Zee Sweet Pty Ltd v Magnom Orchards Pty Ltd
[2003] VSC 486
•18 December 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 8658 of 2002
F5510
| ZEE SWEET PTY LTD (ACN 083 138 443) | Plaintiff |
| v | |
| MAGNOM ORCHARDS PTY LTD (ACN 007 013 256) AND OTHERS | Defendants |
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JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 5, 6, 10-13, 24-27 November 2003 | |
DATE OF JUDGMENT: | 18 December 2003 | |
CASE MAY BE CITED AS: | Zee Sweet Pty Ltd v Magnom Orchards Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 486 | |
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Contract – Licence to grow fruit trees – Innocent misrepresentation – Reliance – Whether rescission subject to terms – Injunctive relief.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr Mark Dreyfus QC and Mr Andrew J. Maryniak | Griffith Hack |
| For the Defendants | Mr Norman O'Bryan SC (to 13 November 2003) Mr Stephen O'Bryan SC (from 24 November 2003) and Ms S. Gatford | Garden & Green |
HIS HONOUR:
Fleming's Nurseries Pty Ltd ("Flemings Nurseries") is a company which was established in 1986 as a vehicle to take over and conduct the Fleming family’s longstanding business of propagating and selling fruit trees of various varieties to commercial fruit growers. Its managing director and moving spirit is Eric Donald Fleming, whom I shall refer to simply as Mr Fleming, to distinguish him from the other members of his family.
In the early 1980s, a group of 29 commercial fruit growers led by William Noel Aumann came together with Flemings Nurseries to pool their resources with a view to improving the stock of fruit trees in Australia. They incorporated for the purpose in 1983 a company which, at all relevant times, was called Flemings Nurseries & Associates Pty Ltd (“FNA”). The ASIC search of FNA as at 16 October 2003 shows that it then had six directors of whom two, Mr Fleming and Mr Aumann, had held office from 1983. It discloses, too, that its issued share capital was 310 shares held, as to 156 shares by Cartrefol Pty Ltd, as to 100 by Brian Ian Witchell, as to 28 by Flemings Nurseries and the remaining shares by 26 persons or groups of persons or companies each holding one share. It is said, however, that this does not represent the true shareholding in FNA.
According to Mr Fleming, FNA was specifically established by its members to approach Californian fruit tree breeders Betty and Floyd Zaiger and to establish a nursery to propagate and distribute new fruit tree cultivars which FNA would import into Australia.
FNA was, at least since 1996, closely associated with Flemings Nurseries. This appears from the Flemings’ Growers Reference Guide which was published by Flemings Nurseries in 1996 and which contains details of the cultivars which Flemings Nurseries then had for sale. These included a number of sub-acid nectarines and peaches which are described as having low acid and high sugar and as having originated from Zaiger Genetics in Modesto, California. These characteristics of the fruit were considered desirable and Zaiger fruit was well regarded by growers and consumers in Australia and overseas. At this time, FNA had entered into a licence agreement with the Zaigers under which they granted to FNA “an exclusive license to produce and/or sell indefinitely in the Continental Boundaries of Australia only” budwood from all Zaiger varieties registered or patented or to be registered or patented. Notwithstanding the use of the word “indefinitely” it appears elsewhere in this agreement that it was to last for a specific term of years. FNA, for its part, agreed to pay to Mr Zaiger a royalty of 50 cents per tree sold. The licence agreement proceeds on the basis that the Zaigers, and not Zaiger Genetics, held the necessary intellectual property over the Zaiger trees.
Pursuant to this arrangement, FNA or Flemings Nurseries would propagate Zaiger trees from budwood imported from California, and Flemings Nurseries would sell them to growers. Such sales were for a price per tree which included the tree royalty payable to the Zaigers under the licence agreement. These sales to growers were, it seems, unconditional, in the sense that the purchasers acquired the trees and were free to use them and their fruit as they pleased, including propagating further trees from them.
The practice in the industry was for growers to order trees from Flemings Nurseries late in the year before delivery or early in the year of delivery for delivery in July. These would then be planted at the end of winter. In the second following spring or summer the trees would bear commercial quantities of fruit, and thereafter, they would have a commercial life of approximately ten to thirteen seasons.
The firstnamed defendant, Magnom Orchards Pty Ltd ("Magnom"), is a company established in 1993 by Ian Gammon and his wife Kerry Christine Gammon to carry on the business of commercial orchardists on a property at Woorinen near Swan Hill which had been in the Gammon family since the 1920s. Magnom grew nectarines and peaches and had been customers of Flemings Nurseries since the 1960s. Magnom also has a packing shed and cool store on its property at Woorinen.
There is also in the Swan Hill district an orchard known as Lakeridge Farm which Magnom owns and operates in partnership with the secondnamed defendant, Andrew Marc Sammons Sime, and his wife, the thirdnamed defendant, Sally Margaret Rice. I shall refer to this business simply as Lakeridge.
In early 1998, in circumstances to which I shall return in a little detail, FNA renegotiated its arrangements with the Zaigers. Mr Fleming and Mr Zaiger decided that FNA would be given a fresh exclusive licence to import and propagate nectarine and peach trees grown from Zaiger cultivars and to sell them to growers, pursuant to a program which was to be given the name, Zee Sweet program. Broadly speaking, FNA would be required to pay to the Zaigers not only the tree royalty as before, but also a new royalty, a production royalty, payable as a percentage of the sales recovered from fruit from the Zaiger trees.
The Zee Sweet program was, however, more than just an extra charge to FNA and ultimately to the growers. As it emerged, it involved new functions for FNA and a new relationship between it and its grower customers. It involved the establishment of a new company to manage the program. This was the plaintiff, Zee Sweet Pty Ltd ("Zee Sweet"), whose managing director was and is Mr Fleming.
Under the Zee Sweet program, Zee Sweet assumed control of every aspect of the fruit growing process, insofar as it concerned production from Zaiger trees subject to the program. I introduce this qualification because there were a quantity of Zaiger trees which had been previously sold to growers and which were not sold upon terms which subjected them and their fruit to the program. With respect to trees subject to the Zee Sweet program, Zee Sweet controlled the packing of Zee Sweet fruit by requiring that this be done only by approved packers; the selling of Zee Sweet fruit by the growers by requiring that this be achieved only through approved agents; and the exporting of Zee Sweet fruit by requiring that this be done only by approved exporters. Growers also were required to maintain quality standards and to submit periodic returns to Zee Sweet. They were not permitted to propagate their own trees from the Zaiger trees provided under the program. All of this was achieved by a requirement of Zee Sweet and FNA that Zaiger trees would not be provided to a grower unless the grower entered into a standard Growers Agreement and a standard Non-Propagation Agreement, which agreements incorporated these terms. In this judgment I shall refer to trees and fruit produced from Zaiger cultivars as Zaiger trees and Zaiger fruit respectively; those Zaiger trees and Zaiger fruit which were part of the Zee Sweet program I shall call Zee Sweet trees and Zee Sweet fruit.
A further feature of the Zee Sweet program was the unusual nature of the transaction by which the growers acquired the trees. The contractual documentation is regrettably obscure on this point. Under the Growers Agreement Zee Sweet granted to the grower "a licence to use the Plant Material to grow and sell fruit pursuant to the terms and conditions of this Agreement".[1] Plant Material is defined in cl 1.10 as including:
"the cultivars and trees specified in the Schedule or any of their parts, including any materials propagated, developed, grown, or otherwise originating from such Plant Material, including seed, pollen, fruit, budwood, grafting wood or any propagating or harvested material of whatsoever nature".
For this licence, the grower agreed to pay a $2.00 tree royalty for each tree acquired, payable as at the date of invoice[2] plus a 5% production royalty upon the gross sale price of fruit from the tree.[3] By cl 11.1, the grower is obliged to enter into a Non-Propagation Agreement as a condition precedent to the execution of the Growers Agreement.
[1]Cl 3.1.
[2]Cl 6.1.
[3]Cl 6.2.
The Non-Propagation Agreement deals with a number of matters other than a prohibition upon propagation of a Zee Sweet tree. For my present purposes, it is important to note that, under cl 1 of the Non-Propagation Agreement, Zee Sweet agrees to sell to the grower and the grower agrees to purchase "the numbers of cultivars of fruit and/or other trees ("the Plant Material") set out in the Schedule to the Growers Agreement" which was executed in conjunction with the Non-Propagation Agreement. The price for this purchase is set out in the Schedule to the Non-Propagation Agreement. Taking the Lakeridge transaction as an example, the subject matter of each agreement is 1,000 Snow King peach trees for each of which the tree royalty is shown as $2.00 and the purchase price in the Non-Propagation Agreement is $9.08. The accompanying invoice dated 10 August 1998 shows a price of $7.08 for each tree plus $2.00 tree royalty, a total purchase price to the grower of $9.08.
I conclude from this that the grower purchases the Zee Sweet trees in the legal sense so that property in them passes to the grower, but that the rights of the grower as owner of the trees and of their fruit are qualified by the various constraints imposed by the two agreements.
Magnom joined the Zee Sweet program and entered into a Growers Agreement dated 17 July 1998. The Growers Agreement entered into on behalf of Lakeridge was dated 4 August 1998. Notwithstanding their plea to the contrary, it was ultimately accepted by Magnom, Ms Rice and Mr Sime that the Lakeridge partnership was bound by the Lakeridge Growers Agreement as well as by the associated Non-Propagation Agreement dated 10 August 1998.
I mention at this stage that a fresh Growers Agreement and Non-Propagation Agreement were entered into with each purchase of trees. This appears to have been done, in the case of Magnom, which purchased trees in each of the years 1998, 1999, 2000 and 2001, by sending to the grower for execution a fresh Schedule to the Growers Agreement and, perhaps too, of the Non-Propagation Agreement. This meant that, in the case of Lakeridge which made only one purchase, there was but one Growers Agreement, but in the case of Magnom, there were four Growers Agreements. Technically, this succession of agreements in the case of Magnom creates a number of difficulties for its defence and counterclaim. In the case of agreements entered into after the first Growers Agreement, there are difficulties in showing reliance on the misrepresentations alleged, for it soon became apparent that, in some cases, the pleaded representations, assuming them to have been made, were not being fulfilled. It creates difficulties, too, in the way of rescission because each agreement must be looked at individually. Finally, in the case of the 2000 and 2001 purchases, there are difficulties with the equities of Magnom, for each of these years it entered into a Growers Agreement with, it would seem, no intention of complying with its requirements as to the dealing with the fruit which would some years later be harvested. Having mentioned these matters, I put them to one side, for none of these points was addressed by either party. They were content to plead and to present their cases on the basis that there was only one Magnom Growers Agreement and one Lakeridge Growers Agreement. I, too, shall proceed on that basis.
Under the standard Zee Sweet Growers Agreement, provision is made in cll 15 and 16 for termination for breach and the consequences of termination:
“15. BREACH
15.1If the Grower breaches or fails to observe any of the terms and conditions of this Agreement, Zee Sweet may sue for damages or breach of contract.
15.2If the Grower breaches or fails to observe any of the terms and conditions of this Agreement, Zee Sweet shall have the right to send to the Grower a notice of breach. Such notice must set out a reasonable period within which the breach must be rectified by the Grower. Such notice period must be reasonable in all the circumstances.
15.3 …
15.4 …
15.5If the Grower breaches or fails to observe any of the terms and conditions of this Agreement, Zee Sweet reserves the right to terminate this Agreement pursuant to the provisions of Clause 16.
16.TERMINATION
16.1The occurrence of any of the following events shall entitle Zee Sweet to terminate this Agreement immediately by notice in writing to the Grower without prejudice to any claim that Zee Sweet may have against the Grower under the provisions of this Agreement or otherwise at law:
16.1.1 …
16.1.2If the Grower fails to rectify a breach within the time limited by the notice mentioned in Clause 15.2 above without prejudice to any claim that Zee Sweet may have against the Grower under the provisions of this Agreement or otherwise at law.
16.2Upon termination of this Agreement, the Grower must, as directed by Zee Sweet, either return the Plant Material and fruit to Zee Sweet, or destroy all of the Plant Material and fruit immediately upon request from Zee Sweet, or comply with such other directions given to it by Zee Sweet with regard to the Plant Material or fruit."
In this proceeding, Zee Sweet contends that each of Magnom and Lakeridge is in breach of its Growers Agreement and that Zee Sweet has terminated it in May 2002. It seeks orders that they cease selling, exporting or dealing with fruit from their Zee Sweet trees and orders requiring them to destroy these trees. It also seeks damages and the taking of accounts.
As I have mentioned, Lakeridge made only one purchase of Zee Sweet trees, that in 1998. Magnom participated in the Zee Sweet program in the 1998/9 season and in each season thereafter until May 2002. It did so by purchasing Zee Sweet trees in or about July of each year, 1998, 1999, 2000 and 2001. With respect to each of these purchases, Magnom and Lakeridge harvested the fruit from these trees in the summer months commencing two years after planting. In May 2002, Zee Sweet refused to sell to Magnom and Lakeridge, Zee Sweet trees for planting in the spring of 2002. The pleaded reason for this refusal was that in each of the seasons 2000-1 and 2001-2, Magnom and Lakeridge had each committed breaches of its Growers Agreement[4] such that Zee Sweet was entitled to treat it as having repudiated the agreement which repudiation was accepted by Zee Sweet on 7 May 2002[5], or such that Zee Sweet was entitled to terminate the Growers Agreement in each case in accordance with cl 16.1, which it did on 7 May 2002.[6]
[4]Statement of Claim 23.
[5]Statement of Claim 24-5.
[6]Statement of Claim 26, 27, 28, 29.
The fact that Magnom and Lakeside have committed most, if not all, of the breaches alleged against them[7] is not disputed. The validity of the Zee Sweet terminations is, however, in issue. The defence and counterclaim then goes on to raise a number of matters in answer to the claims of Zee Sweet.
(1)Zee Sweet made a number of representations at a meeting held at Bowral, New South Wales on 3 June 1998[8] which representations were false.[9] This is said to amount to a breach of collateral warranties[10] which entitles the defendants to terminate the Growers Agreements.[11]
These false representations are said also to amount to misleading and deceptive conduct contrary to the Trade Practices Act and the Fair Trading Act, entitling the defendants to terminate the Growers Agreement.[12]
At trial, however, these contentions were abandoned in favour of the unpleaded defence that the false representations were innocent misrepresentations which induced the defendants to enter into their Growers Agreements and they sought in the counterclaim orders rescinding these Growers Agreements on this ground. I mention immediately that it was not suggested that the Non-Propagation Agreements should be rescinded for the same reason.
(2)Zee Sweet is in breach of implied terms of the Growers Agreement that the defendants would not be treated on a discriminatory basis, that there would be sufficient packers for their fruit and that their requests for the appointment of a suitably qualified agent would be acceded to.[13] This is said to relieve the defendants of their obligations under their respective Growers Agreements.[14]
(3)The acts of Zee Sweet in breach of the implied terms would make it unconscionable for it to insist upon “strict adherence to the legal rights (if any) which it asserts against the defendants in this proceeding because in the circumstances it would be harsh and oppressive upon the defendants for the plaintiff to insist upon such strict adherence”.[15] For this reason, too, the defendants are relieved of their obligations under their respective Growers Agreements.[16]
(4)The contractual requirement that the Zee Sweet trees be destroyed is a penalty which the Court should not enforce.[17]
[7]Second further amended defence and counterclaim filed 24 November 2003, paras 23 and 34. I shall refer to this pleading simply as the defence and counterclaim.
[8]Defence para 44.
[9]Defence para 50.
[10]Defence paras 49, 51.
[11]Defence para 53.
[12]Defence para 52, 53.
[13]Defence para 54, 55.
[14]Defence para 57.
[15]Defence para 56.
[16]Defence para 57.
[17]Defence para 62(c).
It should be noted, first, that this trial is not concerned with issues as to quantum. Second, the defendants in their defence and counterclaim and in earlier versions of this pleading, raised a great many other defences. These, other than those summarised above, have been abandoned by amendment or in the course of the trial before me.
Defendants' Breaches of Contract
In paragraph 23 of the Statement of Claim Zee Sweet alleges that, from about 2001, Magnom committed seven breaches of its Growers Agreement inasmuch as it permitted Zee Sweet fruit to be packed, sold and exported otherwise than through an authorised packer, agent or exporter[18]; it failed to ensure that the agent or exporter retained appropriate documentation required to be made and retained as to the amount of Zee Sweet fruit delivered to a packer[19]; and it labelled, packaged, boxed, transported, marketed and sold Zee Sweet fruit without using the Zee Sweet trade mark but using another trade mark[20]. These breaches were admitted with respect to the harvest season 2001-2[21].
[18]Contrary to cl 5.1.
[19]Contrary to cl 5.2.
[20]Contrary to cl 7.2.
[21]Defence para 23.
A further breach alleged in paragraph 23(d) of the statement of claim was that Magnom failed to pay the production royalty within 30 days of sale. This was denied in the defence but the evidence showed, and I find, that these royalties were paid but the payments were made outside the prescribed 30-day period.
Similar allegations of breach by Lakeridge contained in paragraph 34 of the Statement of Claim were also denied in the defence. Mr Sime, however, agreed that breaches similar to those by Magnom occurred with respect to the packing, selling and labelling of the fruit harvested by Lakeridge in the 2000-1 season. No fruit from this harvest was exported so that breaches with respect to exporting were not committed in that year. In the following year, 2001-2, he said, breaches occurred as for the Magnom fruit. In each year, production royalties were paid, but not within the 30-day period.
The explanation given for these admitted breaches appears to be that it was more convenient for the defendants to pack their Zee Sweet fruit at the Magnom packing shed. I say convenient because there were in the Swan Hill area approved Zee Sweet packers, namely Habolts on the Woorinen side of Swan Hill and Winters on the Tresco side. Magnom was not an approved Zee Sweet packer, not because it had not been invited to seek approval, but, rather, because the Gammons were not prepared to submit to the contractual regime required of an approved packer. Likewise, the Gammons did not like the available Zee Sweet agents and exporters, preferring to use their own. A consequence of this was that their agent and exporter did not want the Zee Sweet labelling on the produce and the packaging and the defendants complied with this. Hence the breaches of those requirements of the Growers Agreements.
It appears that, in the seasons 2000-1 and 2001-2, Zee Sweet thought that Magnom had executed a packers agreement and was therefore an approved packer. In March 2002, however, it came to the attention of Maree Louise Darmody, a senior executive employed by Flemings Nurseries, that no royalty returns had been received for Magnom fruit from Zee Sweet agents or exporters. She spoke about this with Mrs Gammon by telephone. The upshot of this was that Mrs Gammon frankly admitted the defendants had not used approved agents and exporters and that they had deliberately not sought the consent of Zee Sweet to this because they knew it would not be forthcoming.
The matter was then referred to the solicitors for Zee Sweet who wrote to Magnom and Lakeridge on 6 March, 28 March and 22 April 2002. Mrs Gammon replied to the first two letters. In the first solicitors’ letter the breaches for the 2001-2 harvest were identified but no time to rectify was given because, it was said, the breaches were incapable of remedy. Mrs Gammon made some response to the requirements for information but, on 7 May 2002, the solicitors for Zee Sweet wrote a letter to each of Magnom and Lakeridge asserting that the breaches amounted to the repudiation of the Growers Agreement in each case and that this repudiation was then and there accepted, bringing the agreement to an end. The letter in each case then went on to require the grower to destroy all the Plant Material, presumably pursuant to cl 16.2 of the Growers Agreement.
Subject to the affirmative defences to which I shall now refer, it was not seriously contested that the breaches by each of Magnom and Lakeridge were of such a nature as to amount to repudiation at common law and that Zee Sweet was entitled to terminate the Growers Agreement in each case by accepting it. The issue here was as to the consequence of the termination.
Misrepresentation
The claims based upon misrepresentation depended upon nine statements which were said to have been made at a meeting of growers held at Bowral, NSW on 3 June 1998. Before I deal with each of these statements and their suggested falsity, it is necessary that I set the meeting in context.
It will be recalled that Flemings Nurseries had been promoting Zaiger trees for some years before 1998. In late 1997, a competitor, Andrew Purcell from Tumut, NSW, informed Mr Fleming that he had acquired the rights to sub-acid cultivars propagated by the other predominant breeder of these cultivars, Bradfords, and that he proposed to obtain similar rights from the Zaigers. Mr Fleming viewed this prospect with some alarm for it would mean that Mr Purcell would have complete control of that part of the orchard industry. He took the view that this was contrary to the interests of his company and of growers generally. He spoke with Mr Zaiger and, ultimately, the two men conceived the idea that Zaiger trees would be exclusively distributed in Australia by FNA under a program which was to be called the Zee Sweet program. Under this program, FNA would receive production royalties as well as tree royalties and would pass part of this income on to the Zaigers which would provide an inducement for them to provide an exclusive licence to FNA. FNA would itself undertake a marketing scheme for the Zee Sweet fruit which would be of benefit to growers.
While the FNA board at its meeting of 27 April 1998 supported the scheme, they would not commit the necessary funds. Fleming Nurseries, however, was prepared to do this. The FNA directors then decided to take steps to give to Flemings Nurseries a 51 percent controlling interest in FNA and four seats on the seven member board. There was some urgency in all of this because orders had been received from growers for Zaiger trees to be delivered in late June. The number of these trees was such that, if they were not made subject to the proposed Zee Sweet program, the program might fail.
A meeting of industry leaders had been held at Lilydale on 23 April 1998 to inform them as to what was contemplated and on 1 May Mr Fleming reported progress to Mr Zaiger.
Mr Fleming and Ms Darmody then embarked upon an energetic tour of grower districts, holding meetings almost daily to inform growers about the proposed program and to encourage them to become participants. Meetings were held on 26 May 1998 in Perth; on 1 June 1998 in Renmark, SA; on 2 June 1998 at the Silver Slipper Restaurant, Swan Hill; on 3 June 1998 at the Grand Mercure Hotel, Bowral, NSW; on 4 June 1998 in Liverpool, NSW; on 5 June 1998 in Batlow, NSW; on 9 June 1998 in Cobram, Victoria; on 15 June 1998 in Lilydale, Victoria; on 10 July 1998 again in Cobram, Victoria; and on 14 July 1998 at the Monkey Bar in the Oasis Hotel, Swan Hill.
The meeting at which the representations the subject of this litigation were said to have been made was that held at the Grand Mercure Hotel at Bowral on 3 June 1998. In fact the occasion was the 1998 conference of a group of fruit growers, packers and shippers called the Panda Ranch Group. This group had been originally established in 1993 with eight members from Victoria, New South Wales and South Australia, under the direction of Jonson Chuang who was interested in the exporting of sub‑acid fruit into the Taiwan market . The conference was held on 2 and 3 June at which time a number of topics of interest to the group were discussed. The presentation by Mr Fleming and Ms Darmody of the Zee Sweet program was, according to the agenda, to be a discussion of the new Zee Sweet royalty proposal, for which 20 minutes was allocated in the late morning of the second day, before the final lunch and the golf afternoon. In fact the weather was bad, the golf tournament was cancelled and the Zee Sweet presentation occupied about one hour in the afternoon of Wednesday 3 June. It seems that Ms Darmody did most of the talking, with Mr Fleming making some contribution. They did not speak from notes. A record of what was discussed was taken by Mrs Gammon and by Jo Anne Fryar, an export manager employed by Panda Ranch who assisted in the running of the conference. Ms Fryar took handwritten notes which she later typed up and circulated to attendees. Of those present at the Zee Sweet presentation, evidence was led from Mr and Mrs Gammon, Ms Fryar, John Henry Butler and Michael Hugo Silm. Mr Fleming and Ms Darmody also gave evidence of what they said.
I should add at this stage that I admitted also evidence of what Ms Darmody and Mr Fleming said to similar meetings held at the Silver Slipper, Swan Hill on 2 June and at the Monkey Bar at Swan Hill on 14 July. This evidence was received on the basis that it is likely that the presentation on each of these occasions was similar in content to that at Bowral. The attendance record for the Silver Slipper meeting shows about 30 persons were present of whom evidence was given by Campbell Heighway, Michael John Thornton and Alma Maree Caffrey. Other witnesses who spoke of this meeting were Mr Fleming and Ms Darmody. The July 1998 meeting at the Monkey Bar had an estimated attendance of 80 to 100 growers. Apart from Mr Fleming and Ms Darmody, evidence of what was said at this meeting was given by Mr Sime, Kenneth Allan Young and Anthony Dominic Siciliano.
In their final address, counsel for the defendants grouped the nine representations pleaded in paragraph 44 of the defence and counterclaim into three groups: those relating to the authority of Zee Sweet to require growers to submit to the Zee Sweet program, second, those relating to the limitation to be imposed on the numbers of Zee Sweet trees and Zee Sweet growers and, third, that relating to the establishment of a growers advisory council. The representations alleged in sub-paragraphs 44(c), (e) and (i) were not pressed. I am content to deal with the remaining representations and their falsity under these three headings.
The Authority of the Zee Sweet Program
The representations in question are pleaded as follows:
“(a)the Fleming family and companies associated with or controlled by the Fleming family (‘the Flemings’) had established and controlled the plaintiff;
(b)the plaintiff had exclusive legal rights to, and would in future be the sole source in Australia of, sub-acid fruit tree cultivars developed by the Zaiger family of Modesto, California, USA which could produce Zee Sweet fruit;
(d)in order to reimburse royalties owed by the Flemings and the plaintiff to the Zaiger family, Zee Sweet fruit growers in Australia would be required to pay a royalty of $2 per Zee Sweet tree purchased from the plaintiff and also a production royalty of 5% of the wholesale price of all fruit produced from the said trees;
(h)it would be necessary for anyone wishing to enter the Zee Sweet program to enter into contracts with the plaintiff and only persons who signed such contracts would obtain the benefits of the Zee Sweet program described in the above sub-paragraphs.”
In final address, counsel for the defendants submitted that the effect of these representations was as follows:
“… the way the defendants put their case on the first, and one of the most serious misrepresentations is that those things amount to saying the following to growers: things have changed, there is a new program. Zee Sweet has obtained exclusive rights to the sub-acids from the Zaigers on conditions that include payment of production royalty and other controls over packing and marketing and the like, and what that means is that we are through the plaintiff company in a monopoly controlling position, and therefore we have got the power derived from authority from the Zaigers to exclude persons who don’t sign up according to the terms we seek.”
It is convenient to set out my findings as to these representations made at the Bowral meeting.
I am not satisfied that representation (a) was made, notwithstanding Ms Darmody’s assent at p. 545 of the transcript. I accept that she said that a company would be established to conduct the Zee Sweet program and that it would be controlled by "the Flemings". Such an expression in the context would be understood as Flemings Nurseries, for this company was commonly described as "Flemings" by growers. Her statement proved to be correct because Zee Sweet was incorporated on 25 June 1998 as a wholly owned subsidiary of Flemings Nurseries and with Mr Fleming and Elaine Dawn Fleming of the same address as directors.
Representation (b) provoked a surprising amount of evidence. I say surprising because the question of the rights of Zee Sweet to sell Zaiger trees was never disputed by the Zaigers nor challenged by any competitor. What was put on behalf of the defendants was that, at the date of the meeting, and, indeed thereafter, Zee Sweet did not have a valid and enforceable exclusive right to distribute Zaiger trees, including the intellectual property to the Zaiger cultivars. Accordingly, this statement was false.
As to the making of the statement, I accept the evidence of Mr Silm that Ms Darmody told the growers at the Bowral meeting that Flemings had a relationship with Zaigers in America. None of the witnesses who were at that conference specified in unequivocal terms the making of the suggested statement except perhaps Mrs Gammon whose witness statement includes an assertion that the substance of what the growers were told included a statement that “Flemings have exclusive rights in the Zaiger varieties in Australia and Flemings is the only nursery in Australia that can supply the Zaiger sub-acid varieties”. When pressed, however, her recollection of this was not confident. Ms Darmody, whom I accept generally as a reliable witness, denied that she spoke of exclusive rights. I do not find that the pleaded representation (b) was made out.
In any event, it was correct that, as at June 1998, Flemings Nurseries was the only nursery selling Zaiger sub-acid cultivars and that it did so under the 1996 agreement between Zaiger and FNA. For practical purposes, an assertion to that effect, if made, would have been correct.
Representation (d) concerns the payment of the new production royalty, a matter which was of great interest to the Flemings representatives and the growers. This royalty was certainly discussed at the Bowral meeting. I find, too, that it was discussed in the context that the payment would be 5% on the wholesale price of Zee Sweet fruit. This royalty was presented to the growers as necessary for the ongoing work of the Californian breeders and for local administration and promotion costs. I do not find that it was said to the growers that the whole of the production royalties was required by or would be sent to the Zaiger organisation in the USA.
Representation (h) was certainly stated to the growers. The execution by growers of contracts was an essential feature of the Zee Sweet program. I should observe that, at the time, the form of the contracts had not been settled, so that a statement of their content in general terms only was able to be made.
Returning to counsel’s suggested effect of these representations, much emphasis was placed on behalf of the defendants upon the implied and unpleaded assertion that the Zee Sweet organisation had the power derived from authority from the Zaigers to exclude from the program growers who did not execute agreements in the terms required. I am not persuaded that this inference is to be drawn from what was said. It is true that Flemings Nurseries was the only nursery offering Zaiger trees to Australian growers. This being the case, Flemings Nurseries was able to make the sale on such terms as it saw fit unless there was some constraint on this under their agreements with Zaiger or by law. None such was suggested.
The claims of the defendants based on the first group of representations, are without substance.
Limitation on Numbers
This second representation is pleaded in these terms:
“(f)the Flemings and the plaintiff intended to restrict the number of trees, the number of growers and the quantity of all fruit marketed in the Zee Sweet program so as to ensure that premium prices would be obtained for Zee Sweet fruit each year.”
As pleaded, three intended controls were announced to the growers at Bowral: a limit on the number of Zee Sweet trees, a limit on the number of growers admitted to the Zee Sweet program and a control on the quality of Zee Sweet fruit. In evidence nothing was made of the suggested statement as to quality control and I say nothing further about it.
The evidence as to what was said as to the limit on grower numbers was contradictory. Mr and Mrs Gammon recalled that the statement as pleaded was made and their recollection is supported by the note made by Ms Fryar. I am satisfied that this matter was discussed at the Bowral meeting. But who raised the topic and what Mr Fleming or Ms Darmody said about it is problematic. They both denied saying that any such limit was part of the Zee Sweet program. Mr Fleming said his organisation had no commercial interest in doing so. Mrs Gammon associated the suggested statement with an assertion by Mr Fleming that Zee Sweet growers would be preferred growers approved by Zee Sweet to enter the program. Few, if any, of the grower witnesses supported her recollection that it was represented that the number of growers would be limited. No witness, herself included, said that any limit was specified; nor was it discussed what criteria should be applied to admit or reject a grower to or from the program. I am not satisfied that the suggested statement was made.
The evidence as to statements about limiting the numbers of trees was generally in favour of this matter being discussed at the Bowral meeting. Mr Fleming and Ms Darmody said that the question was raised by the growers but that there was no unanimity among them as to the desirability of such a course. They denied saying that a tree limit was put to the growers as a feature of the Zee Sweet program. This evidence is contradicted by a number of growers present both at the Bowral meeting and at the two meetings at Swan Hill shortly before and after that meeting. The idea of a limit on the number of trees is contained, too, in Mr Fleming's fax to Mr Purcell of 27 May 1998. It is clear, too, that the idea of limiting the number of trees was in the mind of Ms Darmody in June 1998. She explained in her evidence that such a control was then seen as necessary for administrative purposes: so that Zee Sweet might know how many Zee Sweet trees were in production, and that, for this and for quality control reasons, growers were not permitted to propagate from Zaiger budwood.
I conclude that, at the Bowral meeting, the growers were told that there would be a policy of limiting the number of Zee Sweet trees sold but that no details were given of the number or as to how the policy would be implemented. This representation was a promissory representation. The evidence of Mr Fleming was that he then had no intention of introducing a limit on tree numbers nor was it the policy of his company. I find, therefore, that, insofar as the representation was one as to the state of mind of Mr Fleming or his company, it was false.
I am, however, not satisfied that the defendants were induced by this statement to enter into their 1998 Growers Agreement. Mr Gammon certainly does not say so. Indeed, he was keen to receive the trees to plant in the land which he had prepared for them and he was content for his own reasons to enter into the Growers Agreement which was proffered to him in August. Moreover, when he made purchases in the succeeding years, he was not at all induced to do so by any expectation that there was or would be some unspecified limit on the number of trees to be sold. Nor does evidence of Mr Sime and Ms Rice lead me to conclude that the entry into the Lakeridge Growers Agreement was induced by any expectation of a limit on tree numbers.
Grower Advisory Council
In sub-paragraph 44(g) this representation is pleaded as follows:
“(g)a growers’ advisory council would be established by Flemings and the plaintiff so that the growers which participated in the Zee Sweet program would have a meaningful say in how the program was managed.”
I am not satisfied that a statement to this effect was made by Mr Fleming or Ms Darmody at the Bowral meeting. I find that there was a discussion about the need for communication between Zee Sweet and its growers as part of the implementation of the Zee Sweet program. Mr Fleming said, and I accept, that there were among growers two schools of thought as to how this might be best achieved. Regional grower advisory committees suffer from the disadvantage that growers do not have a direct contact with the Zee Sweet organisation. It was for this reason that some preferred that there be regular meetings to which all growers in an area would be invited. Mr Fleming said that he had an open mind on the matter and that no decision was announced at the Bowral meeting as to which option was to be pursued as part of the Zee Sweet program. Both he and Ms Darmody deny making the suggested representations.
Breach of Implied Term
The terms pleaded in paragraph 54 of the defence are as follows:
“(a)the defendants would be treated by the plaintiff on the same equal and non-discriminatory basis as other Zee Sweet growers;
(b)the plaintiff would ensure that there was always available to the defendants a sufficient number of suitably qualified and resourced packers to ensure the efficient, timely and convenient packing of the defendants’ Zee Sweet fruit;
(c)the plaintiff would accede to any reasonable request made by the defendants to appoint a suitably qualified agent to act as their agent in the sale of their fruit.”
None of these terms satisfies the requirements for implication of a term in a contract. In the context of the present case, term (a) must be directed to a type of discrimination which cannot possibly be impliedly prohibited. What was put was that Zee Sweet chose to pursue for breach of contract only Magnom and Lakeridge whereas it did not pursue other growers who were equally in breach. It was suggested that they did so for their own commercial advantage. This submission must fail on any of a number of grounds. There is no evidence that known breaches by other growers had been tolerated or ignored by Zee Sweet. Assuming that a number of growers were known to be in breach of contract, it cannot be the law that the aggrieved party must pursue all of them at the same time or none of them at all.
The suggested term (b) is inconsistent with cl. 5.4 of the Growers Agreement which provides that Zee Sweet must ensure that the grower has more than one approved packer to choose from. Accepting this, there is no room for an implied term as suggested.
Likewise, suggested term (c) must fail. Clause 5.4 obliges Zee Sweet to ensure that there be more than one agent for the grower to choose from. The suggested term would impose a different and more onerous burden on Zee Sweet.
In any event, the evidence does not disclose discrimination of the kind alleged, an insufficiency of approved packers or a refusal by Zee Sweet to consider an agent suggested by Mr Gammon. I find that, when he suggested that his preferred agent, Delica, be approved as an agent, Ms Darmody said that she would consider this in the light of Delica’s performance over a trial period.
Next it is suggested that the breaches by Zee Sweet of these implied terms have the consequence of relieving the defendants of their obligations under the Growers Agreement without, it would seem, disturbing the continuing existence of these agreements. No authority was offered in support of this proposition and I am aware of none. The agreements based on breach of implied terms must fail.
Unconscionability
The argument based on unconscionability stands and falls with the implied term argument. The acts relied upon in paragraph 55 of the defence as providing the foundation for this argument are the suggested breaches by Zee Sweet of the implied terms. I have found that these do not exist. It is not therefore necessary for me to consider the further difficulties facing this argument as to whether the breaches amount to unconscionable conduct nor as to the relief sought.
Rescission for Innocent Misrepresentation
This question does not arise having regard to my findings that none of the misrepresentations, except that relating to tree numbers, has been made out and that the defendants were not induced by that misrepresentation to enter into their Growers Agreements.
I should mention, however, that counsel for the defendants advanced the proposition, which I am quite unable to accept, that I should award a kind of non-rescission of the Growers Agreement. What they contended for is that I should exercise my undoubted power of moulding equitable relief to suit the case, so that the Growers Agreement, but not the Non-Propagation Agreement, is rescinded but on terms that the defendants comply with those provisions of the rescinded agreements other than those with respect to marketing, exporting and packing the Zee Sweet fruit. What is here sought is that equity give its sanction to breaches of those provisions of the Growers Agreements which the defendants do not wish to observe and that this continue indefinitely so long as the trees bear fruit. I will say nothing further except that I would not make such an order.
The consequence of this is that the defences of the defendants must fail. The Growers Agreements have been terminated for breach. The question of damages for this breach and the taking of accounts will be determined later.
Penalty
Zee Sweet also seeks orders restraining the defendants from selling, exporting or dealing with the Zee Sweet fruit and an order in terms of cl 16.2 of the Growers Agreement that they destroy the Zee Sweet trees. In answer to the latter order it was contended that cl 16.2 was in truth a penalty as involving the forfeiture of property or that it was unreasonable having regard to the prospect that the defendants will be obliged to pay damages for loss suffered by the plaintiff in addition to the destruction of the property from which that profit might have been earned. Accordingly, the Court should not enforce this provision. It was accepted, however, on behalf of the defendants that the provision applied upon termination of the Growers Agreement following breach, whether this be pursuant to cl 16 or at common law for accepted repudiation. It applies equally where the agreement is terminated otherwise than for breach[22] and where the grower fails to comply with the statutory or regulatory requirements specified in cl 13.[23]
[22]See, for example, cl 16.5.
[23]Cl 16.4.
The scheme of the Zee Sweet growers' contracts is that Zee Sweet trees throughout their life[24] and Zee Sweet fruit are available only for the purposes of the Zee Sweet program. The role of the trees is, of course, to produce fruit for sale under the program and their value to both Zee Sweet and the grower lies in this. When the trees have no further role to play in that program cll 16.2 and 16.3 provide for their destruction or return to Zee Sweet. The question whether a particular contractual provision is penal in nature must be determined as at the date of contract. Pursuant to various provisions of the Growers Agreement the Zee Sweet trees of a grower may have to be removed from the orchard or destroyed in a variety of circumstances. In the present case, the fate of the Zee Sweet trees which have been in the ground for some years may depend whether they are capable of being easily removed to another location or whether destruction is the only option. While it may be unusual that a purchaser of a thing should be required to return it to the seller on the happening of a certain event, this does not operate to impose upon the purchaser an extra burden as a consequence of breach; it is simply the consequence of the tree's being no longer required for the Zee Sweet program. This, to my mind, is sufficient to dispose of the penalty point. I reject it.
[24]Cl 16.6.
Orders
I would therefore propose the following orders:
(1)That the firstnamed defendant by its servants or agents or howsoever be restrained from packing, selling, exporting, disposing or parting with possession of any of the plant material referred to in Part A of the Schedule hereto otherwise than in accordance with this order or in accordance with the consent in writing of the plaintiff.
(2)That the firstnamed defendant forthwith destroy all of the plant material referred to in Part A of the Schedule hereto or, if the plaintiff so directs, return the same to the plaintiff.
(3)That the firstnamed defendant by its secretary or proper officer not later than 19 January 2004 make file and serve an affidavit stating whether it has complied with the preceding order.
(4)That the firstnamed defendant within 7 days after 19 January 2004 permit Mr Benny Browne or another solicitor acting for the plaintiff to enter upon any land owned, leased or occupied by it upon which any of the plant material referred to in Part A of the Schedule hereto has been growing to determine whether paragraph (2) of this order has been complied.
(5)That each of the defendants by its servants or agents or howsoever be restrained from packing, selling, exporting, disposing or parting with possession of any of the plant material referred to in Part B of the Schedule hereto otherwise than in accordance with this order or in accordance with the consent in writing of the plaintiff.
(6)That the defendants forthwith destroy all of the plant material referred to in Part B of the Schedule hereto or, if the plaintiff so directs, return the same to the plaintiff.
(7)That the defendants not later than 19 January 2004 make file and serve an affidavit stating that they have complied with the preceding paragraph of this order.
(8)That the defendants within 7 days after 19 January 2004 permit Mr Benny Browne or another solicitor acting for the plaintiff to enter upon any land owned, leased or occupied by it upon which any of the plant material referred to in Part B of the Schedule hereto has been growing to determine whether paragraph (6) of this order has been complied.
(9)That there be judgment for the plaintiff against the defendants for damages for breach of contract, such damages to be assessed.
(10)Liberty to the parties to apply with respect to the implementation of this order.
(11)That the defendants pay the costs of the plaintiff of this proceeding including reserved costs.
I will hear counsel further as to the precise terms of this order. The Schedule to be annexed to the order should contain in Part A a description of the trees the subject of the Growers Agreements entered into between the firstnamed defendant and the plaintiff dated 17 July 1998, 9 June 1999, 24 June 1999, 18 August 1999, 23 June 2000, 9 August 2000, 19 June 2001 and 20 July 2001. Part B of the Schedule should contain a description of the trees the subject of the agreement entered into between the defendants as the owners of Lakeridge Farm and the plaintiff dated 4 August 1998.
Questions as to the quantification of damages payable by the defendants will stand over for further directions.
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