CATCHWORDS
CONTRACT - offer and acceptance - invitations to treat - vagueness and uncertainty - letter stating "the revised contracts are now ready to sign..." - whether essential or critical terms agreed - whether acceptance in fact - whether contract capable of enforcement
TRADE PRACTICES - consumer protection - misleading or deceptive conduct - silence - failure to give notice of intention to contract with another - loss of opportunity to contract - whether representation - whether reasonable expectation - whether silence deliberate - whether misleading or deceptive - whether relied on - whether estopped - whether in trade or commerce - whether causative - whether precluded by election
TRADE PRACTICES - enforcement and remedies - damages - assessment - whether expert evidence conclusive - whether need for further submissions
Dairy Industry Amendment Act, 1994 (WA)
Dairy Industry Authority Act 1973 (WA), s52, s53, s54, s55, s56, s57, s58, s59, s60
Fair Trading Act (1987) (WA), s9, s10
Sale of Goods Act 1895 (WA), s4
Trade Practices Act, s52
cf Accounting Systems 2000 Developments Pty Ltd v CCH Australia (1993) 42 FCR 470
Bailey v Namol Pty Ltd (1994) 53 FCR 102
Barto v GPR Management Services Pty Ltd (1991) 105 ALR 339
Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130
Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1
The Commonwealth v Verwayen (1990) 170 CLR 394
Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594
Courtney and Fairbairn Ltd v Tolaini Bros (Hotels) Ltd [1975] 1 All ER 716
Daniels v Anderson (1995) 13 ACLC 614
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Dinyarrak Investments Pty Ltd v Amoco Australia Ltd (1982) ATPR 40-323
Edgar v Farrow Mortgage Services Pty Limited (in liq) (1992) ATPR (Digest) 46-096
Farrow v Edgar (1993) 114 ALR 1
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1
General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FLR 164
Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82
Hillas v Arcos (1932) 147 LT 503
cf Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68
Inmer (No 145) Pty Limited v The Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26
James v ANZ Banking Group Ltd (1986) 64 ALR 347
cf Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 53,193
Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 69 ALJR 787
Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458
Leadenhall Australia Limited v Digicall Group Limited (1996) 14 ACLC 407
Leitch v Natwest Australia Bank (Cooper J, 12 October 1995, unreported)
March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506
Masters v Cameron (1954) 91 CLR 349
Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439
Patrick v Steel Mains Pty Ltd (1987) 77 ALR 133
Poseidon Ltd v Adelaide Petroleum NL (1992) ATPR 41‑164
Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 68 ALR 77
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332
Spunwill Pty Ltd v Bab Pty Ltd (1995) 36 NSWLR 290
cf Terrex Resources NL v Magnet Petroleum Pty Ltd [1988] 1 WAR 144
Thorby v Goldberg (1964) 112 CLR 597
United Australia Ltd v Barclays Bank Ltd [1941] AC 1
Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97
Wright v TNT Australia Pty Ltd (1988) 80 ALR 221
GABOR MARTIN NAGY and PATRICIA DOROTHY NAGY v MASTERS DAIRY LIMITED
NO WAG 27 OF 1995
R D NICHOLSON J
PERTH
13 DECEMBER 1996
IN THE FEDERAL COURT OF AUSTRALIA )
WESTERN AUSTRALIA DISTRICT REGISTRY)
GENERAL DIVISION ) NO WAG 27 of 1995
B E T W E E N: GABOR MARTIN NAGY and PATRICIA DOROTHY NAGY
Applicants
and
MASTERS DAIRY LIMITED
ACN 008 671 761
Respondent
and
MASTERS DAIRY LIMITED
ACN 008 671 761
Cross-Claimant
and
GABOR MARTIN NAGY and PATRICIA DOROTHY NAGY
Cross-Respondent
MINUTE OF ORDER
JUDGE MAKING ORDER: R D NICHOLSON J
DATE OF ORDER: 13 DECEMBER 1996
WHERE MADE: PERTH
THE COURT ORDERS THAT:
1. By 5 February 1997, the applicants file and serve a revised expert's calculation of damages in accordance with these reasons together with any submissions by the applicants thereon.
2. Within a further fourteen days the respondent file and serve any submission in response.
3. Within a further five days the applicants file and serve any submission in reply, if needed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
WESTERN AUSTRALIA DISTRICT REGISTRY)
GENERAL DIVISION ) NO WAG 27 OF 1995
B E T W E E N: GABOR MARTIN NAGY and PATRICIA DOROTHY NAGY
Applicants
and
MASTERS DAIRY LIMITED
ACN 008 671 761
Respondent
and
MASTERS DAIRY LIMITED
ACN 008 671 761
Cross-Claimant
and
GABOR MARTIN NAGY and PATRICIA DOROTHY NAGY
Cross-Respondent
CORAM: R D NICHOLSON J
DATE: 13 DECEMBER 1996
PLACE: PERTH
REASONS FOR JUDGMENT
The applicants bring actions for breach of contract and of s52 of the Trade Practices Act ("the TPA") in respect of what they claim is the loss of opportunity to continue to trade as Maddington Milk Supply ("the business") and operate a milk round in the Maddington area ("the zone" or the "Maddington zone").
Evidence was given by each of
the applicants. In addition they called
evidence from Mr D A Heal, a milk vendor in the metropolitan area between 1989
and 1995; Mr J R Thompson, business valuer, called as an expert; and Mr G T Nagy, the son of the applicants
who also worked in the business. The
witnesses for the respondent ("the respondent") were Mr W J
Archibald, the respondent's Contract Distributor Manager; Mr R J Schryver, the
respondent's Distribution Manager; Mr J de Groot, a contractor to the
respondent; Mr A R Smith, the respondent's Route Sales Manager; Mr A J Murphy,
the respondent's Corporate Affairs Manager; and Mr G L Keys, a partner in Ernst
and Young, Chartered Accountants who was called as an expert.
The claims arise in the following circumstances.
The applicants are husband and wife who constitute a partnership which purchased the business in or about December 1961 for _6,500. Since about 1966 they traded as Maddington Milk Supply. The conduct of the business was regulated by the Dairy Industry Authority Act 1973 (WA) ("the DIAA"). The applicants principally purchased milk and milk products for the business from the respondent. The balance was purchased from Brownes Dairy Ltd. As a consequence of their dealings with the respondent over the years they came to know the sales staff of the respondent (Johnson, Archibald and Schryver) well. However, being general suppliers, the business did not have to conclude any contract with the respondent.
From before 1986 the future of the milk distribution industry had been under consideration by the Dairy Industry Authority ("the Authority") established by the DIAA, and by successive State Governments. Reports had been prepared in 1986, 1988 and 1993. In 1991 the State Government announced its intention to deregulate and restructure the milk vending industry. As a preliminary step, from 1 July 1992 the number of milk distribution districts fixed under the DIAA in the metropolitan area was reduced from 228 to 90.
On 17 June 1993 the State Minister for Primary Industry announced he had accepted unanimous recommendations of the Milk Distribution Review Committee to fully deregulate the milk distribution system. He said from 30 June 1994 milk vendors and distributors in metropolitan and country areas would no longer require licences to deliver milk to retailers and households. He stated that date was an extension of one year on an announcement to the same effect by the previous government. He also stated "to assist in the transition to deregulation, the DIAA would operate an Adjustment Assistance Scheme to support eligible vendors and distributors who decide to leave the industry".
On 1 July 1993 the applicants were issued with licences under ss52 to 60 of the DIAA in respect of district numbers 60, 61 and 63. The schedule to each of those licences required deliveries under the licence be made to names and addresses of customers and shops nominated in those schedules in addition to general deliveries within a district nominated by the licence.
On 16 July 1993 the Authority wrote to the applicants advising it was making available financial adjustment assistance for milk distributors and vendors who wished to leave the industry as a consequence of the phased removal of district boundaries. The letter enclosed an application form for the Distribution Adjustment Assistance Scheme ("DAAS") together with the Terms and Conditions and an Information Paper. The applicants were advised they could apply for DAAS assistance at any time during the eligible period to 30 June 1994, if they arranged a sale of their entire milk distributor/vendor business to an existing licensee. They were also advised if they wished to apply during the eligible period to 30 June 1994 they were to retain sales records of licensed milk products (whole milk and high low reduced fat milk) to all individual outlets for an eight week period selected between 1 April and 30 June 1993. The letter then stated "you will appreciate that the considerable funds involved in DAAS make it necessary to have quite rigorous guidelines to ensure equitable treatment of all licensees and to satisfy Government objectives for the scheme". Assistance in making applications for DAAS was then offered by the authority.
Around April 1994 the Government announced the legislation implementing the restructure would take effect from 1 July 1994.
The applicants received a letter ("the April letter") from the respondent dated 13 April 1994 addressed to the business referring to the expectation that legislation to repeal the statutory requirement for vendors of milk to be licensed would be implemented on 1 July 1994. It advised the respondent proposed to appoint its own distributors with effect from the date of the change in the law. The April letter continued:
"Masters intends to appoint a distribution team that maximises Masters' ability to compete in the market place. In broad terms Masters proposes to do this by appointing two types of distributors:
(a) those who will supply company carried account customers and large trade customers; and
(b) those who will supply small trade customers and household customers.
It will be possible for a single distributor to be appointed in both capacities.
To maximise efficiency in distribution and the promotion of Masters' white milk products, in broad terms, distributors will be appointed:
(a) as the only Masters distributor in either or both categories in a particular area:
(b) to distribute Masters' white milk products and such other products as may be designated in the future on an exclusive basis;
(c) to distribute all other Masters products on a non‑exclusive basis. Distributors will be able to distribute products of other suppliers with the approval of Masters. Approval will be given where there is no interference with the ability of the distributor to meet Masters' requirements.
The details of the proposed agreements are set out in the drafts which are enclosed. You should read these agreements carefully to make sure that you are aware of the details of Masters' proposals.
You will understand that, at
this stage, the draft agreements are provided simply to let you know of
Masters' plans. No offer is being made
to you. In the next few weeks we will
meet with all vendors who are interested in being appointed as Masters
distributor to discuss our proposals.
During that time
our staff will be available to answer any questions you may have.
As part of the changes to the new distribution system I must give formal notice that all existing distribution arrangements between Masters and vendors will cease on 1 July 1994 or such later date as the repeal of the statutory requirement for vendors of milk to be licensed comes into effect. I thank all vendors for their past support and look forward to discussing the future arrangements with those vendors who are interested in being appointed as Masters distributors under the new deregulated system.
In the meantime, would you please sign and return to our Mr Bill Archibald the enclosed form if you are interested in being appointed as a Masters distributor."
The enclosed form read as follows:
" EXPRESSION OF INTEREST
IN APPOINTMENT AS
MASTERS DISTRIBUTOR
I____________________________________________________________________(Name)
__________________________________________________________(Mailing Address)
________________________________________________________________(Telephone)
________________________________________________________________(Facsimile)
am interested in discussing with Masters the possibility of:
* my appointment
(insert name of corporate entity)
* the appointment of__________________________________________
as a Masters distributor after repeal
of the system of licensing for milk vendors.
(delete whichever is not applicable)
I have read the letter from Masters dated 13 April 1994. I understood that in discussing with me the possibility of appointment as a Masters distributor, Masters makes no representation or promise of appointment as a distributor and that I should take that into account in my future plans and actions.
I also understand that my appointment as a distributor will only occur when a written agreement recording that appointment has been signed by all parties.
I acknowledge receipt of notice from Masters that any existing agreement with Masters to distribute Masters products will come to an end on 30 June or such later date as the repeal of the existing system of licensing for milk vendors may come into effect.
Date:_____________________________________________________________________
Signature:________________________________________________________________"
Accompanying the April letter was a copy of a Distribution Agreement (company carried account customers and trade customers) ("the Distribution Agreement") between Wesfarmers Limited on behalf of the respondent and a Distributor and Guarantor. The agreement provided for the appointment of a distributor for a period commencing on the later of 1 July 1994 or the proclamation of the amendment to the DIAA and terminating on 30 June 1995. The appointment provided for was as sole distributor of the "Specified Masters Products" (all white table milks and other products regulated by the DIAA to be Quota Milk, including but not limited to whole milk, reduced fat milk, low fat milk and non-fat milk) and as a non‑exclusive distributor of the "Other Masters Products" to Customers in the "Zone". Provision was made for specification of the Other Masters Products and of "Customers" and the Zone in the schedules to the agreement. The obligations which would fall on Wesfarmers under the agreement were that it would supply to the Distributor the "Masters Products" ordered by the Distributor from time to time during the Distribution Period subject to availability. The Distributor's obligations were to purchase all Masters Products necessary to service the Customers in the zone from the respondent and not to deliver any other products other than Masters Products and Approved Products. The agreement was conditional upon the Distributor complying with insurance requirements specified in it.
Nagy testified he also received a further distribution agreement at the same time, being one for "household customers and small trade customers".
Nagy was upset and disturbed by the proposal for deregulation. The applicants discussed the Distribution Agreement with their son and formed the view aspects of it were unacceptable. Nagy made an appointment for the applicants and their son with the respondent to discuss the proposals. Because of that, the applicants did not sign and return the expression of interest form. Nagy's evidence was the meeting was sought because the applicants were not happy with their business being "taken over" as it was their valuable asset. They also did not like the terms of the Distribution Agreement which they considered favoured the respondent.
The meeting took place on 29 April ("the April meeting"). It was attended by Mr A Smith, Archibald and Schryver for the respondent. Nagy testified the meeting took place in a friendly atmosphere and lasted about half to three-quarters of an hour. Archibald and Schryver had been the active spokesmen. The applicants stated their concerns, including the fact the Distribution Agreement provided only for a one year contract. They were told renewal would be granted. Nagy testified Schryver said to him "don't worry George, we will look after you" ("the Schryver statement"). A representative of the respondent raised the possibility there would be a reduction on the margin for certain products for supermarkets. After the meeting Smith had told him the respondent was relying on milk vendors to take up the contract so its business could continue smoothly. In cross-examination Nagy testified Schryver's statement had been made at the end of the meeting. His evidence was also that the respondent's representatives told him to think the matter over and in due course get back to them with a decision ("the time statement").
Mrs Nagy testified to the statement having been made by Schryver and said she understood by it that they had a contract. Nagy's son testified the statement had been said at the end of the meeting.
Archibald, Smith and Schryver could not recall Schryver making the statement to Nagy or at all. Schryver did not accept he would have made it.
The evidence is distinguished by the relative uniformity of recollection to opposite effect on both sides. I consider the statement to have been credible in the circumstances and I accept the evidence for the applicants' case that it was made.
Archibald and other representatives of the respondent also conducted a preliminary interview with de Groot. He told them he would take up a contract. He also stated Nagy probably would not do so. De Groot expressed interest in the applicants' zone if it became available and indicated he would be prepared to pay Nagy some compensation for it. Archibald knew de Groot and Nagy golfed together and had in his mind from this point the likelihood the applicants would not enter into a Distribution Agreement.
The applicants attended a meeting of the Milk Vendors Association where concern was expressed at the one year duration of the proposed Distribution Agreement. Approximately 40 vendors, including the applicants, decided to join the Small Business Association and to lobby the Government to change its decision to deregulate. This involved the applicants and their son in writing many letters to Ministers and Members of Parliament.
On 20 June 1994 the Authority wrote to the applicants stating the Government's heavy legislative program had made it impossible to have the necessary amendments to the DIAA in place. As a consequence the Authority was required to issue licenses for 1994/95 for which an application was enclosed. The letter continued:
" When the Act is amended early in 1994/95 these licences will cease to have force.
... the Authority does not wish the issuing of licences to compromise the introduction of supply contracts between processors and vendors and distributors. While it is understood that the companies will delay finalising these contracts until the Act is amended, administration of licences will not be allowed to impede contract negotiations.
2.Distribution Adjustment Assistance Scheme
The current Distribution Adjustment Assistance Scheme (DAAS) is due to finish on 30 June 1994.
The Minister for Primary Industry and Fisheries has agreed that DAAS can be extended for a further twelve months.
While most aspects of the schemes administration are unaltered, a number of important changes have been introduced. The most significant feature is that after 1 July 1994 DAAS will only be made available to a vendor or distributor who does not enter a contract with a processor."
The letter continued by specifying changes in DAAS in respect of shop trade, household vendors and country distribution. It advised application forms would be available from the Authority on request and if recipients of the letter considered they may be eligible for payment under DAAS they should contact two named officers at the Authority who would provide relevant information concerning DAAS.
In July 1994 Archibald telephoned Nagy ("the July telephone conversation") and inquired whether the applicants had made a decision about entering into the Distribution Agreement. Nagy replied he was 90 per cent certain they might not even take up a contract ("the July response"). Nagy testified in cross‑examination he made this reply so as not to let the respondent become aware of any details of what he and others were doing in their campaign to change the mind of the Government concerning the introduction of deregulation.
On 1 August 1994 the respondent wrote to Nagy in the following terms ("the August letter"):
"Dear George
We would like to take this opportunity to provide you with an update on the De-Regulation process and also a number of initiatives and benefits Masters Dairy will be providing to all M D L Contractors.
As you are aware the initial contract period was for 12 months, however we have decided to extend this to a three year period. Masters Dairy believes that this will provide a greater degree of security for all concerned, particularly with those Vendors with financial commitments. In line with this the revised DAA's payment scheme will be extended to cover the three year contract period.
The revised contracts are now
ready to sign in line with Masters Dairy's contracts guidelines,
representatives from the Company will be phoning to arrange a suitable time for
the
signing of contracts, alternatively you could ring either of the following -
· Bob Schryver · Ron Johnson · Bill Archibald · Tony Smith
to arrange an appointment to complete the contract arrangements.
Masters Dairy has negotiated a number of benefits for all contracted Vendors, these include the following:
· Fleet discount on trucks · Tyre replacement
· Auto electrical repairs · Computer software packages
· Vehicle and truck maintenance · Discounts on furniture & electrical goods
Details of these will be passed on when the contracts are signed and in place with Contractors.
Finally Masters Dairy Limited will have a package to release to Contractors at a function scheduled for early October which will reward all Contractors significantly for their efforts in the future.
If you have any queries on the above or De-Regulation in general, please do not hesitate to phone any of the members on the Masters De-Regulation Committee.
Yours faithfully
TONY SMITH
SALES/DISTRIBUTION MANAGER"
Nagy regarded the change in duration of the contract period as very favourable. In cross-examination he said he had first formed the intention to contract with the respondent when the term was raised to three years.
Schryver's evidence was the August letter had been prepared by Smith. Smith testified the purpose of the August letter was to prompt distributors to provide information so that contracts could be drafted. His evidence was:
"We needed...a lot of information, essentially all the details of their existing customer base, we needed to know what they wanted the contract drafted under, whether it would be a company name, under a holding company, whether it be under the names of the particular individuals, whatever. I mean we needed all that information before we could even start to do a base. We also needed to sit down with those people and to outline the boundaries ..."
In cross-examination Smith testified that when the August letter stated "revised contracts are now ready to sign" it meant "furnish us with the information so we can draft the contract".
Nagy testified neither the applicants nor their son contacted the respondent in response to the August letter. Their reason was they did not know when deregulation would come in and, as there was no problem in being accepted for a contract, they thought there was plenty of time in which to make a final decision.
On 2 August 1994 the respondent advised the Authority of the names of milk vendors who would not be offered a contract with the respondent. The list did not include either of the applicants.
On 22 October 1994 the respondent advised the Authority of the names of fifty nine metropolitan milk vendors and twenty two country milk vendors who it was said would be contracted to the respondent, subject to finalisation of additional country distributors. Included in the names was Mr de Groot of Huntingdale Milk Supplies. Smith's evidence was he was included because the respondent had received a firm indication from him in respect of his pre-existing zone. Smith's evidence was the list was required by the Authority as an indication of numbers likely to contract.
On 1 September 1994 Schryver prepared a document entitled "Customer Lists Still Required". It included the name of Nagy. It did not include the name of de Groot. Schryver's evidence was de Groot's name may not have appeared either because there was an oral commitment to a contract from him or, he had supplied a customer list for that purpose. Based on this, Schryver accepted there was an understanding by this date that de Groot would be a sole distributor for the respondent when deregulation came.
On 9 September 1994 Schryver prepared a list of "outstanding issues". Included on this was the name of Nagy together with the note "intention needed". Schryver accepted that as at this date Nagy was still under consideration as someone who might become a sole distributor.
Nagy accepted that in October 1994 he had a telephone conversation with Smith but could not recall the date or content of it.
On 28 November 1994 a meeting was held of Smith, Schryver, Archibald, Honeywill and Martin of the staff of the respondent for the purpose of reviewing the outstanding issues involved in the deregulation process. The minutes of that meeting contain the following record in relation to the business of the applicants:
" Maddington
Vendor: George Nagy
The vendor alongside is Jack DeGroot which we have not been able to give any extra business to. By him taking on Maddington, this improves his viability."
Schryver accepted that at the date of this meeting it was still not entirely certain deregulation would come to pass. He testified the proposal for de Groot to take the Maddington zone was only a contingency. He could not recall who had proposed it. His evidence was if Nagy was not going to take up the contract for the Maddington zone it would have made sense logistically and strategically to have the same distributor operate in the Maddington zone and the adjacent Gosnells zone in which de Groot's distributorship was proposed. However, that was not based on a perception of lack of viability in the Gosnells zone; rather it was a case of improvement of viability in the deregulation stage. His evidence was there was an understanding amongst those present at the meeting that de Groot was available to take on the additional zone if that was available.
Archibald's evidence in cross-examination was his opinion at the date of the meeting had been that deregulation would proceed.
Smith accepted in cross‑examination that at the time of the meeting the Committee was looking at the prospect of bringing zones together into larger areas for the purpose of increasing the earning capacity of distributors in relation to the decreases of margins they were going to take in regard to supermarket customers. He said at this date the applicants were still the preferred distributor if they were willing to come in. The question of anything additional going to de Groot was dependant on whether Nagy accepted the offer from the respondent. His evidence was de Groot would have been entirely viable in his own zone without any extra allocation of business. He could not recall who put de Groot's name forward.
On 29 November 1994 the Bill to amend the DIAA had its second reading speech. The Minister described the Bill as one to consolidate various changes in administrative responsibilities within the industry and formalise the process of deregulation which had been occurring.
On 12 December 1994 a further deregulation meeting took place. The minutes of that meeting include the following record in relation to the applicants.
" Maddington
Vendor: George Nagy
Suggestion was made to offer DeGroot the business."
On the copy of the minutes in evidence adjacent to the name of Nagy appeared the handwritten word "out" which Schryver accepted was in his handwriting.
In cross‑examination Smith accepted this meeting felt in the light of the way he had been conducting negotiations with vendors by having preliminary meetings and sending letters to them, it was necessary to obtain some confirmation of understanding of where the applicants finally stood in the matter. He agreed it was known de Groot would take the additional zone if it was offered to him and the respondent would have no objection if that was the way it worked out.
Archibald's evidence-in-chief was the suggestion recorded had been made on the basis Nagy had suggested he did not want to enter into a contract with the respondent.
In cross‑examination Schryver testified the handwritten word "out" had possibly been written by him when the minutes were before him at the next Committee meeting.
Archibald testified to telephoning the applicants and speaking to Nagy on 14 December 1994 in the presence of Schryver ("the December telephone conversation"). Archibald accepted that the call was made against the background that if the applicants did not take up the zone, it would be offered to de Groot. Archibald also accepted the meeting had not intended to offer the zone to de Groot without again checking to see if the applicants wanted it and that if the applicants had wanted it they would have received it.
Nagy's evidence accepted Archibald telephoned him a week or two before Christmas, inquiring when the applicants were going to come in and sign the Distribution Agreement. Nagy replied he was 90 per cent sure they might take the DAAS ("the December response"). He had not conveyed any definite decision. He also told Archibald he was fed up with the Government giving the business to the respondent and, unless there was improvement in the proposed conditions, the applicants might think of leaving the industry.
From the evidence of Nagy, Archibald and Schryver it is apparent nothing was said to Nagy about the zone being offered to de Groot in the event he did not take it up. Archibald denied this was because he and his colleagues had reached a position where they wanted the zone to go to de Groot and that if the true position had been put to him he would have accepted a contract for the applicants. He had thought in the circumstances it was reasonable to assume "90 per cent" meant "no". He considered this was reasonable given the failure of the applicants to reply to the April letter and the August letter as well as the adherence by Nagy to the 90 per cent surety of not continuing. Schryver could not offer any explanation why Nagy had not been told of the impending loss of the applicants' opportunity to contract even though the December response was unclear.
On 16 December 1994 a further deregulation meeting took place. The minute records with respect to the "trouble region" of Maddington the typed word "out".
A further deregulation meeting was held on 23 December 1994. No reference is made to the applicants or Maddington in the minutes of the meeting.
On 5 January 1995 the Dairy Industry Amendment Act received assent. That was known to the applicants.
In January the respondent had a product launch which was attended by the applicants and de Groot in common with other milk vendors.
On 24 January 1995 the Authority wrote to the applicants advising amendments to the DIAA would be finalised and implemented in February so licences currently issued by the Authority would no longer be effective. The letter continued:
"With the finalisation
of licensing, the dairy companies will assume full responsibility for milk
distribution and will be
entering into contracts with selected milk vendors and distributors. The transition to company contracts will
occur on Sunday, 19 February 1995.
For those vendors who do not enter into a contract, the Distribution Adjustment Assistance Scheme (DAAS) may be available. Documentation for DAAS is currently being revised to accommodate those vendors not entering a contract and can be obtained by registering with Mr Bill Owers of the Authority's offices."
On 2 February 1995 the Dairy Industry Amendment Act 1994 (WA) came into effect implementing the restructure and deregulation.
On 10 February 1995 an inquiry was made on behalf of the applicants to obtain a copy of the terms and conditions of DAAS in order they could check whether it was available during and after three years. Nagy denied the applicants had been thinking about DAAS in February 1995, stating only they were curious to know what the conditions were.
On Friday 10 February the applicants attended a meeting of the Small Business Association at which they learned the Government would not change its declared policy. Nagy went immediately to the Authority and discussed the position with Mr W Owers. Nagy realised there now was no option but to enter into a Distribution Agreement.
On Saturday 11 February a milk vendor told Nagy the zone was being allocated to de Groot. Nagy was upset by this rumour.
Accordingly, on the morning of
Monday 13 February he obtained an appointment with the respondent and saw
Smith, Archibald and Schryver. He stated
he had come "to see about signing the contract". He was told by Archibald "Well, George,
we thought you are leaving the industry and we gave your business to somebody
else". Nagy replied he considered
the applicants had plenty of time to respond as the respondent knew they had
been involved in the fight to obtain better conditions or change the position. Archibald or Smith suggested he meet with de
Groot. Being upset, he then
departed. When he departed he knew he
did not have an agreement.
A couple of days later Nagy met with de Groot at the respondent's office. De Groot would not agree to pay the applicants any compensation.
Nagy's evidence was that if he had been made aware by the respondent in the period between the December phone call and the February meeting that the respondent did not intend to deal with the applicants but to allocate their zone to another so that their business was in jeopardy, he would have contacted the respondent straight away to take a contract.
On 14 February 1995 Eastlake Holdings Pty Ltd ("Eastlake") representing the interests of de Groot, and de Groot, his wife and son as guarantors, executed a Distribution Agreement with the respondent. The zone to which the agreement related included the Maddington zone in respect of which distribution rights were formerly held by the applicants. The agreement specified company carried account customers and trade customers. The latter included two businesses formerly within the zone.
On 15 February 1995 the solicitors for the applicants wrote to the respondent asserting it was in breach of s52 of the TPA. The conduct in relation to which this assertion was made was the conduct of the respondent in trade or commerce leading the applicants to believe they had until 19 February 1995 to sign a contract in respect of their zone. It was said the conduct was misleading or deceptive in that on 13 February 1995, when Nagy requested a contract to sign it, he was told the respondent had already signed a contract in respect of the Maddington zone.
On 17 February 1995 the applicants received from the Authority a letter dated 15 February 1995 advising it was making available financial adjustment assistance for milk distributors and vendors who did not enter into a contract with a licensed dairy produce factory after 19 February 1995. In response to the applicants' request to be supplied with necessary documents the Authority forwarded an application form together with the Terms and Conditions and an Information Paper.
19 February 1995 was the cut-off date for distributorship contracts to be concluded.
On 20 February 1995 the respondent's solicitors denied the allegations stated by the applicants' solicitors and expressed the respondent's intention not to accede to the applicants' demands.
On 23 February 1995 the solicitors for the applicants asserted an additional claim in contract against the respondent and sought performance of contractual obligations.
On 8 June 1995 the Authority wrote to the applicants advising persons wishing to apply for assistance under DAAS were required to do so before 1 July 1995. An application form and other papers were enclosed.
On 20 June 1995 the applicants applied for DAAS. They did so on the basis they had no alternative. The maximum available to them under DAAS was $150,000. This amount was received by them in two equal instalments.
On 28 August 1995 the applicants executed an agreement with the Authority relating to DAAS. In cl2.1 of that agreement, in which the applicant's are described as "the borrower" it is provided:
"2.1 In consideration of
the Borrower covenanting and undertaking to the Authority that it shall not be
engaged in any manner nor received any payment (whether by way of salary,
wages, dividends, kind or otherwise) nor have any legal or
beneficial interest, actual or contingent, in the business of milk distribution
or milk vending in the State of Western Australia, the Authority shall pay to
the borrower the Principal Sum on the terms and conditions specified by this
Agreement."
It further provided:
"4.1 The Borrower shall repay the Money Secured in full to the Authority upon demand on or before the Date for Repayment if the Borrower, the Covenantor or any Associated Person breaches any of the terms of this Agreement.
4.2 If no demand is made by the Authority prior to the Date for Repayment, the Borrower shall be no longer obliged to repay the Money Secured and neither the Borrower nor the Covenantors shall be liable to the Authority with respect to the Money Secured."
The "Date for Repayment" was defined by cl1.1 of the Agreement to mean three years after the signing of the Agreement.
CLAIM IN CONTRACT
Offer
For the applicants it is contended the final paragraph of the August letter intimating that revised contracts were ready to sign, constituted an offer by the respondent to the applicants capable of acceptance by them. The case is that the offer was accepted by Nagy on 13 February 1995. The contention is that this was not a case where the signing of a formal agreement was a necessary precondition to agreement being reached: Masters v Cameron (1954) 91 CLR 349 at 360.
It is also submitted for the
applicants that the courts have queried the rigidity of the strict concept of
an offer followed by an acceptance and found a contract to exist although
further formalities are contemplated. In
Hillas v Arcos (1932) 147 LT 503 the
House of Lords there upheld an agreement for the sale of timber "of fair
specification" made between persons well acquainted with the timber trade,
the standard of reasonableness being applied to make the vague
phrase certain. The option to buy timber
at issue in the case was held binding even though it did not specify the price,
since it provided for the calculation of the price by reference to an official
price list. Neither of those instances
is the present case.
The Court in Hillas also considered the effect of a clause in the document under consideration reading:
"buyers shall also have the option of entering into a contract with sellers for the purchase of one hundred thousand standards for delivery during 1931. Such contract to stipulate that, whatever the conditions are, buyers shall obtain the goods on conditions and at prices which show them to be a reduction of five per cent on the FOB value of the official price list at any time ruling during 1931".
In considering this clause Lord Wright said at 505:
"...it is said that this is merely a contract to enter into a contract, whereas in law there cannot be a contract to enter into a contract. The phrase is epigrammatic, but may be either meaningless or misleading. A contract de praesenti to enter into what in law is an enforceable contract, is simply that enforceable contract, and no more and no less; and if what may, not very accurately, be called the "second contract" is not to take effect till some future date, but is otherwise an enforceable contract, the position is as in the preceding illustration, save that the operation of the contract is postponed. But in each case there is eo instanti a complete obligation. If, however, what is meant is that the parties agree to negotiate in the hope of effecting a valid contract, the position is different. There is then no bargain except to negotiate, and negotiations may be fruitless and end without any contract ensuing; yet even then, in strict theory, there is a contract (if there is good consideration) to negotiate..."
He considered the words in the clause simply meant the appellants had the option of accepting an offer in the terms of the clause so that when it was exercised a contract at once came into existence unless the terms of the option embodied in the clause were not sufficiently certain and complete.
The opinion there expressed by
Lord Wright was declared to be bad law by the Court of Appeal in Courtney and Fairbairn Ltd v Tolaini Bros
(Hotels) Ltd [1975] 1 All ER 716 at 720, per Lord
Denning MR and Lord Diplock with Lawton LJ agreeing. Denning MR said at 720:
"That tentative opinion by Lord Wright does not seem to me to be well founded. If the law does not recognise a contract to enter into a contract (when there is a fundamental term yet to be agreed) it seems to me it cannot recognise a contract to negotiate. The reason is because it is too uncertain to have any binding force. No court could estimate damages because no one can tell whether the negotiations would be successful or would fall through; or if successful, what the result would be. It seems to me that a contract to negotiate, like a contract to enter into a contract, is not a contract known to the law. We were referred to the recent decision of Brightman J about an option, Mountford v Scott [[1973] 3 WLR 884]; but that does not seem to me to touch this point. I think we must apply the general principle that when there is a fundamental matter left undecided and to be the subject of negotiation, there is no contract..."
Although this was the view expressed by the Court of Appeal it is accepted as representative of the state of authority: see for example Treitel, The Law of Contract, 8th ed, (1991) at 57-8.
The differing views in Hillas and Courtney came before the Court of Appeal of New South Wales in Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1. There a statement in heads of agreement for a proposed complex joint venture for a coal mine which stated the parties would "proceed in good faith to consult together upon the formulation of a more comprehensive and detailed Joint Venture Agreement" was held not to be binding as a contractual promise. In the context of the overall arrangement it was found to be too illusory or too vague and uncertain to be enforceable.
Kirby P, with whom Waddell A-JA agreed, disagreed with Courtney and held a promise to negotiate in good faith may, in particular circumstances, be enforceable, the enforceability depending on the precise terms as construed from the particular contract. Handley JA held a promise to negotiate in good faith is illusory and cannot be binding. Special leave was refused by the High Court on the ground there was insufficient reason to doubt that the relevant events could not have amounted to a breach if the agreement was enforceable.
In his reasons Kirby P referred to the small number of cases in which, by reference to a readily ascertainable external standard, the court may be able to add flesh to a provision which is otherwise unacceptably vague or uncertain or apparently illusory. He said that in many cases, the promise to negotiate in good faith will occur in the context of an "arrangement" (to use a neutral term) which by its nature, purpose, context, other provisions or otherwise makes it clear
that "the promise is too illusory or too vague and uncertain to be enforceable": see McHugh JA in Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 at 156. It was this category into which all the members of the Court in Coal Cliff considered the matter at issue in that case fell.
In his reasons in Coal Cliff Kirby P discussed the authorities in Australia in which the conflict between Hillas and Courtney had arisen. The conflict remains unresolved by the highest courts in both Australia and England.
However, I do not consider the conflict is material to the resolution of this case because there is no evidence here that the parties had reached an agreement to negotiate in good faith nor has it been contended they have done so. If, however, the August letter in all the circumstances could be construed to amount to such an agreement, I consider, subject to what follows, it would fail for uncertainty in essential terms.
In the course of his speech in Hillas Lord Wright said at 514:
"Business men often
record the most important agreements in crude and summary fashion; modes of
expression sufficient and clear to them in the course of their business may
appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the court to
construe such documents fairly and broadly, without being too astute or
subtle in finding defects; but, on the contrary, the court should seek to apply
the old maxim of English law, [words are to be understood in such a manner,
that the subject-matter may be preserved rather than destroyed]."
This passage is frequently relied upon to support such an approach by a court to an issue of construction of commercial documents: see for example, Leadenhall Australia Limited v Digicall Group Limited (1996) 14 ACLC 407 at 414. It leads on to the issue of the extent to which implication of terms by a court is appropriate to bring business efficacy to an agreement reached by the parties. See the discussion of this by Ormiston J in Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32 at 67-71.
However, Lord Wright in the passage immediately above continued:
"That maxim, however, does not mean that the court is to make a contract for the parties, or to go outside the words that they have used, except insofar as there are appropriate implications of law, as for instance, the implication of what is just and reasonable to be ascertained by the court as matter of machinery where the contractual intention is clear but the contract is silent on some detail."
In my view the present case is one in which there is not the necessary contractual base upon which the court can proceed to find implications; it is not a case where the alleged agreement is silent on detail only; it is a case where the court is called on to make a contract for the parties. It is not a case where the essentials have been worked out by the parties: cf Terrex Resources NL v Magnet Petroleum Pty Ltd [1988] 1 WAR 144 at 149 per Kennedy J.
In Thorby v Goldberg (1964) 112 CLR 597 at 605 Kitto J said "...an agreement is not void for uncertainty because it leaves one party or group of parties a latitude of choice as to the manner in which agreed stipulations shall be carried into effect, nor does it for that reason fall short of being a concluded contract". In his opinion that case was one where the parties "have agreed upon all that they intend to be the subject of agreement between them". Kitto J found that provisions of the agreement there in issue were lengthy and detailed and left nothing for future agreement between the two groups. He was required to consider the effect of a provision for reconsideration of articles as to rights of occupancy and the right of the company to make levies on shareholders to cover charges and expenses in respect of a building. It was alleged the uncertainty of this provision infected the whole document.
Menzies J at 607 accepted the statement of the law made in the dissenting judgment of Sugerman J in the Full Court of the Supreme Court of New South Wales, in which he said:
"It is a first principle of the law of contracts that there can be no binding and enforceable obligation unless the terms of the bargain, or at least its essential or critical terms, have been agreed upon. So, there is no concluded contract where an essential or critical term is expressly left to be settled by future agreement of the parties. Again, there is no binding contract where the language used is so obscure and incapable of any precise or definite meaning that the court is unable to attribute to the parties any particular contractual intention."
The evidence in this case, particularly that of Smith, shows that this is a case where there were essential or critical terms expressly left to be settled by future agreement of the parties. Those terms included the choice of the relevant Distribution Agreement; the identification of the parties, of the zone and of the customers.
There was uncertainty in a number of respects. Firstly, it was not clear from the August letter which of the two draft contracts sent with the April letter was referred to in the August letter. The evidence is that two contracts had been sent out with the April letter so that neither of the applicants would have been certain to which the acceptance related.
Secondly, the identification of the parties had not been made by the applicants. The draft sent out with the April referred to Wesfarmers not the respondent. The August letter was address to "George" but the business was operated by the applicants as partners. There was the question whether the applicants' son, who was not a partner, should be a party. Additionally the applicants' expert suggested they should have conducted their business as a company.
Thirdly, there was no negotiation about the schedule of customers which was central to the formation of the agreement. This was not a case where the respondent could rely on the information contained in the schedules to the applicants' previous licences because differences emerged in those from time to time.
Fourthly, there was no agreement as between the parties on the zone and boundaries to be referred to in the agreement.
For the applicants it is argued there was in reality no uncertainty because the parties were in truth known; the zone was identifiable; the customers were identifiable; and the benefits referred to in the August letter as requiring negotiation were not relied on for the respondent to establish any uncertainty. I accept that the broad parameters of these matters were known. However, precise identification of the parties had not occurred; the zone had certainly not been discussed with the applicants; and it is apparent from examination of the contract concluded with de Groot that it was not simply a matter of transferring the applicants' previous customers. What remained to be concluded went beyond what a court should be asked to do to conclude the terms of a bargain between parties. Matters of conjecture were involved, and hence of relevant uncertainty.
This was a case where essential or critical terms were left to be settled. It follows the August letter was an invitation to treat and not an offer.
Acceptance
In addition to Nagy's evidence that on the morning of 13 February 1995 he told Smith, Archibald and Schryver he had come to see about signing the contract, there was his further evidence that, after they had advised him it had been allocated elsewhere, he was so upset he did not raise with them the position that he had reached that the applicants had to accept the contract from the respondent. In cross‑examination he accepted "there was no mention of not to get an agreement or getting an agreement. It was the suggestion that we will get an agreement". Later he accepted that he had not negotiated a schedule of customers, necessary for the agreement, with the respondent.
Nagy's subsequent conduct supports the inference that he did not consider the applicants had a Distribution Agreement. Nagy attended the meeting on 15 February 1995 on the basis that de Groot had the Distribution Agreement for the zone which had previously been the applicants. He accepted that if de Groot paid him some money with respect to the zone there would be no problem.
Nagy instructed his solicitor to write a letter and in it the solicitor stated that the respondent had refused to make a contract with the applicants in respect of the Maddington zone. The applicants wrote to their customers on 17 February 1995 and stated that the applicants had not been given a contract. These matters are important and give clear guidance there was no contract: cf Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 at 78; Spunwill Pty Ltd v Bab Pty Ltd (1995) 36 NSWLR 290.
Consideration of this evidence leads me to the finding that it is not open to conclude that, even if there had been an offer in the terms contended for on behalf of the applicants, it had been accepted.
Uncertainty
Reference has already been made to what was said by Menzies J on uncertainty in Thorby (supra).
The matter may be tested by asking what would have resulted if the alleged acceptance by Nagy on 13 February 1994 had resulted in a contract. The evidence shows only that the resulting contract would have been in the form of one of the circulated Distribution Agreements without reference to parties, zone or customers.
There was no certain contract capable of enforcement.
The applicants cannot make out their claim in contract. It is therefore unnecessary to consider the defences based on the application of s4 of the Sale of Goods Act 1895 (WA) and on the alleged election by the applicants to take DAAS.
TRADE PRACTICES CLAIM
The other main pillar to the case brought for the applicants is that the respondent's failure to inform them prior to 13 February 1995 that it was negotiating with de Groot was a deliberate failure to disclose the true state of affairs or, alternatively and in any event, constituted misleading conduct contrary to s52 of the TPA. The misleading character of the omission is alleged to derive from the inconsistency of silence with the reasonable expectation which the applicants had of negotiating with the respondent in good faith. The expectation is said to have arisen from the nature of the relationship between the applicants and the respondent in all the circumstances.
The pleadings contend that the relevant "conduct" is the knowledge of the respondent of the restructure proposal; the entry by it into negotiations with the applicant, the April letter and Schryver statement. It is said this conduct (and a representation to which reference will be shortly made) were misleading or deceptive because the respondent (a) had discussion with de Groot from April 1994; (b) did not inform the applicants of the discussions; (c) entered into a Distribution Agreement with de Groot; and (d) did not give the applicants any notice of variation of terms of negotiation or of its intention to negotiate or contract with another party.
As to (a), I find that any discussion with de Groot prior to 12 December was on a hypothetical basis only. Formal negotiations with him occurred in late January. As to (b), that is found as a fact. As to (c), the agreement was entered into and included the Maddington zone and some of the customers previously in that zone when licensed to the applicants.
As to (d), the case for the applicants as argued at trial was an expectation had been raised in the mind of the applicants that they had the opportunity to enter into a Distribution Agreement and the failure to disclose the intention to negotiate or contract with another (that is, the opportunity to contract was about to end) was silence which in all the circumstances of the pleaded conduct constituted misleading or deceptive conduct. The conduct is said to have commenced from the time when the respondent gave consideration to de Groot taking over the Maddington zone, although it is most significantly supported by the contents of the December telephone conversation. The case was argued on the basis that the silence constituted by the non-disclosure of the impending loss of opportunity could either alone or as part of the relevant conduct be misleading or deceptive or likely to be so.
It is convenient to address, the contentions for the respondent asserting why the applicants case should not succeed.
Absence of representation
It is pleaded that by reason of the conduct the respondent represented to the applicants that (a) the applicants would be able to enter into the Distribution Agreement with the respondent in relation to the zone; (b) the respondent would only negotiate with the applicants in relation to such agreement; (c) the respondent would give reasonable notice to the applicants of its intention to vary the terms of negotiation with the applicants or its intention to negotiate or enter into a contract with another party. The applicants' case is that induced by and in reliance on the conduct and representations, they did not accept the offer until 13 February 1995 and deferred acceptance of the opportunity to sign the Distribution Agreement.
Turning to the three elements of the pleaded representation: the first is supported by the April letter alone. The second and the third were not terms of the April letter. The Schryver statement arguably provides a foundation for the second. The time statement arguably provides a foundation for the third. Nevertheless I do not consider a representation in the detail of the terms pleaded can properly be inferred from these circumstances. Even if it could, each of the elements of the pleaded representation relates to future conduct and the evidence brought by the respondent shows it had reasonable grounds for making the representation: Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 at 88; James v ANZ Banking Group Ltd (1986) 64 ALR 347 at 372. The representation would not therefore have been misleading.
It is, however, not necessary that the applicants make out a representation in order to establish misleading or deceptive conduct: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 40‑41 per Gummow J; cf Accounting Systems 2000 Developments Pty Ltd v CCH Australia (1993) 42 FCR 470 at 504.
Absence of reasonable expectation
The significance of silence falls to be considered in the context in which it occurs: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32 per Black CJ. It is the context which must be examined to determine whether or not facts give rise to a reasonable expectation that if particular matters exist they will be disclosed: ibid. Unless the facts are such as to give rise to the reasonable expectation to that effect, mere silence may not support the inference that the fact does not exist: cf Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 53,193 at 53,195 per French J with which statement Gummow J agreed in Demagogue at 41. The failure to communicate may constitute conduct which is misleading or deceptive because the person who ultimately may act to his or her detriment is entitled to infer from the silence that no danger or detriment existed: Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97 at 114 per Hill J. What is reasonable falls to be decided in the context of the ordinary incidents and character of commercial behaviour: General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FLR 164 at 177-8.
For the respondent it is argued there could have been no reasonable expectation of disclosure by the applicants given the clear indications of the applicants' intentions which they had given to the respondent. It is contended for the respondent the relevant class of persons against which to assess the reasonableness of the non-disclosure as an incident of commercial behaviour is that of contractors.
Then it is contended the respondent had to act quickly. Archibald testified that the applicants had to get back to the respondent as quickly as possible because time was of the essence in completing so many contracts. That was in response to a question what if anything had been said to the applicants to suggest they did not have to decide their intentions until deregulation came into place. The course of events shows that the respondent did not set a deadline in the April meeting with the applicants or the July telephone conversation. It was not until the meeting of 12 December that a decision was made by the respondent concerning an alternative to the applicants if they were not proceeding. I do not accept Archibald's evidence that time was of the essence. It did not become so until December and it was then silence was maintained in conveying to the applicants a deadline. Even after 14 December, the contract was not executed with de Groot until 14 February 1995.
It is also said for the respondent Nagy knew time was of the essence. The evidence there relied on was only to the effect that, if the applicants were not interested, then the respondent had to find an alternative contractor quickly. Nagy remained unaware until 13 February 1995 of any deadline.
I accept the submission for the respondent that the applicants could not have had any reasonable expectation there would be disclosure to them by the respondent of the identity of the persons with whom the respondent proposed to negotiate or contract concerning the Maddington zone. However, the position in relation to notice of intention to contract with another party (the identity of whom was not disclosed) requires additional consideration.
It was apparent to Archibald from the December response that Nagy had not finally determined the position the applicants would take. Archibald's evidence establishes that he chose to interpret Nagy's response on that occasion as a negative one although he appreciated the response in terms of 90 per cent was not in terms a rejection. Although the July response had been made in the same terms, Archibald had not chosen to interpret that as a rejection.
In my opinion, in all the circumstances, including the long history of the applicants in dealing with the respondent, the time allowed to them at the April meeting, the absence of any action by the respondent to the July response, the absence of any deadline being made known to the applicants previously and the continued recognition by the respondent that the zone could be taken up by the applicants if they wished, the applicants could reasonably have expected to be advised the time had been reached where they would lose their opportunity to contract unless they agree to enter into a Distribution Agreement. The particular matter in relation to which the silence operated was that the time had come for the applicants to make a final decision, failing which the zone would be allocated to another. In all the circumstances the silence of the respondent on that fact supported an inference in the mind of the applicants that the time for final decision had not arrived and that, consistently with their conduct over preceding months, they could continue to consider the matter.
Deliberateness
For the respondent it is contended silence cannot constitute or be part of misleading or deceptive conduct unless it is deliberate. In Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 68 ALR 77 at 84 Bowen CJ accepted that the words "refuse" and "refrain" clearly connote the omission to do an act must be deliberate. Inadvertence was accepted as a disqualifying factor in Dinyarrak Investments Pty Ltd v Amoco Australia Ltd (1982) ATPR 40-323 at 43,963 per Fisher J and in Edgar v Farrow Mortgage Services Pty Limited (in liq) (1992) ATPR (Digest) 46-096 at 53,375 per Einfeld J. The latter decision was reversed on appeal: Farrow v Edgar (1993) 114 ALR 1.
However, in Demagogue at 40 Gummow J, with whom Black CJ and Cooper J agreed, said:
""Conduct" within the meaning of s52 includes refusing to do an act and refusal to do an act includes a reference to "refraining (otherwise than inadvertently) from doing that act": s4(2). But in any case where a failure to speak is relied upon the question must be whether in the particular circumstances the silence constitutes or is part of misleading or deceptive conduct. The expanded meaning given by s4(2) to "conduct" should not distract attention from the fundamental issue in the case at hand."
Black CJ said at 32:
"Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or likely to mislead or deceive... Although "mere silence" is a convenient way of describing some fact situations, there is in truth no such thing as "mere silence" because the significance of silence always falls to be considered in the context in which it occurs."
It follows intention is not a disqualifying factor: the question is whether the silence is misleading or deceptive.
If, however, it is necessary for the applicants to discharge an onus of proving on the balance of probabilities the non‑disclosure to them was deliberate, I consider they have done so.
This is not a case where there was direct evidence of an intentional non‑disclosure; indeed it was denied by Archibald and Schryver. Nor is it a case where there was any satisfactory evidence that the representor stood to derive actual or potential benefits from appointing de Groot. Nagy accepted in cross-examination that there were no reasons why the respondent would not want the applicants. A number of matters were raised by the applicants' counsel to suggest a suspicion concerning the respondent's motives in dealing with de Groot. These were all denied or do not lead to any inference. Nor is the applicants' case as put in closing reliant upon them.
However, the evidence
establishes the following: (1) the relevant non‑disclosure occurred in
the December telephone
conversation; (2) that was preceded by the decision of the Deregulation
Committee on 12 December to offer the zone to de Groot if Nagy did
not contract; (3) the respondent accepted it could not offer the zone to de
Groot unless the applicants had refused it; (4) the respondent knew the
December telephone conversation was therefore of crucial significance, so much
so that Archibald arranged for Schryver to listen in (disclosing to Nagy only
that he was speaking on an open line); (5) the respondent through Archibald was
aware the issue of allocation of the zone was of considerable importance to
Nagy; (6) the respondent was aware of the July response and did not interpret
that as a final rejection by the applicants.
In my opinion, the December telephone conversation, coming so soon after the decision at the Deregulation Committee meeting on 12 December, and being so carefully planned with knowledge of the importance of the subject matter to the applicants, leads to the inference the non-disclosure was deliberate. Archibald's only explanation of the absence of disclosure was that he thought it was reasonable in the circumstances to accept Nagy's reply as a final rejection. That is entirely inconsistent with his earlier view of the July response. It could not have been the case that Archibald could reasonably have accepted the December response as a rejection where that response was to his knowledge unconditioned by awareness on the part of Nagy of the undisclosed matter. Archibald's explanation does not explain why he did not take the additional small but easy step of saying in the December telephone conversation the zone would be allocated to another unless the applicants accepted. I therefore do not find credible the denials made by Archibald and Schryver that non‑disclosure was not deliberate. The inference of all the relevant circumstances is that, for whatever reason, Archibald deliberately refrained from disclosure of the material matter.
Whether misleading or deceptive conduct
For the respondent it is
contended this is a case where the information not disclosed is the type of
information which the
behavioural norms of bargaining in a commercial context do not either require
disclosure or make misleading or deceptive when not disclosed: Lam v Ausintel Investments Australia Pty Ltd
(1989) 97 FLR 458 at 475. I accept that
disclosure of the identity of de Groot or of any decisions to award him the
Maddington zone if the applicants did not contract, fall into this type of
information. The position with respect
to advising the applicants that a deadline had been reached falls into a
different category because of the circumstances in which it arose. Nagy having in the December response repeated
the July response that he was 90 per cent sure he would not contract, inferred
that he thought he still had time to come to a final decision. He was left by Archibald with a false
understanding the matter remained with him for determination. While s52 of the TPA does not strike at the
traditional secretiveness and obliquity of the bargaining process, that process
is nevertheless not to be seen as a licence to deceive: Poseidon Ltd v Adelaide Petroleum NL (1992) ATPR 41‑164 at
40,234 per Burchett J.
Reliance
For the respondent it is pleaded because of the applicants' conduct in making the July and December responses and in failing to negotiate about the schedule of customers, demonstrated they did not, to any material degree, rely on the respondent's alleged misleading or deceptive conduct. Nagy's evidence, however, was that if he had been possessed of knowledge of the impending loss of opportunity he would have contacted the respondent with a view to entering into a contract. The conduct of the applicants subsequent to the December telephone conversation in not coming to a final decision on whether to take up the contract, is accountable for only on the basis that Nagy relied on the inference he was entitled to draw from that telephone conversation that the time for final decision had not yet come. The applicants' failure to act on and from 14 December 1994 arose out of the respondent's silence on that date on the material matter that Nagy's answer would be taken as a final negative response. Such reliance was in all the circumstances reasonable: Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439 at 459.
Estoppel
For the respondent it is pleaded the applicants are estopped from contending they relied upon any conduct of the respondent because of the July and December responses; the failure of the applicants to negotiate concerning the schedule of customers and the reliance placed by the respondent on those matters in commencing negotiations with de Groot in January 1995 and concluding an agreement with him in February 1995. On examination, this pleading is made on the basis the July and December responses were absolute. That was not the case: they were responses that Nagy was 90 per cent sure the applicants were going to leave the industry, accept the DAAS payment and sell their business. In their terms, the responses were not final so as to be able to constitute an estoppel. This was not a case where the applicants had induced an assumption in a final state of fact upon which reliance could be placed by the party induced: The Commonwealth v Verwayen (1990) 170 CLR 394.
Trade or commerce
The applicants must establish the relevant conduct of the respondent was conduct in trade or commerce. The reference in s52 to conduct in trade or commerce refers only to conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character: Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 602-3 per Brennan and McHugh JJ. There are decisions at first instance to opposite effect on the question whether the making of a contract of employment and the discharge by the employer of his obligations under the contract is "conduct in trade or commerce": Patrick v Steel Mains Pty Ltd (1987) 77 ALR 133; Wright v TNT Australia Pty Ltd (1988) 80 ALR 221. This apparent conflict is, however, to be understood in the terms explained by Wilcox J in Barto v GPR Management Services Pty Ltd (1991) 105 ALR 339 at 345. The result is that Patrick correctly states the law so that the making of such a contract is within the expression.
By analogy, dealings between an independent contractor (the applicants) and principal (the respondent) involving finalisation of a contract for distribution of the principal's products by the contractor would be conduct in trade or commerce. In my view it would be artificial to hold the only conduct in trade or commerce is the sale of the products and that the preparatory act of contracting lay outside that description. I consider the relevant conduct in this case is conduct in trade or commerce.
Causation
To recover damages the applicants must prove the loss of damage claimed was "by" conduct in breach of the TPA: see s82 and Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525 per Mason CJ. Causation is a matter of fact to be determined by reference to commonsense and experience: March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506.
The pleading of loss is made referrable to the statement in the August letter that the revised contracts were ready for the applicants to sign.
For the respondent it is argued as there was no "offer" there cannot be any loss of opportunity. It is argued the failure to prove an offer destroys a claim for contravention of s52: Leitch v Natwest Australia Bank (Cooper J, 12 October 1995, unreported) at 27-8. In Leitch the pleading of loss depended on a finding that an agreement was in fact made. Here it is a question of whether what the pleadings describe as "the offer" was made. The evidence establishes the facts falling within that description were offered, although acceptance of them would not have constituted a contract. This is therefore a different pleaded circumstance to that in Leitch. The relevant loss of opportunity is that whereby the applicants could have negotiated with the respondent in response to the statement in the August letter. That loss occurred as and from the December telephone conversation.
Loss of an opportunity to obtain a commercial advantage or benefit is "loss or damage" within s82(1) of the TPA: Sellars v Adelaide Petroleum NL (1994) 179 CLR 332. The judgment of the majority in that case summarised the applicable principles in the following way:
"On the other hand, the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. It is no answer to that way of viewing an applicant's case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable."
This statement has been followed and applied by appellate courts: see for example Daniels v Anderson (1995) 13 ACLC 614 at 683; Bailey v Namol Pty Ltd (1994) 53 FCR 102 at 109.
In my opinion the evidence in the present case satisfies this formulation. The commercial opportunity which the applicants lost was evidently of value; namely, a value approximating the value of the milk round which would have been allocated to them as the result of the opportunity to conclude a contract. The possibilities or probabilities of that occurring were extraordinarily high; indeed their opportunity or chance was at the very highest end of the scale of probability: Bailey at 109. The respondent accepted it could not allocate the Maddington zone elsewhere unless the applicants were not contracting for it. The evidence for the applicants was that they would have contracted had they known the opportunity to do so was to be lost. The applicants had a substantial prospect of acquiring the benefit, the loss of which was caused by the misleading conduct of the respondent.
Election
For the respondent it is then submitted that where a distributor has an opportunity either to pursue a contract or, alternatively, to obtain compensation pursuant to a legislative scheme, an election to pursue the DAAS payment involves an abandonment of any entitlement to enter into an agreement or to claim for the loss of opportunity in respect of the agreement.
An election arises where the party electing is confronted with two mutually exclusive courses of action between which a choice must be made in fairness to the other party: Inmer (No 145) Pty Limited v The Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 41. Two questions arise: was there the necessary mutual exclusivity between the DAAS payment scheme and the right of the applicants to recover under this action; and if so, does the common law doctrine of election apply.
It is apparent the effect of cl4.1 and 4.2 of the DAAS Deed is that the payment is open to repayment at any time upon demand by the DIAA. A possible reason for the making of such demand would arise if the applicants received damages as a result of this action so that there was arguably a failure of the consideration referred to cl2.1. Whether or not that occurred, the payment is defeasible so acceptance of it does not have the character of a final election creating a necessarily inconsistent right.
In relation to contract it is recognized by the law that a promisee may pursue alternative and inconsistent remedies without being held to have elected in favour of either since no question of election between remedies arises until one or other claim has been brought to judgment: United Australia Ltd v Barclays Bank Ltd [1941] AC 1 at 30. A fortiori that must be the case where the fruits of the remedy are repayable on demand.
Furthermore, there is no necessary inconsistency between the right to recover damages for loss of opportunity and the right to seek a payment under the DAAS Deed. An award of damages is open to adjustment to accommodate any payment recovered in respect of the same loss from another source.
Additionally, this is not a case where an election is necessary in fairness to the other party because the other party is not the same in each case. It is vastly different to the case where a person has the right to terminate a contract and the alternative right to insist on performance of it: Sargent v ASL Developments (1974) 131 CLR 634 at 655.
I do not consider the doctrine of election can apply so as to preclude this limb of the applicants' claim.
Damages
In Sellars at 355 the majority accepted that damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of s52(1), should be ascertained by reference to the court's assessment of the prospects of success had it been pursued. Assessment of damages under s82 is akin to assessment of damages in tort: Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1; Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 69 ALJR 787.
The report of the applicant's expert Thompson calculated the value of the loss of future profits to the applicants for not entering into a Distribution Agreement at $449,677. The result was arrived at based on assessments of growth in sales and profits from the 1990-91 to 1994-95 years, although the 1992-93 year showed a negative growth. The Present Value Method was applied. A discount rate of 18 per cent was used to value future cashflows. The result was reached on the following basis:
"Year* Net Profit Discount RatePresent Value
1995/96 165,590 1.0000 165,590
1996/97 182,149 0.8200 149,362
1997/98 200,364 0.6724 134,725
--------
449,677"
For the respondent a report of Ernst and Young was tabled in which the following conclusion was expressed:
"In our opinion the present value of the after tax profits for the business over a period of three years would be between $117,713 and $168,971. Taking account of the present value of the after tax compensation payment already provided by the Dairy Industry Authority of Western Australia of $105,338 it is our opinion that reasonable damages would be between $12,375 to $63,633. Having regard to the uncertainty of retaining distribution sales of Brownes' non‑white milk products to chain stores, our preferred assessment of damages would be at the lower end of our assessed range."
It was accepted by the respondent's expert Keys that the basic approach of he and the applicant's expert Thompson in arriving at the historical figure was the same and that where they parted company was on some matters of assumption and some matters of calculation and analysis.
Issues raised in the Ernst & Young report in relation to the Thompson report and otherwise raised in the evidence are:
(1) Payment to applicant's son
The above calculation of nett profit by Thompson reflects adjustment after his acceptance of the level of payments to the applicant's son.
(2) Growth rates
Thompson based his assessment on the view the business had shown consistent growth in terms of sales and nett profits over the years. Issues arise in relation to that view. Firstly, he selected the years 1990-91 to 1994-95 and did not address the years 1986-89. He accepted in cross examination there was no nett growth from 1985-1993. Secondly, 1993 was a year of negative growth and adjusted nett profit of minus 8.70 per cent. Thirdly, the growth in the business in the last two years was largely attributable to the opening of the new Woolworths supermarket at Maddington Metro so it would not have been sustainable at that rate.
Fourthly, sales would be expected to decrease with the loss of Brownes' product distributorship. Thompson accepted that sales would fall due to loss of Brownes' white milk sales but considered these would be compensated by sales picked up from Brownes' subcontractors.
Fifthly, the margin on white milk sales decreased following deregulation. Thompson accepted he was unaware of a margin decrease in white milk sales introduced by the respondent in the first year of deregulation and a subsequent upgrade to just below the old rate in the second year. He accepted he would have to reduce his profit projections accordingly.
Sixthly, Thompson applied a minimum growth rate of 20 per cent in the first year followed by minimal growth rates of 10 per cent in the last two years. These do not reflect the fact that over the preceding five years annual growth of only 17.5 per cent on a compound basis has occurred.
Seventhly, Thompson considered that Keys report made no allowance for growth in the economy and less milk vendors being in the market place.
(3) Discount rate
Thompson applied a discount rate of 18 per cent to expected future profits of the business on a before tax basis which equates to an after tax real rate of 8.8 per cent. Ernst and Young applied an after tax real discount rate of 5 per cent to expected profits.
Furthermore, the Thompson report has not discounted the expected profit of the business in its first year of operations and has assumed the profit generated in each year would be available on the first day of the forecast year.
(4) Taxation
In the Thompson report allowance is made for tax at company rates whereas the applicants have operated the business as a partnership. The profits would be evenly distributed between them with tax payable at personal rates.
(5) DAAS payment
The Thompson report has not adjusted the assessment for compensation from DAAS on the basis the amount is repayable if demanded on or before 28 August 1998. Furthermore, the Thompson report makes no allowance for additional compensation. In the Ernst and Young report the amount of the payment has been deducted and provision made for payment of tax on it in three years time. The tax payment has been discounted at a real after tax of 5 per cent to allow for the time value of money.
In my opinion, the damages to which the applicants are entitled should be calculated on the following basis:
(a) The years 1986/87 - 1994/95 should be addressed in the valuation.
(b) The growth rate in the last two years should be reduced to a level which allows for the effect of the Woolworths
supermarket. This should not be a rate which equates to the pre‑Woolworths rate because there should be allowance for growth in the economy and less milk vendors being in the market place. Actual growth rates on a compound basis after the above adjustments should be applied.
(c) No adjustment should be made for loss of Browne's white milk sales on the basis these will be compensated for by sales picked up from Brown's subcontractors.
(d) Adjustment should be made for the margin in white milk sales.
(e) It should be assumed that to continue in the business the applicants would have been required to purchase a refrigerated truck.
(f) Allowance for tax should be at personal rates on the basis the applicants always operated as a partnership.
The evidence shows different discount rates used by the experts but provides no basis on which the Court can select the appropriate rate and determine whether it should be applied before or after tax. There is the further question whether or not provision should be made for repayment of the DAAS payment in the calculation of damages. These and the foregoing issues where not the subject of evidence from the experts or submissions from counsel in terms of how they should be translated into the calculation of damages. It will therefore be necessary for the applicants' expert to provide a further account prepared in the light of items (a) - (f) above and resolution of the appropriate discount rate. The statement should be prepared on the alternative bases that DAAS is or is not to be repaid. Submissions should follow.
CROSS-CLAIM
For the respondent it is claimed the conduct of the applicants in not forwarding an expression of interest and not negotiating with the respondent concerning their schedule of customers as well as their July and December responses, constituted misleading and deceptive conduct contrary to s10 of the Fair Trading Act (1987) (WA) by virtue of s9 of that Act as the applicants did not have reasonable grounds for so doing.
The expression of interest was followed by the April meeting at which the respondent expressly allowed the applicants time to consider the matter. Nor was it mislead by non-negotiation of customers: the minutes of the meetings of the Deregulation Committee show it was appreciated that the applicants, like other potential contractors, had the matter under consideration.
The July response did not in fact mislead the respondent, which continued to recognize the applicants had the first right to choose the Maddington zone. The December response did not mislead either: it was known to both Archibald and Schryver that it did not contain an absolute denial of interest but only a 90 per cent denial. On Archibald's evidence, it was he who chose to treat the response as absolute when he was aware it was qualified.
In none of these actions did the applicants lack reasonable grounds. Their grounds were that they did not know they faced loss of the opportunity to contract and thought they would wait a while to see if the Government could be persuaded to abandon deregulation.
There is no substance in this cross-claim and it should be dismissed.
CONCLUSION
For these reasons I consider
the applicants are entitled to judgment.
The cross-claim should be dismissed.
The quantum
of damages should be determined in a sum following further submissions
concerning the effect of the expert evidence in accordance with these
reasons.
I certify that this and the preceding 45 pages are a true copy of the Reasons for Judgment of his Honour Justice R D Nicholson.
Associate:
Date: 13 December 1996
APPEARANCES
Counsel for the Applicant: Mr N P Hasluck QC
Solicitors for the Applicant: Grant Chitty
Counsel for the Respondent: Mr S K Dharmananda and
Mr J Southalan
Solicitors for the Respondent:Corrs Chambers Westgarth
Date of Hearing: 4, 5, 6, 12, 13, 14 June 1996
Date of Judgment: 13 December 1996
