter.”

269. This clause is not effective to contradict or preclude an implied term. ^[55]

     55. See, for example, Hart v Macdonald (1910) 10 CLR 417 at 421 (Griffith CJ, O’Connor J agreeing), 430 (Isaacs J); [1910] HCA 13.

270. In closing submissions, Mr Russell did not make a submission to the contrary.

Exclusion of terms implied by law

271. Clause 22.2 of the Agreement provided:

“The parties exclude all terms implied by law, where possible.”

272. That clause is not effective to exclude the implied term contended for by Proclear.

273. Proclear contends that the relevant term is implied as a matter of fact in the circumstances of this particular Agreement. ^[56]

     56. See, for example, the discussion in Commonwealth Bank of Australia v Barker (2014) 253 CLR 169; [2014] HCA 32 at [21] (French CJ, Bell and Keane JJ), [56] (Kiefel J), [113] (Gageler J).

274. Again, in closing submissions, Mr Russell did not make a submission to the contrary.

Can the term be implied?

275. For a term to be implied in a contract as a matter of fact, it is necessary that the proposed term be:

1. reasonable and equitable;

2. necessary to give business efficacy to the contract;

3. so obvious that it “goes without saying”;

4. capable of clear expression; and

5. not contradict any express term of the contract. ^[57]

   57. Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 347 (Mason J, Stephen J agreeing), at 404 (Brennan J); [1982] HCA 24; applying BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283 (Lord Simon of Glaisdale, Viscount Dilhorne and Lord Keith of Kinkel agreeing).

276. UBC’s fundamental obligation under the Agreement was to manufacture the “Product” in accordance with the “Specifications” in cl 3.1. ^[58]

     58. See [12] above.

277. Proclear’s obligations included to provide the “Unique Ingredients”, including the Fonterra protein powder.

278. Thus, cl 4.1 of the Agreement provided:

“[Proclear] must provide all Unique Ingredients to be delivered to [UBC] in a timely manner so as to allow [UBC] to manufacture the Product in accordance with the agreed timetable.”

279. Clause 6 of the Contract dealt with “Quality Control” and contained detailed provisions on that subject.

280. Clause 6.1 provided:

“[UBC] must ensure that the unique ingredients that it provides … accord with all applicable laws and standards.”

281. Clauses 6.6 to 6.9 contained the following detailed provisions:

“6.6   [UBC] must provide to [Proclear] such samples of each batch of the Product as [Proclear] requests to enable [Proclear] to test the quality of the Product and to ensure [UBC] is complying with the Specifications and any reasonable directions of [Proclear]. The responsibility of the quality assurance lies with [UBC]. [Proclear] shall take such reasonable steps as may be requested by [UBC] to provide samples of unique raw materials and packaging to assist in the maintenance of the quality control of the specifications.

6.7   If 5-10% of product from a production run does not meet the quality requirements of [Proclear] and provided that such quality requirements are specified in the Specifications, [Proclear] may reject the entire batch from which the sample was taken after first meeting in good faith and discussing the issue with [UBC] to confirm the agreed action to be taken. This is subject to Clause 6.8.

6.8   [UBC] will set out a reporting mechanism for both compliance and non-compliance of the specifications to [Proclear], and will in a timely manner, report any non-conformance that it regards as material to meeting of the specifications. [Proclear] will notify [UBC] of any non compliance it becomes aware of but will not have any responsibility for testing product or raw materials other than agreed in writing with [UBC] as part of the standard operating procedure, specifications and quality control.

6.9   If a batch of the Product is rejected by [Proclear] in accordance with clause 6.8:

(a)   [Proclear] is not required to pay for the production batch of Product, associated raw materials, packaging and production costs which was rejected;

(b)   [UBC] will reimburse [Proclear] for any input costs (including but not limited to the raw materials supplied at the cost of [Proclear]) associated with the rejected batch.

(c)   [UBC] is implementing an insurance policy that covers claims relating to rejected batches of [Proclear’s] products. [Proclear] has agreed to fund 50% of this specific insurance policy relating only to the manufacturer of [Proclear’s] products. [UBC] will be liable for any excess payment on claims. The cost of this to [Proclear] will be agreed upon once both parties have site the policy and the amount will be included in an amendment to this agreement at an appropriate time.

(d)   the rejected batch of Product must be properly disposed of by [UBC], at their cost; but only with the written permission from [Proclear].”

282. In circumstances where the parties have made such detailed provision for “quality control”, it is hard to see why it would be necessary, as a matter of “business efficacy”, to imply into the Agreement the alleged term.

283. Further, as UBC’s obligation under the Agreement was to manufacture the “Product” in accordance with the “Specifications”, ^[59] and using the “Unique Ingredients” supplied by Proclear, ^[60] it is hard to see why, as a matter of fact, any term would be implied into the Agreement as to the fitness for purpose of the resultant Product; as opposed to the fitness for purpose of the manufacturing process adopted by UBC to produce that Product. Thus, it may be that a term might be implied similar to cl 14.5, ^[61] referring to an inherent issue with the product, such as mould, rather than “spoilage”.

     59. Clause 3.1.

     60. Clause 4.1.

     61. See [257] to [261]

284. However that may be, the question for me is whether the term posited by Proclear should be implied into the Agreement.

285. There is a fundamental problem with the posited term.

286. Its implication would have the effect that even if the mould was caused by spores in the Fonterra protein powder that Proclear provided as one of the Unique Ingredients and that UBC was obliged to use that powder to make Bodie’z products, UBC would be in breach of the implied term because the resultant product would:

1. not be suitable and safe for human consumption; and

2. not be free from contamination.

287. That cannot be right. It would not be “reasonable and equitable”.

288. I took this up with Mr Alexis in closing submissions:

“So, your Honour, we accept that if the mould was caused by a unique ingredient provided by Proclear, there would be no breach to the extent that the ingredient caused the mould. …

HIS HONOUR: But why wouldn’t it be a breach of the implied term if the ingredient supplied by Proclear caused the mould, because it wouldn’t be free from contamination?

ALEXIS: No, there’d be a breach of the implied term, but there would be no breach if the mould was caused by the protein that we provided.

HIS HONOUR: But why would that not be a breach? Because the product wouldn’t be suitable, it wouldn’t be safe, and certainly wouldn’t be free from contamination, is the submission against you.

ALEXIS: But, your Honour, given that quality assurance falls squarely on [UBC], that’s clause 6.6, if it’s established that the mould was caused by the ingredient provided by Proclear, pursuant to clause 4.1, and notwithstanding the certificate of analysis which accompanies the product under 6.1, then there would be no breach to the extent that the ingredient caused the mould. I mean, we had to accept that, but, your Honour, that doesn’t mean there’s no breach. It means there’s no breach to the extent that it’s established that that unique ingredient caused the mould, and that’s the problem in the case, your Honour, because the evidence is all one way on this. …

So, your Honour, I have to put the submission like that because this is not a case where it could be seriously said that the cause of the entire mould contamination problem related to [F]onterra batch 231005111, and if, ultimately, your Honour accepts the defendant’s submission that in relation to mould that arose from the use of that particular batch of protein is related to the mould in those bottles, then there would be no breach. We’d have to accept that.

HIS HONOUR: That’s then reading a carve-out, isn’t it, into the implied term that, in effect, ‘unless it’s our fault’, to speak colloquially.

ALEXIS: Well, your Honour, the implied term needs to be implied at the time of contact, and as I think I said, in my opening submissions on Tuesday, no one could have possibly anticipated when the contract commenced that there would be this enormous problem.

HIS HONOUR: Well, surely, if a reasonable bystander was there and said, well, once this contract gets under way, if UBC supplies the protein beverages which have mould in them and that’s caused by mould in the unique ingredient, UBC would be liable and surely everyone would say of course not.

ALEXIS: No, that’s right and that’s why we say there would have been no breach.

HIS HONOUR: Okay.

ALEXIS: I mean, your Honour, we also say that’s obvious. When the term is to be implied, it can’t forecast every possible likely scenario that might unfold, but in circumstances where there’s mould, there is a breach of that implied term except to the extent that the mould has been caused by a unique ingredient that Proclear provided.”

289. The difficulty with these submissions is encapsulated by the last words: “except to the extent that the mould has been caused by a unique ingredient that Proclear provided”.

290. The posited implied term admits of no such exception.

291. I reject the submission that there is an implied term in the Agreement of the kind for which Proclear contends.

What caused the mould?

292. There are two competing, irreconcilable, theories advanced as to what caused the mould, each articulated by a microbiologist, Mr Sofronios Eglezos for Proclear, and Associate Professor Bridge for UBC.

293. Mr Eglezos and Professor Bridge gave their evidence concurrently.

294. Mr Eglezos opined that the mould problem was likely caused by a factor associated with the factory environment. He did not attend the factory and did not perform any tests in support of his hypothesis.

295. As to the factory door, Mr Eglezos ultimately gave this evidence in response to a question from me, which arose out of questions earlier asked by Mr Russell:

“HIS HONOUR: Does it really come down to this, that your opinion is that it’s possible--

WITNESS EGLEZOS: It’s possible.

HIS HONOUR: --that the contaminants came through the open door, but you don’t know?

WITNESS EGLEZOS: Yes, sir.”

296. His evidence continued:

“RUSSELL: Can you explain to his Honour, how it is that any mould or mould spores that may come through the factory door or into the factory environment would actually get inside the manufacturing stream, which is closed?

WITNESS EGLEZOS: Well, when you’re doing sanitation, which incidentally no records were looked at, or cleaning, which no records were looked at or training for cleaning, which no records were looked at or swabbing, for which nothing was done, there could be an existing - you know, when the line is closed, so perhaps this batch would be safe. There would be some introduction of spores, for example, through inadequate cleaning or something that is happening, and again, with a lot of the records previously there’s a lot of red flags raised about the manufacturing processes at the time. You know, it would be something that would make its way into the line, not necessarily when it’s running but more during perhaps downtime, you know, when the sealed box which is not technically sealed, you can just open and have a look at you know, what’s happening there. So, there are those ways that it would have to be something - in order for it to be at a high level, it would need to be a system clean like, cleaning be inadequate sanitation, inadequate et cetera.

HIS HONOUR: You don’t know whether it’s a problem?

WITNESS EGLEZOS: I don’t know, you’re right, sir. I don’t know exactly what--

HIS HONOUR: You’re not a factory processing expert, are you, you’re a microbiologist?

WITNESS EGLEZOS: That’s right. I do look at factories as well but I am a microbiologist, yes. And sir, as a food safety auditor, I do look at factories and one of--

HIS HONOUR: No, I accept that.

RUSSELL: Well, you list many possibles, don’t you, in your report. Many possible or potential causes, but you actually don’t know, do you?

WITNESS EGLEZOS: No.”

297. Later, this exchange occurred:

“RUSSELL: And you referred, for example, just then to - and in your report - to a potential problem with the HEPA filter?

WITNESS EGLEZOS: (No verbal reply)

RUSSELL: You referred to--

WITNESS EGLEZOS: Yeah.

RUSSELL: --that as a possible problem?

WITNESS EGLEZOS: Well, you know, one of the things that you look at in an audit is maintenance of all critical equipment.

RUSSELL: But there was no recorded problem with the HEPA filter, was there?

WITNESS EGLEZOS: I did not see a recorded problem with the HEPA--

RUSSELL: So why did you mention that in your report as a possible entry point when you have no data to support it?

WITNESS EGLEZOS: I’m saying what potentially could happen if, you know, there’s not appropriate maintenance, there’s not appropriate A, B, C and D.

RUSSELL: Right--

HIS HONOUR: But you’re speculating, aren’t you?

WITNESS EGLEZOS: I am, sir.”

298. Professor Bridge opined that, based on an analysis of one batch of Fonterra protein powder, the likely cause of the mould issue came from spores in that powder. Professor Bridge made observations, through a microscope, of the powder and procured that tests be conducted by two external laboratories. One conclusion from those tests was that there was a spore identified in the sample known as “aspergillus unguis”.

299. The parties have made detailed submissions about the nature of the testing that Professor Bridge caused to be conducted in relation to the Fonterra protein powder batch. Proclear offered a detailed critique of some of those techniques.

300. I do not find it necessary to deal with those matters because, ultimately, Professor Bridge accepted that he could only say that it was a possibility that the protein was the cause of the mould.

301. Thus, he gave this evidence:

“ALEXIS: But in this area of discourse where you’ve said in your report that survival is a possibility--

WITNESS BRIDGE: Yes?

ALEXIS: --when all things are considered, you’d have to accept, wouldn’t you, that it’s more likely than not that aspergillus unguis, as a heat-sensitive mould, would not survive pasteurisation?

WITNESS BRIDGE: Some of them will survive. As I’ve said before, it depends on the load. It’s a complete function of the load, a percent. So at 99/90, I don’t know how many percent it’ll be killed, there will certainly be a few. But there will be survivors, and whether that frequency of survivors is enough to contaminate a batch, we don’t know. But if it’s high, then that - the risk of that is high.

ALEXIS: So is this as far as we can really go with this? If it’s high, then it’s certainly possible?

WITNESS BRIDGE: Yeah.

ALEXIS: But if it’s not high, then the possibility is very low?

WITNESS BRIDGE: It’s high, but also the fact that there’s actually spores in there, that’s an issue for me, as well. Why - why are there spores in there, and why are they even at that level? You know, I - I - I explained to you how whey is processed or how it, you know, the best practice is to use micro-infiltration. That should preclude any spores or mycelia actually get into the whey powder in the first place, you know? So you know, I - I think ten to the two, ten to the three, ten to the five, they’re - they're - they're high numbers. And then, what happens with that number when it goes through pasteurisation? Well, there’s going to be a percentage of them that’s going to survive whether they cause the - the - you know, so it’s my - my best bet is that, you know, a powder that’s got a discernible load in it could be, you know, the - so yeah. Absolutely, yeah.

ALEXIS: But only possible?

WITNESS BRIDGE: Only possible, only - I can’t be definitive.”

302. Proclear pointed to a number of what it contended to be objective factors suggesting that Mr Eglezos’s hypothesis be accepted. These included that there appears to be lack of correlation between the incidence of mould and use by UBC of the Fonterra protein, as opposed to the other branded protein, that there appeared to be occurrence of mould in non-Bodie’z products manufactured by UBC, that there appeared to be issues concerning the cleanliness of UBC’s factory, that regulatory health auditors had advised UBC to close the factory doors, and that the fill chamber at the factory regularly opened during production.

303. On the other hand, UBC drew attention to the difference between the number of complaints it had received in relation to non-Bodie’z products and the volume of mould issues that appeared to have been manifest with Bodie’z products.

304. These are all factors to be weighed in the balance. But the fact is that each party adduced expert evidence to support their competing theories in circumstances where each expert agreed, ultimately, that he could not say with any certainty what caused the mould problem.

305. In these circumstances, I have no actual persuasion of the mind as to the likely cause of the mould

Clause 6.3

306. In any event, in final submissions, Proclear only pointed to one express term of the Agreement that UBC had allegedly contravened.

307. That was cl 6.3, which provided:

“[UBC] must put into place testing procedures and quality control procedures approved in writing by [Proclear] in relation to the manufacture of the Product.”

308. Proclear contended there was a breach by UBC of this clause:

“… because in about April 2020, UBC informed Proclear that UBC did not have sufficient manpower to undertake quality control for the Product.”

309. Proclear pointed to a conversation between Mr Lazar’s brother, Mr Lachlan Lazar, and Mr Gordon, where Mr Gordon is alleged to have said:

“Checking these bottles is costing me too much money and time. We can’t continue this.”

310. Proclear contended that, as a result, it was put to the expense of inspecting bottles to reduce the risk of contaminated stock “going to market” and that it suffered loss of $150,650, being payments made to identified contractors.

311. Those submissions did not engage with UBC’s submissions about this subject.

312. UBC accepted that, in about March 2020, Mr Gordon and Mr Lazar reached an agreement to hand sort bottles of Proclear’s product and that, as Proclear submitted, such sorting occurred for about three weeks after production to allow any contamination to show.

313. On 26 March 2020, Ms Didi Bains, a business manager engaged by Proclear, wrote to Mr Gordon under the heading “Mould bottles - short term solution”.

314. Ms Bains referred to the “issue with mould in bottles” and recorded that “[w]e have been working on ways to limit this issue by checking bottles and removing those with mould which both your team and ours have done to assist”.

315. In June 2020, a dispute arose as to the terms of the agreement to hand sort bottles.

316. In that regard Ms Bains gave this evidence in cross-examination:

“Q. If I can now ask you some questions about an inspection agreement regarding bottles that were in for March 2020 that was entered into or reached between Mr Gordon and Mr Lazar, do you know what I mean by that?

A. No, I don’t, sorry.

Q. This is an agreement to hand sort or sort after production?

A. The manual sorting of the--

Q. Yes, yes, sorry.

A. Sorry, yeah.

Q. If you don’t mind, I’ll refer to that as an inspection agreement.

A. Yeah, no problem.

Q. You weren’t a party to any of those discussions, were you, regarding what was agreed between them?

A. No.

Q. May his Honour take it that whatever was agreed, you were aware, however, or understood, that it was to be a short-term solution only.

A. Yes.

Q. Ultimately, there was a dispute between Proclear and UBC, as to what were the terms of that agreement and what was required under it, do you recall that?

A. Yes.”

317. Mr Lazar gave evidence to the same effect:

“Q. Then there was a subsequent dispute, wasn’t there, about what were the terms of that agreement?

A. Yes, there were meetings about it, yeah.

Q. Certainly in late June 2020, in a conversation with you, Mr Gordon told you that the issue was the protein, and he said to you, ‘quality control is not hand-sorting’?

A. The first part of the question, I don’t believe occurred. The second part, yes, it’s likely Michael said, the quality to - sorry, your words were again?

Q. ‘Quality control does not mean hand-sorting’.

A. He probably said that.

Q. In that conversation, you agreed that UBC would only have to go from that point forward to help sort for online orders?

A. We did make an agreement around that.

Q. That’s what happened thereafter?

A. Yes.

Q. From late June 2020 until 20 July 2021, UBC only hand-sorted stock that might be required for online orders; is that correct?

A. I believe so, yes.

Q. Otherwise, Proclear sorted its own stock?

A. Yes.

Q. From June 2020, you made no complaint to UBC regarding the terms of this arrangement, did you?

A. I can’t recall. Is this on the new?

Q. I’m sorry?

A. On the new sorting?

Q. Yes.

A. Where we would sort it and then they’d do online orders?

Q. Yes, you made no complaint after that that--

A. That was a hot topic of contention at the time.

Q. Yes, but you had an agreement. After that agreement, you went and did the sorting.

A. We had to do the sorting at that time.

Q. But you never complained to them about that?

A. Not after that agreement was raised.

Q. Yes. You never said to them, this is cost – we’re going to sue you for the costs involved in this, did you?

A. Never used those words, no.” (Emphasis added.)

318. Mr Alexis’s and Mr Michael’s submissions did not engage with this detail.

319. In those circumstances, I think Mr Russell was correct to submit that:

“In late June 2020, a dispute arose as to the terms of the agreement previously reached and Mr Gordon told Mr Lazar that quality does not mean hand sorting. Further, Mr Gordon and Mr Lazar reached a further agreement that thereafter UBC would only have to help sort with online orders. UBC did so from late June to 20 July 2020 …

… in circumstances where the parties had reached a separate agreement regarding hand sorting, and the parties’ disputes in relation to that separate agreement were settled by the terms of the further agreement, there has been no breach of either the Manufacturing Agreement or the Separate Agreements.”

Settlement of part of the claim

320. UBC contended that, in any event, the parties had reached an accord or settlement in relation to the mould issue in relation to identified production runs.

321. The settlement is said to arise inferentially from Mr Lazar’s alleged agreement that a production run between 12 and 14 May 2021 be carried out without an identified means of filtering. I cannot see how any agreement can be inferred from this.

322. The second agreement is said to relate to the production runs in August and September 2021.

323. Mr Gordon said that, on 19 August 2021, he had a conversation with Mr Lazar in which Mr Lazar agreed to waive any claims Proclear might have against UBC in relation to these runs.

324. Mr Lazar said that, in a conversation, Mr Gordon “said in effect that if Proclear did not provide a waiver UBC would not fulfil Proclear’s purchase orders by the agreed date.”

325. Following that conversation, Mr Lazar sent Mr Gordon an email:

“You are placing unfair pressure on us. It is under extreme duress that we agree not to make a claim against UBC for this August’s [production run] for up to 10% of defective goods caused by mould noting your comments that the existing process may give rise to about 5-10% defective goods.”

326. Mr Gordon replied, confirming the production date and revised purchase order with adjusted volumes.

327. This represented an agreement in relation to these production runs.

328. Proclear abandoned the claim hitherto made that the agreement was reached as a result of economic duress or unconscionable conduct.

Damages

329. In view of my conclusions, it is not necessary for me to deal with the question of damages.

330. Proclear’s claim was for the loss it contended it suffered arising from waste of raw materials, warehousing, testing, and checking “unusable products”.

331. In final submissions, Mr Michael, who conducted this part of the case for Proclear, submitted that, assuming there had been a waiver in relation to the August and September 2021 production run, Proclear’s damages in this respect were $206,615.91.

The overcharging claim

332. Proclear alleges that UBC has overcharged it in relation to three Non-Unique Products: phosphoric acid, a stevia or sugar substitute known as Rebaudioside A, and a product known as Erythritol.

333. Clause 4.2 of the Agreement provided that:

“[UBC] is responsible for providing all Non-Unique Ingredients, at a competitive market price and at all times at a cost no higher than provided to other customers of [UBC].”

334. This clause appeared in the Agreement immediately after cl 4.1, set out at [278] above, which obliged Proclear to provide all Unique Ingredients.

335. In that context, the “market” referred to in cl 4.2 must be the market concerning Non-Unique Ingredients in which the parties were operating, in which a co-pack manufacturer such as UBC would supply such products. The “competitive market price” referred to in that clause must in that context be a reference to the price at which a co-pack manufacturer competing with UBC would supply a Non-Unique Ingredient to Proclear.

336. Thus, cl 4.2 contained two promises. First, that UBC would provide the Non-Unique Ingredients at a price competitive to that which another co-pack manufacturer would supply such products to Proclear. Second, that UBC would provide such ingredients to Proclear at a cost no higher to Proclear than UBC provided to other of its customers.

337. The clause does not contain a promise that UBC would supply the Non-Unique Ingredients to Proclear at the same price that UBC acquired such ingredients from its wholesale supplier.

338. That is, the clause does not comprise a promise by UBC that it would supply Non-Unique Ingredients to UBC at the price that Proclear could obtain if it dealt directly with UBC’s suppliers.

339. There is nothing in this clause that would prevent UBC from applying a markup when supplying Non-Unique Ingredients. There is no reason to think, and there is nothing in the Agreement to suggest, that the parties intended UBC would supply Non-Unique Ingredients at cost.

340. It was always open to Proclear to source such ingredients itself. And it did.

341. Mr Lovric gave this evidence:

“In manufacturing Bodie’z beverages, the following ingredients were initially supplied by UBC from its stock in the Warehouses but on the dates indicated, were supplied or provided by Bodie’z directly for the manufacturing of Bodie’z products, mainly:

(a)   erythritol, this was supplied by Bodie’z from about November 2020 onwards;

(b)   Reb A, this was supplied by Bodie’z from about March 2021 onwards … ; and

(c)   phosphoric acid, this was supplied by Bodie’z from about March 2021.”

342. Thus, from the dates identified by Mr Lovric, Proclear sourced the three Non-Unique Ingredients of which complaint is made directly from the supplier.

343. Proclear claims the damages said to arise from the alleged breach by UBC of cl 4.2 as the difference between the cost to it of the supply by UBC of the three identified Non-Unique Ingredients and the “market rate” of those products, being prices quoted to UBC by the suppliers of those products.

344. But that price at which UBC acquired the products is not an integer relevant to UBC’s obligations under cl 4.2.

345. To establish a breach of cl 4.2, it would have been necessary for Proclear to show that other co-pack manufacturers were supplying their customers with the relevant ingredients at a price less than charged by UBC to Proclear, or that UBC was charging other of its customers less for the supply of those products.

346. Proclear has not established either of these matters. Proclear’s overcharging case fails.

The SQF/ALDI claim

347. Proclear alleges the existence of what it has described as a “Certification Agreement” made in a conversation with Mr Lazar and Mr Gordon in May 2019. ^[62]

     62. The pleaded case is that the agreement was entered into in June 2019, but Mr Lazar agreed that the relevant conversation occurred the previous month.

348. Thus, in its List Statement, Proclear alleges:

“In or around [May] 2019, Proclear entered into an agreement with UBC that UBC would do all things necessary to achieve SQF ^[63] certification for the [UBC’s Unanderra] Plant in consideration for Proclear paying the costs of the audit required to obtain the certification.” (Emphasis added.)

63. Meaning “Safe Quality Food”.

349. That contention was repeated in closing submissions.

350. That contention is not borne out by the evidence relied on in those closing submissions.

351. In May 2018, a company associated with Mr Lazar, BL Research Pty Ltd, entered into a contract with ALDI Stores to supply a protein water product. It was a term of that agreement that:

“All Suppliers of food Products are required to hold and maintain certification under a recognised Global Food Safety Initiative (‘GFSI’) standard. Such Suppliers also must complete an annual audit by an accredited certification body as required by ALDI Stores, and promptly rectify any non-compliance identified during such audit, as required by ALDI Stores, and in accordance with the ALDI Stores’ Supply Guidelines.”

352. In that context, in May 2019, Mr Gordon and Mr Lazar had this conversation:

“[Mr Lazar]:   Can you send me your GFSI certificate?

[Mr Gordon]:   Bodie, you know we’re HACCP ^[64] certified. We don’t have GFSI.

[Mr Lazar]:   We have to do something! I need a GFSI certification for the Aldi contract. Can you get it?

[Mr Gordon]:   From what I’ve heard, becoming GFSI certified is more complicated and more expensive than HACCP.

[Mr Lazar]:   I will pay the costs for you to get certified. Can you do this for me?

[Mr Gordon]:   Okay, I will do my best to get this over the line for you.” (Emphasis added.)

64. Meaning “Hazard Analysis and Critical Control Points”; a recognised method to identify and manage food safety risks.

353. On 2 and 3 May 2019, UBC manufactured a run of Bodie’z berry flavour products with ALDI’s “Maxade” branding. Mr Lazar did not dispute that he had this conversation with Mr Gordon prior to that run:

“[Mr Gordon]:   Do you want to run Maxade? We don’t have GFSI.

[Mr Lazar]:   Yes. Run it.”

354. UBC manufactured that product on 2, 3, 6 and 7 May 2019.

355. In the meantime, on 2 May 2019, Mr Lazar wrote to Mr Gordon, stating that ALDI had requested that Proclear provide them with a “GFSI recognised certificate for the factory”, and stating that the HACCP approval that UBC’s factory had was not acceptable to ALDI.

356. Mr Lazar continued by saying that he understood that HACCP accreditation “makes up a major part of the GFSI Certificate, so I believe the majority of the work is done”.

357. It was in that context that the critical conversation, said to give rise to the Certification Agreement, took place.

358. Mr Lazar’s account of that conversation is as follows:

“[Mr Lazar]:   I will pay for the audit costs of between $6k-$7k provided that you do what is needed to achieve SQF Certification.

[Mr Gordon]:   Ok.

[Mr Lazar]:   We need to illustrate to ALDI that the audit is proceeding too. Do you have anything we can give to ALDI to give them that comfort?

[Mr Gordon]:   I will ask the auditing body to provide a letter illustrating that UBC is conducting the SQF Audit with the plan of achieving SQF Certification.

[Mr Lazar]:   Thanks Michael.”

359. Immediately after setting out that conversation in his affidavit, Mr Lazar deposed:

“I understood from the above conversation that UBC would take all reasonable steps to obtain SQF certification for the Plant, provided Proclear paid for the audit required in order to obtain that certification.”

360. In cross-examination, Mr Lazar confirmed that this was his understanding of what had taken place in the conversation.

361. Thus, on Mr Lazar’s own evidence, there was no Certification Agreement of the kind contended for in Proclear’s List Statement, or in Proclear’s closing written submissions.

362. The agreement was not to “do all things necessary” to achieve SQF certification but, rather, to “take all reasonable steps” to achieve that result.

363. There was no dispute about the following matters set out in Mr Russell’s closing submissions:

“In the course of obtaining SQF certification, Mr Gordon learnt that:

(a)   UBC needed 6 months of documentation, which UBC did not have; and

(b)   UBC would need to employ a full time SQF quality manager, which he ascertained would cost $80,000-$100,000 per year.

The expert evidence of Martin Stone was that it was a requirement to have a full time SQF employee and a full time back up. Mr Stone’s further evidence during cross-examination was that usually small to medium business normally need to hire another employee.”

364. In August 2019, Mr Gordon and Mr Lazar had a further conversation, not disputed by Mr Lazar:

“[Mr Gordon]:   We really don’t want to do this. We need a 6 month history of compliance with SQF before you can pass the audit. Even with a friendly auditor, we need at least 3 months. We will need an SQF manager to manage the paperwork full time. It is its own job.

[Mr Lazar]:   No you don’t. Rhett ^[65] has an outsourced SQF system. He does it all through his tablet.

[Mr Gordon]:   That won’t work for us. We won’t be able to meet SQF audit without the history and the SQF manager. It’s too much for us to bring on another person just for Bodie’z. If you want us to do this, you’ll have to pay half.

[Mr Lazar]:   Let me think about it.”

65. A colleague of Mr Lazar.

365. In September 2019, Mr Gordon met with Ms Bains.

366. There is a dispute about that conversation but, on Ms Bains’s account, it was as follows:

“[Ms Bains]:   So I have seen the audit report you sent through with the changes listed that are required for SQF certification. Shall we go through the list and discuss them?

[Mr Gordon]:   Ok. There are about ten things that I cannot do without extra resourcing. I will need to review the plan.”

367. Ms Bains deposed that a short time later, on 11 October 2019, she had this conversation with Mr Gordon:

“[Ms Bains]:   How are you going with the GFSI certificate for SQF? We obviously want to continue to supply ALDI and we are going to need that.

[Mr Gordon]:   Based on the audit report and the amount of capital expenditure required to get the plant to SQF, I don’t think it’s worth pursuing. Proclear is the only client of UBC that want to pursue it. We don’t have the ongoing resources needed to maintain the certification. We would need a full-time employee dedicated to quality assurance, and I can’t justify that. If you guys can fund it I would look further into doing it, but it’s not worthwhile for us.

[Ms Bains]:   That’s very disappointing. I thought everything was proceeding fine?

[Mr Gordon]:   Yes well it is just not feasible for me.”

368. There the matter rested.

369. Mr Gordon heard no further about the SQF matter until Proclear’s solicitors sent a letter before action on 1 October 2021, two years later.

370. Based on this evidence, I see no basis to conclude that UBC was in breach of any “Certification Agreement”.

371. Such agreement as there was, as I have said, was not to “do all things necessary” to procure the SQF certification but, rather, to “take all reasonable steps” to do so.

372. In order to achieve this result, it would have been necessary for UBC to engage a full-time employee dedicated to quality assurance.

373. Proclear has not established that it was unreasonable of UBC to decline to take this step.

374. I see no basis in the evidence to justify the conclusion, advocated by Proclear in its closing submissions, that the “real reason” that UBC did not proceed with the SQF certification was to address criticisms made of UBC by the HACCP auditor.

375. Proclear claimed in relation to this matter damages of $57,147, being its costs incurred in relation to ALDI brand of stock that could not be sold.

376. That claim fails.

UBC’s unpaid invoices claim

377. UBC claims an amount of $203,245 for unpaid invoices.

378. My conclusions have the effect that Proclear has no defence to that claim.

Conclusion

379. Proclear’s claim fails. It must be dismissed.

380. UBC is entitled to judgment in relation to its unpaid invoices.

381. Costs must follow the event.

382. The parties should confer and agree on the orders necessary to give effect to these reasons.

**********

I certify that the 382 preceding paragraphs

are a true copy of the reasons for judgment

herein of Justice Stevenson.

Dated: 18 November 2024

Associate………………………………

Endnotes

Amendments

16 December 2024 - Redactions removed, with the exception of the attachment referred to at [63].

Decision last updated: 16 December 2024