FEDERAL COURT OF AUSTRALIA

Yarrabee Chicken Company Pty Ltd v Steggles Limited [2010] FCA 394

THE COURT ORDERS THAT:

1.                  Answer the separate questions identified in paragraph 203 of the reasons for judgment published today as set out in that paragraph.

2.                  The parties confer and notify the Associate to Jagot J within 14 days of agreed or competing orders to reflect the reasons for judgment published on today’s date.

3.                  The proceeding be listed for a directions hearing on a date to be fixed in consultation with the parties.

4.                  Costs be reserved.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

THE ISSUES

1                                             This is a representative proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth).  The proceeding was commenced as a fast track application.  The applicant’s claim is set out in a fast track statement.  The respondent answered in a defence.  The parties resolved part of the proceeding by agreement.  I made orders on 28 July 2009 reflecting this agreement.  The balance of the proceeding involved a longer time for preparation than that permitted by the applicable fast track practice notes (Practice Note No 30: Fast Track Directions as replaced by Practice Note CM 8 - Fast Track from 25 September 2009 onwards).  I thus removed the proceeding from the fast track list on 3 December 2009. 

2                                             The applicant, Yarrabee Chicken Company Pty Ltd, represents members of the Hunter Valley Tunnel Group (the HVTG).  The HVTG is an unincorporated association of tunnel growers of broiler chickens in the Hunter Valley.  Tunnel growing is a method of rearing chickens in mechanically ventilated sheds. 

3                                             The HVTG is authorised to represent the growers in connection with their contracts with the respondent, Steggles Limited (Steggles). 

4                                             Steggles is a chicken processing company which operates a chicken processing plant at Beresfield in the Hunter Valley.  Steggles has traded under the name of Bartter.  As I understand it, the Bartter entities were taken over by Steggles before this dispute arose.  In late 2009 Steggles was taken over by Baiada Poultry Pty Ltd (Baiada). 

5                                             Steggles conducted its business using its own and the Bartter names.  I refer to Steggles as the relevant entity, although some of the evidence uses the name of Bartter. 

6                                             The contracts are in a standard form.  The contracts use the term the Growers to define the growers in the Hunter Valley region who use tunnel ventilation.  I adopt this use. 

7                                             Although Steggles and each grower are parties to a separate contract I refer to these standard form contracts as the contract, particularly when dealing with the questions of construction and allegations of breach which are common issues as between Steggles and each of the Growers.

8                                             The parties agreed that certain issues either common to or having consequences common for all members of the HVTG should be determined separately from and in advance of all other issues in the proceeding.  The parties prepared an agreed statement of issues for this purpose.  The agreed statement of issues poses questions which arise from the claims in the fast track statement and Steggles’ defence.  The full text of the agreed issues, and answers to each, are set out in my conclusions.  For present purposes it is convenient to identify the issues in a summary form as follows:

(1)               Does the contract (in part by cl 7.4 and in part by an implied term) require Steggles to allocate chickens to the Growers in preference to all other growers (including growers who are not a party to the standard contract with Steggles, conventional growers of chickens in the Hunter Valley and all growers outside the region) (issues 1(c) and 1(d))?

(2)               Does cl 7.5 of the contract require Steggles not to vary the stock density or batch rates between the Growers without the consent in writing of at least 75% of the Growers (issue 1(b))?

(3)               Does cl 14.4 of and Appendix B to the contract require Steggles to adjust the Standard Growing Fee in January and June of each year (as part of the six monthly fee review) having regard to the batch rate provided to the Growers over the previous six months in accordance with the Standard Growing Fee Formula (issue 1(f))?

(4)               Did Steggles and the HVTG (on behalf of the Growers) vary the contract in or about September 2004 by agreeing:

(a)               to a joint review of the fee adjustment factors before the change to adjustment levels in January 2007 set out in Appendix A to the contract operated; and

(b)               that the criteria for the review would be confined to the then current range of the Growers’ results and incomes and the effect the scheduled changes in the adjustment levels will have (issue 1(e))?

(5)               Did Steggles and the HVTG (on behalf of the Growers) agree in or about February 2005 to conduct annual fee reviews under the contract solely in accordance with a cost recovery template (issue 2)?

(6)               Did Steggles and the HVTG (on behalf of the Growers) agree in or about February 2005 to a method of adjustment in which Steggles could obtain an upfront discount on the Standard Growing Fee for promised batch rates in excess of six per year provided it adjusted the Standard Growing Fee at the end of the year based on delivered batch rates and paid back the difference to the Growers (issue 3)?

(7)               Does the contract include a term requiring Steggles and the Growers to adjust the base rate used to calculate the Standard Growing Fee to compensate the Growers for any increase in the Growers’ costs since the date of the last fee review (issue 1(a))?  Alternatively, did Steggles admit the existence of such a term in its defence and thereafter; if so, does Steggles require and should it be granted leave to withdraw its admission (an issue which arose during the course of the hearing)?

(8)               Is Steggles estopped from refusing to provide chickens at a certain stock density and rate of batches per year to two of the Growers, Marianne Peen and the MJ Wood Family Trust (issues 6 and 7)?

(9)               If a promissory (or equitable) estoppel does arise against Steggles as claimed does cl 7.5 of the contract require Steggles to provide all of the Growers with the same stock density and batch rate per year unless Steggles obtains the written consent of 75% of the Growers allowing it to vary the stock density or batch rate between them (issue 8)?

(10)           Has Steggles engaged in misleading and deceptive conduct in relation to Ms Peen or Malcolm Wood within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (issues 10 and 11)?

(11)           Has Steggles breached the contract by:

(a)               not reviewing and adjusting the base rate for 2009 in order to compensate the Growers for any increase in their growing costs since the date of the previous review (issue 12);

(b)               not reviewing and adjusting the base rate for 2009 in accordance with the cost recovery template agreed in February 2005 (issue 13); and

(c)               not adjusting the Standard Growing Fee for 2009 in accordance with the Standard Growing Fee Formula having regard to delivered batch rates (issue 14)?

(12)           What relief should be granted if any of the Growers’ claims are upheld (issues 4, 5 and 9)?

BACKGROUND

9                                             Many of the issues relate to the proper construction of the contract.  The circumstances in which the contracts were made are thus relevant (Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1; [2006] FCAFC 144 and Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407). 

10                                          Steggles and each of the Growers entered into the contracts from August 2004 onwards. 

11                                          The HVTG negotiated the terms of the contract with Steggles on behalf of each of the Growers. 

12                                          The contracts were made in a known statutory and industry context.  The Poultry Meat Industry Act 1986 (NSW) (the Poultry Act) regulates the growing of chickens for meat in New South Wales.  The provisions of the Poultry Act reflect the commercial arrangements by which chickens are grown and processed for the poultry meat industry.  The Poultry Act distinguishes between processors and growers of chickens.  The statute recognises that processors place chickens with growers to rear.  The processor owns the chickens.  Chickens are delivered to and reared in large batches in sheds for the period required for the type of bird placed.  After the chickens are reared the processor collects the chickens from the sheds for processing.  Growers are paid per chicken raised.  The sheds are cleaned between the deliveries of batches. 

13                                          As noted, Steggles is a processor.  It operates a processing plant in Beresfield in the Hunter Valley.  A processor who is not also a grower may not process chickens unless they are grown by a grower under a written agreement.  At the time the contracts were entered into the Poultry Meat Industry Committee (the PMIC) had to approve the form of the written agreement (s 7).  The contracts between Steggles and the Growers are the written agreement required by the Poultry Act.

14                                          The PMIC had other functions under the Poultry Act at this time.  By s 10(2) the PMIC was required to determine the base rate of payment for batch poultry at least once every six months.  Batch poultry is poultry grown in batches of 1,000 or more chickens.  Section 10(4) set out the list of matters which the PMIC was required to consider in determining the base rate including any suggested base rate agreed to by processors and growers, growing costs, the species of poultry, the duration of the rearing period, the annual throughput of poultry, the poultry housing density, industry needs, market forces, the public interest, the reasonable minimum return to growers while encouraging industry efficiency, and “such other matters as the [PMIC] thinks relevant”.  By s 11(1)(b) the price for batch poultry received by a processor from a grower under a standard agreement was to be determined at a rate no less than the relevant base rate.

15                                          Section 12A of the Poultry Act at this time precluded any attempt to contract out of these provisions, each of which was contained in Pt 4 of the Act. 

16                                          On 1 October 2005, after the standard form of the contract was settled and made as between Steggles and some of the Growers, the Poultry Act was amended by the commencement of the Poultry Meat Industry Amendment (Prevention of National Competition Policy Penalties) Act 2005 (NSW).  The amendments abolished the PMIC and its role in approving agreements and setting the base rate.  The second reading speeches for the bill proposing the amendments were made in May and June 2005.  These dates are also after the standard contract was settled and entered into by Steggles and some of the Growers.  This sequence of events does not support the Growers’ submission, to the extent one was made, that the contract was prepared on the assumption that the PMIC was to be abolished. 

17                                          Certain other aspects of the poultry meat industry in New South Wales were also common ground.  As noted, the processor, Steggles, owns the chicks.  The processor delivers chicks in batches to growers to be reared.  The processor supplies the feed and other items necessary for the rearing of the chicks.  The grower provides the facilities necessary to rear the chicks including the sheds in which they are reared, plant, equipment and labour.  The chicks are reared for the growing period.  The growing period varies depending on the species of bird.  Small birds have a growing period of about 42 to 47 days.  Once the batch has been reared for the required period the processor collects the fully grown chickens for delivery to the processing plant.  The grower then cleans the shed in which the chickens are reared ready for the next batch. 

18                                          Steggles had entered into standard contracts with growers before the contract in dispute in this proceeding.  Those contracts were scheduled to expire in or about mid 2004.  The statutory requirement for a written agreement gave both Steggles and growers an incentive to settle the terms of a new contract. 

19                                          Communications between Steggles and growers (or prospective growers) show that at all times Steggles took an active role in matching the growing capacity of growers and the processing capacity of Steggles’ Beresfield plant.  For example, growers who wanted to deal with Steggles had to obtain Steggles’ approval before constructing chicken farming facilities including full details of growing capacity, access, shed design, feed and water design, ventilation, power supply, cooling and lighting systems, and the like.  I infer that the contract was negotiated on the basis that Steggles wanted a sufficient but not excessive number of reliable growers with adequate facilities in the region to rear its chicks. 

20                                          It is also apparent that by 2000 Steggles had a strong preference for the growing of chicks of a particular type in tunnel ventilated sheds.  Steggles preferred a small type of bird with a relatively short growing period of about 42 to 47 days.  Tunnel ventilated sheds were seen to be superior in virtually all respects to conventional sheds.  Tunnel ventilation provides greater productivity in terms of increased potential bird density, decreased mortality rates and better bird quality.  Steggles thus advised growers in 2000 that when the contract then in force expired in mid 2004 Steggles would not be offering all growers a new contract. 

21                                          In November 2000 Steggles notified growers that it intended to rationalise growing operations by offering new contracts to a group of 38 growers if they were willing to convert their conventional sheds to tunnel ventilation and a small group of growers who already had tunnel ventilated sheds.  The other growers, 28 in all, were told that that they would not be offered a new contract unless they could be substituted for one of the 38 growers who decided not to convert their farm to tunnel ventilated sheds.  Further, that Steggles was willing to approve substitution and the purchase of capacity (that is, chicken rearing capacity) by those who would be offered a new contract from those who would not.  Steggles’ aims were to reduce the total number of growers (then 82 in number), to ensure conversion to Steggles’ preferred growing method (tunnel ventilation) and to facilitate an increase in the size of the farms of those growers who had converted to tunnel ventilation and were to be offered a new contract.

22                                          By June 2001 a further notice from Steggles to growers disclosed that Steggles had been forced to abandon the distinction between the 38 growers who would be offered new contracts and the 28 who would not because “many growers from both groups had declined to commit to suitable conversion plans”.  Conversion of conventional sheds to or construction of new tunnel ventilated sheds required substantial capital expenditure.  As a result of the growers’ unwillingness to convert their farms Steggles was forced to review its requirements and thus advised growers that it was unable to make “further capacity commitments” until the review was completed. 

23                                          Another notice to growers in October 2001 confirmed that Steggles intended to include a “facility standard” in all new contracts requiring sheds to be tunnel ventilated.  Further, that the conversion to this new standard would enable Steggles to reduce its “contracted broiler growing capacity” (I infer, due to the greater productive efficiency of tunnel ventilated sheds).  Steggles requested that growers who had not already done so notify it whether they wished to convert their farm to the new facility standard.  Steggles also noted that, because of the lack of indication from many growers about their willingness to convert their farms, Steggles intended to sell a farm it owned to a grower who would construct new sheds to ensure Steggles had sufficient future capacity incorporating the new facility standard.

24                                          It is apparent that by early 2004 Steggles still had not secured sufficient conversion of farms to tunnel ventilated sheds to meet its needs as a processor.  According to correspondence sent in April 2004 Steggles was “looking for expressions of interest for new shedding to be completed before the end of 2004”.

25                                          There is also evidence that the market for poultry meat, at all material times, was expanding.  Ms Peen, one of the Growers, estimated that the market was expanding by about 10% per year.  Further, batch rates increased after 2004 and until this dispute.

26                                          The terms of the contract are to be construed having regard to the fact that it was entered into against this statutory, industry and commercial background.

THE CONTRACT

27                                          The contract contains a table of basic information identifying the Grower, the farm, the number of sheds on the farm and the size of the sheds in square metres. 

28                                          Clause 2 of the contract sets out the intention of the parties that the Grower intends to produce “saleable birds” on the farm for Steggles and to meet and exceed BPIF Performance Benchmarks.  In return for the Grower’s activities, Steggles pays the Grower a fee based on the Best Practice Payment System.  Saleable birds are those birds in a batch which are picked up for delivery to the processing plant.  A batch is a quantity of birds delivered by Steggles to the Grower under the contract.  The BPIF Performance Benchmarks are defined in Appendix A to the contract.  The Best Practice Payment System is an efficiency incentive scheme for payment (a type of agreement and payment scheme recognised by the Poultry Act) described in the contract.  The Grower is defined in the contract as “one of the Growers”.  The Growers are all entities which grow birds for Steggles in the Region in tunnel ventilated farms pursuant to the contract or a contract on substantially similar terms.  The Region is defined as the geographical area in New South Wales from which all Growers supply the same Steggles processing plant.  As noted, the processing plant in the present case is at Beresfield in the Hunter Valley and the Growers are located in the Hunter Valley region.

29                                          The contract also defines the Grower Representative Group as the group established by the Growers to represent them consisting of representatives the Growers elect.  The HVTG is the Grower Representative Group.

30                                          By cl 3 both parties to the contract had to comply with Steggles’ National Minimum Standards.  Steggles could amend those standards but only after agreeing the amendments with the Grower Representative Group.

31                                          Clause 4 imposes basic housekeeping obligations on the Growers. 

32                                          Clause 5 requires Steggles to supply and deliver batches of chicks to the grower.  The clause does not specify a minimum number of batches that must be supplied per year or minimum density of birds per square metre of available shed space. 

33                                          Under cl 5.7 Steggles remains the owner of the chicks at all times.

34                                          By cl 6 Steggles is to provide the supplies necessary to raise the chicks on the farm at its cost. 

35                                          Clause 7.1 obliges Steggles to ensure that a person is available to provide advice to the Grower.  Under cl 7.3 Steggles is to provide the Grower with regular information bulletins containing comparisons between the Grower and the Grower’s farm and other Growers and their farms.  The meaning of cl 7.4 is in dispute between Steggles and the Growers.  Clause 7.4 is as follows:

7.4       Extra Shed capacity

(a)               Steggles will first offer any extra Shed capacity that arises during the term of this contract to Growers in preference to third parties.

(b)               Any additional capacity will be allocated at the discretion of Steggles.

36                                          “Shed” is defined as “any shedding on the Farm used for the growing of Birds”.

37                                          Clause 7.5 is also in dispute and is in these terms:

7.5              Equitable treatment of Growers by Steggles

Notwithstanding any other provision of this contract, in complying with the terms and conditions of, or acting as contemplated by the terms of, this contract, Steggles will as far as reasonably practicable:

(a)               act promptly, in a reasonable manner and a manner that is equitable to all Growers; and

(b)               treat the Growers fairly and on materially similar terms, with the exception that Growing Payments may vary between Growers in accordance with the Best Practice Payment System, and density and Batch Rates may vary between Growers with the written consent of at least 75% of the Growers.

38                                          The Grower is subject to various obligations imposed by cl 8.  Amongst other things, the Grower must ensure that birds supplied by Steggles are the only poultry on the farm (cl 8.4(b)(1)).  The Grower must use only the supplies provided by Steggles in raising the birds (cl 8.5).  The Grower must act on written instructions and recommendations of Steggles (cl 8.6). 

39                                          Under cl 8.9 Steggles agrees that the minimum average return to Growers (averaged across all Growers over a calendar year) will be not less than $40 per square metre of shed floor space per annum. 

40                                          By cl 12 Steggles is to arrange for collection when the birds are marketable as broiler chickens.  The Grower must prepare the shed for the collection of the birds.  The birds are weighed after collection (cl 13). 

41                                          Steggles’ payment obligations are regulated by cl 14.  By cl 14.2 Steggles is to pay the Growing Payment to the Grower for each batch Steggles collects within 28 days “subject to and in accordance with” the Poultry Act.  The Growing Payment is the payment required by cl 14.  For Growers other than new Growers the payment is calculated in accordance with the Best Practice Payment System.

42                                          Clause 14.4 concerns fee reviews and is in dispute.  The clause is as follows:

14.4     Fee review

(a)               The Standard Growing Fee must be reviewed jointly by Steggles and Growers, with the first review to take place in the first January following the Start Date and further reviews to be undertaken every 6 months thereafter. Steggles and the Growers will put a recommendation regarding the Standard Growing Fee to the PMIC after each review.

(b)               The Standard Growing Fee will be derived from the Base Rate as defined in Appendix B, as amended by the PMIC every 6 months.

43                                          Clause 19 provides details of the efficiency incentive scheme known as the Best Practice Payment System.  The scheme involves Steggles scoring each batch from each Grower by reference to certain factors.  After adjustments this becomes the BPIF score.  A higher score means the Grower is more efficient compared to other Growers.  Growers in the scheme are ranked against each other and the BPIF Performance Benchmark.  The ranking determines the variation in payment to which the Grower is entitled over and above the base rate determined by the PMIC. 

44                                          Further provisions relating to the Best Practice Payment System are in Appendix A to the contract.  Clause 4 of Appendix A is relevant to the alleged variation of the contract in September 2004.  Clause 4 provides that, if the Grower is not a new grower, the Growing Payment for the current batch result (that is, the BPIF score) is calculated in accordance with a formula.  One of the integers in the formula is the Fee Adjustment.  One input into the Fee Adjustment is the Fee Adjustment Factors.  The clause includes a table identifying those factors as follows:

Table of Fee Adjustment Factors

45                                          Another input into the Growing Payment is the Standard Growing Fee, described in Appendix B to the contract.  The Standard Growing Fee is a fee expressed in cents per bird (or CPB) derived from the base rate set each six months by the PMIC and adjusted on a sliding scale relative to batch rates over the previous six months (expressed as an annual figure).  Appendix B states that this relationship is described in the equation:

SGF = BR + [0.354 x (365/Batch Rate)]

Where:

SGF = Standard Growing Fee (in CPB)

BR = Base Rate as determined by the PMIC (in CPB)

Batch Rate = number of Batches delivered in one year…

46                                          Examples of the application of this formula show this relationship and that as the batch rate increases the Standard Growing Fee per bird decreases (and the reverse).

47                                          Clause 20.1 provides an end date for the contract of 30 June 2009 (that is, a five year term).  Clause 21 deals with renewal of the contract.  Provided a notice of intent is given as required a Grower must be offered a new contract for a term of not less than five years.  Under cl 21(d) Steggles may require common amendments to the contract (that is, amendments common to all Growers).  If the amendments result in increased expenses or overheads for the Growers the amendments must be agreed with the Grower Representative Group and, if applicable, approved by the PMIC.

48                                          Clause 22 requires disputes to be resolved in accordance with Appendix F.  Amongst other things, Appendix F vests a dispute resolution function in the PMIC as referred to in s 18 of the Poultry Act (which enables the PMIC to facilitate the settlement of disputes by negotiation).

49                                          Clause 25(a) provides that the contract may be amended in writing only and, if necessary, following approval by the PMIC.  By cl 25(b) the Best Practice Payment System may be varied if Steggles and at least 75% of the Growers agree in writing. 

50                                          Clause 27 is relevant to the dispute and cl 27(a) is in these terms:

27        SEVERABILITY

(a)               Subject to clause 27(b), if any provision of this contract, or its application to any party, person or circumstance is void, illegal or unenforceable, then the remainder of this agreement or the application of such provision to such other parties, persons or circumstances will not be affected.

51                                          Clause 35 provides that the contract is the entire agreement between Steggles and the Grower about its subject matter and that the Grower cannot rely on any representations, communications or earlier agreements between the parties in relation to growing birds for Steggles not set out in the contract.

52                                          Clause 37 is an inconsistency provision.  In the event of inconsistency the order of priority is the Poultry Act, the guidelines for contracts laid down by the PMIC and the contract. 

Clause 7.4 - allocation of chicks (issue (1))

53                                          The Growers contended that the contract requires the preferential allocation of chicks to them.  According to the Growers, if Steggles has chicks that it wants reared for processing at the Beresfield plant in the Hunter Valley region then the contract (by cl 7.4 and/or an implied term) requires Steggles to offer those chicks to the Growers for rearing in preference to any third party (be that third party a grower using conventional sheds in or out of the region, or tunnel ventilated sheds out of the region).  Therefore, on the Growers’ case, cl 7.4 is about Steggles agreeing to provide Growers, insofar as it can, with maximum practicable throughput (that is, supply of chicks).  According to the Growers, Steggles’ contrary contention, that cl 7.4 relates only to any need for new shed space, serves no sensible purpose; shed space is immaterial to both parties unless there are chicks to fill the space. 

54                                          Steggles contended that cl 7.4 has nothing to do with the supply or allocation of chicks.  The clause does not mention chicks.  It is about shed capacity.  More specifically, it is about extra shed capacity.  According to Steggles the contract does nothing more than require Steggles to offer the Growers any additional shed capacity that Steggles requires in order to supply the processing plant in the Hunter Valley region, in preference to other growers. 

55                                          The relevant principles were not in dispute. 

56                                          As to construction generally, the contract is to be construed as a whole and in the context of the circumstances apparent to the parties at the time of entry into the contract.  It is to be construed having regard to the commercial aims of the parties.  It is to be construed in a way which makes rather than flouts business common sense. 

57                                          As to a contractual term implied in fact, the term must be reasonable and equitable, necessary to give business efficacy to the contract (in the sense that the contract is unworkable without it), objectively obvious, capable of clear expression and not contradict any express term (Halsbury’s Laws of Australia (Lexis Nexis Butterworths, as at 9 April 2010) Vol 6, 110 Contracts “Terms Implied in Fact” at [2125]-[2153]). 

58                                          The subject matter of the contract is the rearing of chicks by Growers for the purpose of supplying chickens to Steggles’ processing plant in the region.  To this end Steggles is to supply and deliver batches of chicks to the Grower (cl 5).  The Grower is to raise the chicks (cl 8).  After raising and when the chicks have become suitable for poultry meat, Steggles is to collect the chickens for processing at the plant (cl 12).  By the contract Steggles does not guarantee a minimum throughput.  It guarantees only a minimum return per square metre of shed floor space (cl 8.9).  By the contract, a Grower rearing Steggles’ chicks cannot rear any other poultry on the farm (cl 8.4).

59                                          The tunnel ventilated sheds are the facility on the farm in which the chicks are raised.  Sheds must satisfy the facility standards in Appendix D to the contract and are to be managed in accordance with other requirements specified in the body of the contract.  Steggles pays the Grower for rearing the chicks.  The payment is calculated on the basis of the chicks reared and is expressed in CPB (cents per bird).  Payments are payable by reference to batches of chicks delivered to and then reared by Growers and collected by Steggles.  From a commercial perspective, and in terms of the contract, Steggles has no interest in a shed on a farm other than to the extent that the shed is used to rear its chicks.  Equally, the Grower, in the context of the contract, has no interest in a shed other than to the extent that the shed is used to rear Steggles’ chicks. 

60                                          In this context, I am satisfied that the Growers’ case must be accepted.  On Steggles’ construction cl 7.4 makes no sense.  The capacity of the processing plant to process birds reared in the region is the obvious commercial dynamic driving both parties.  The background against which the contract was entered into exposes this dynamic.  To ensure that it could supply its processing plant Steggles needed enough growers in the region using its preferred form of shedding to raise chicks.  To ensure that they could make a living out of raising chicks the Growers needed to ensure that Steggles supplied them with enough chicks and enough batches of chicks to raise.  The contract, however, does not require Steggles to supply any particular number of chicks per batch or number of batches per year.  Instead, it contains a minimum return per floor space of the sheds on the farm, with the number of sheds and floor space being part of the basic information set out in the contract.  The contract also (amongst other things) requires Steggles to comply with cl 7.4.  Clause 7.4, in this contractual scheme, plays an important commercial function. 

61                                          Once these commercial realities are recognised it becomes apparent that if “extra Shed capacity” has nothing to do with supply of chicks (Steggles’ case), the question whether “extra Shed capacity” arises during the term is meaningless – it is a question which cannot arise and could never be answered.  The contract pre-supposes a finite processing and shed capacity in the region.  If Steggles is not bound to allocate chicks to be processed at the Beresfield plant to the Growers in preference to other growers then no occasion could arise for Steggles to require any “extra Shed capacity”.  Nor would there be any benchmark by which Steggles or the Growers could determine whether the requirement for such capacity has arisen.  Clause 7.4, on Steggles’ case, is devoid of any practical content. 

62                                          Clause 7.4, construed as the Growers submitted, accords with the commercial context the parties must have appreciated at the time they entered into the contract, namely, that: - (i) the contract operates by reference to a processing plant and the Growers in a defined region, (ii) the processing plant in the region has a capacity known to both Steggles and the Growers, (iii)  the Growers are a defined class, (iv) the total floor space of tunnel ventilated sheds available to rear chicks for Steggles in the region is also defined.  In this context, for Steggles to accept an express obligation to offer “any extra Shed capacity” to the Growers first and in preference to third parties necessarily and obviously assumes that Steggles will ensure that the Growers are supplied with chicks to rear for the Beresfield processing plant in preference to third parties. 

63                                          On this basis I am satisfied that the reference in cl 7.4(a) to “extra Shed capacity”, properly construed, means capacity to grow birds in sheds on the farm.  This is consistent with the definition of “Shed” (shedding on the Farm used for the growing of birds).  It is consistent with and gives effect to the balance of the contract.  It makes commercial sense.  On this basis, Steggles’ obligation is to offer to the Growers, first and in preference to any third party, the capacity to grow any bird to be processed at the Beresfield processing plant in one of the Growers’ sheds on their farms.  This obligation relates to capacity within any existing shed and extends to any additional shed that Steggles might need to rear chicks to be processed at the Beresfield plant. 

64                                          This construction of cl 7.4 means that recourse to the doctrine of an implied term is unnecessary.  Nevertheless, it is appropriate that I record my conclusions about the Growers’ contention in this regard.  If Steggles’ construction  is correct, I am satisfied that a term must be implied into the contract to the effect which I have described (namely, that Steggles is bound to offer to the Grower first and in preference to any third party the capacity to rear any bird to be processed at the Beresfield processing plant).  A term to this effect is reasonable and equitable.  It requires only an offer by Steggles.  If the Growers do not accept the offer Steggles is free to go elsewhere.  On Steggles’ construction of cl 7.4, the implied term is necessary to give business efficacy to the contract.  The contract is about the supply of birds in a region for rearing in that region so that they can be processed at the plant in that region.  If cl 7.4 does not mean what the Growers submitted and Steggles thereby is free to place birds for processing at the plant at its own discretion then the entire commercial rationale of the contract, including Steggles obligations to supply and the Growers to rear birds, is undermined.  The term is also objectively obvious.  Against the context of the contract as a whole the term is so obvious that it goes without saying.  The term is capable of clear expression.  It is capable of being expressed in different ways but that is immaterial.  The essential obligation is clear - Steggles is bound to offer to the Grower first and in preference to any third party the capacity to rear any bird to be processed at the Beresfield processing plant.  The term does not contradict any aspect of the contract. 

Clause 7.5 - stock density and batch rate (issue (2))

65                                          The Growers contended that cl 7.5 means that Steggles must provide the Growers with a uniform throughput of birds (in terms of stock density and batch rate) unless 75% of the Growers agree to the contrary.  The Growers submitted that this is apparent by reason of the Best Practice Payment System which ranks the performance of each Grower compared to each other Grower.  Meaningful comparison requires uniform throughput.

66                                          Steggles contended that cl 7.5 requires Steggles to treat the Growers fairly.  Steggles submitted that the express exception to that obligation, that batch rates can vary between Growers provided that 75% of the Growers agree, does not necessarily mean that it is unfair for Steggles to vary batch rates between the Growers.  The words “fairly and on materially similar terms”, according to Steggles, do not mean “equal” but instead permit consideration to be given to all circumstances.  The clause only operates to prevent unfairness.  Moreover, the clause is subject to a “reasonably practicable” qualification.

67                                          The problem with Steggles’ construction is that it fails to give effect to the clear and ordinary meaning of the provision.  It ignores the fact that the parties have expressly identified certain matters which, by definition, will involve treatment which is not fair or materially similar.  Such matters include variations in payments other than in accordance with the Best Practice Payment System, as well as variations in the supply of chickens in terms of stock density and batch rates. 

68                                          Subject only to the qualification of reasonable practicality, cl 7.5(b) requires Steggles to treat the Growers fairly and on materially similar terms.  The exceptions to this obligation are that Growing Payments may vary in accordance with the Best Practice Payment System, and stock density and batch rates may vary between Growers with the written consent of at least 75% of them.  In other words, if it is reasonably practicable for stock density and batch rates not to vary between Growers, then variation is impermissible.  Such a variation will breach Steggles’ obligation to treat the Growers fairly and on materially similar terms. 

69                                          Given that the contract is made with each Grower, being a recognised member of a class of Growers, who are paid in accordance with a comparative ranking system, the construction for which Steggles contends is untenable. 

70                                          It follows that, except in the case where it is not reasonably practicable to do so, Steggles must not vary the stock density or batch rate by which it supplies chicks to the Growers unless 75% of the Growers consent in writing to the variation.

Clause 14.4 – ADJUSTMENTS TO STANDARD GROWING FEE (ISSUE (3))

71                                          As noted, the Poultry Act was amended in October 2005.  At this time, the PMIC was abolished.  The contract was entered into at a time when the PMIC determined the base rate.  The parties are in dispute about the operation of the contract given the abolition of the PMIC. 

72                                          The Growers contended that cl 14.4 continues to operate except to the extent that the clause refers to the role of the PMIC.  Further, that the clause requires the parties to jointly determine the appropriate adjustment to the base rate (which, when the PMIC existed, was to be put as a recommendation to the PMIC but, since the PMIC’s abolition, need no longer be put).  The Growers supported this contention by reference to cl 27 (the severability provision).

73                                          Steggles’ position on cl 14(4) ranged from a contention as to its proper construction irrespective of the demise of the PMIC to a contention first raised in submissions that the statutory amendments meant that the clause had ceased to operate altogether.  This latter contention prompted objection by the Growers having regard to the defence and Steggles’ acceptance at all other times that the clause continued to operate in some form.

74                                          The latter contention (that cl 14.4 ceased to operate altogether on the coming into force of the statutory amendments) may be dismissed immediately.  As the Growers submitted, that contention is inconsistent with the position Steggles adopted at all other times and, prima facie at least, Steggles’ conduct through all negotiations about fee reviews.  I accept the Growers’ submission that had Steggles made this case in its defence (which it did not) the Growers could (and would) have claimed that Steggles was estopped from so doing.  Steggles accepted the continued operation of cl 14.4 in its defence.  To permit Steggles now to adopt a position on cl 14.4 inconsistent with its position at all times until it filed its submissions, in these circumstances, would be unjust and should not be permitted. 

75                                          Further, although not raised in the parties’ submissions, it is appropriate to note that the allocation of the proceeding to the fast track with the consequence that there are no formal pleadings does not affect my conclusion in this regard.  A key purpose of the documents required by the Court’s fast track directions is to ensure parties know the case they are required to meet.  Parties are entitled to expect that a proceeding will be resolved on the basis of the pleadings or, in the case of a fast track application, the documents that perform the same function as the pleadings. 

76                                          It follows that Steggles’ submissions to the effect that the whole of cl 14 has become inoperative must be rejected.  In any event, the contention is without merit.  Clause 27(a) of the contract provides that if any provision of the contract or its application to any party or person or circumstance becomes unenforceable then the remainder of the agreement or the application of the provision to other persons, parties or circumstances will not be affected.  Clause 14.4 has become unenforceable insofar as it refers to the role of the PMIC.  Insofar as the provision is otherwise applicable, it is not affected.  Steggles’ submission that cl 27(a) operates on whole provisions only overlooks the alternatives of “any provision” or “its application”.  The abolition of the PMIC engages the latter alternative.  Further, there is no reason to construe “any provision” as referring to the whole and not part of any provision.

77                                          The fact that the Standard Growing Fee is derived from the base rate which is set by the PMIC (see Appendix B to the contract) does not create the logical conundrum which appears to have prompted Steggles’ change in position from that identified in its defence.  The contracts were entered into from August 2004. The PMIC was abolished in October 2005.  Whatever the base rate set by the PMIC before its abolition was the base rate referred to in the first paragraph of Appendix B to the contract.  Adjustments thereafter were (and are) required to take place by reference to that base rate.  The adjustment was (and is) to take place on a sliding scale relative to batch rates over the previous six months as set out in Appendix B. 

78                                          Steggles next submitted that cl 14.4 requires a review of the base rate but nothing more.  It does not require the parties jointly to determine a base rate.  The Growers’ construction, submitted Steggles, is inconsistent with the language of the clause, would involve an unenforceable agreement to agree and would deprive the PMIC of any meaningful role.  The parties were free to put competing recommendations to the PMIC.  Steggles contended that given their different commercial interests this possibility of competing recommendations to the PMIC about the base rate was predictable and perhaps inevitable. 

79                                          Again, this submission by Steggles is inconsistent with Steggles’ defence.  As the Growers pointed out, Steggles defence (in all versions) admitted that the contract contained an express term (cl 14(4) and Appendix B) by which Steggles and the Growers would “jointly determine” an appropriate adjustment to the base rate.  Although the defence also contended that this term was later varied, the alleged variations relate to a supposed agreement by the Growers to enter into a standard national agreement when the contracts were due for renewal and a capacity to consider a range of factors in adjusting the Standard Growing Fee.  Steggles has not pressed these claims of alleged variation to the contract.  To the contrary, it is common ground that the dispute about contract renewal (which caused the application to be made as a fast track application) was resolved on the basis that Steggles was bound to renew the contracts in question.  I made a declaration about Steggles’ obligation and the Growers’ entitlement in this regard on 28 July 2009.  Further, Steggles has not pressed any contention that the contract was varied so as to enable a range of factors to be considered in the adjustment of the Standard Growing Fee.  Steggles’ case, instead, has been that the contract itself enables such factors to be considered. 

80                                          Having admitted that the contract, by cl 14(4) and Appendix B, imposed on it an obligation to jointly determine an appropriate adjustment to the base rate, and abandoned its claims of alleged variation of this obligation, it is not open to Steggles to make the contrary submission without leave to withdraw its admission (which it has not sought or obtained).  Steggles’ submissions to the effect that “on no view of cl 14 must there be an agreement between the parties” proceeds without any apparent regard to the terms of Steggles’ defence by which Steggles should be treated as bound.

81                                          If (contrary to my view) Steggles is free to submit that cl 14.4 does nothing more than require a joint review, then I nevertheless reject Steggles’ construction of the contract.  Clause 14.4 must be read in the context of the contract as a whole including Appendix B (which is referred to in the definition of Standard Growing Fee).  Read together the provisions (before the abolition of the PMIC) required the parties to adjust the base rate on a sliding scale relative to the batch rate over the previous six months as set out in the series of examples in Appendix B.  The parties were to perform this exercise every six months (later varied to yearly) through a joint review process.  They were then to put a recommendation to the PMIC regarding the Standard Growing Fee. 

82                                          This process is not inconsistent with the language of the clause.  Clause 14.4(a) cannot be construed in isolation from Appendix B which requires the parties to adjust the base rate in accordance with the provisions of that Appendix.  Steggles’ focus on the words “reviewed jointly” ignores the fact that the clause is about the Standard Growing Fee which cannot be understood without reference to Appendix B.  This process also does not involve an unenforceable agreement to agree.  First, Steggles made no claim to this effect in its defence.  If Steggles wanted to assert unenforceability, then it had to do so in its defence.  Instead, Steggles’ defence admitted the obligation to jointly determine the adjustment to the base rate.  Second, while it may be accepted that the adjustment to the base rate required negotiation and agreement that does not make cl 14.4 and Appendix B unenforceable as an agreement to agree.  Clause 2(d) binds the parties to act reasonably and in good faith in all matters relating to the interpretation and carrying out of the contract.  The contract also contains a dispute resolution mechanism (cl 22 and Appendix F). 

83                                          Further, and contrary to Steggles’ submissions, this process does not deprive the PMIC of a meaningful role.  While the PMIC was to determine the base rate, the contract required (and requires) the parties to adjust that rate as an outcome of the required joint review.  While the PMIC existed, the adjustment to the base rate jointly determined by Steggles and the HVTG had no effect unless approved by the PMIC.  This is consistent with the obligation in cl 14.4(a) for a recommendation to be put to the PMIC about the Standard Growing Fee after each joint review.  The recommendation was to reflect the adjusted base rate as jointly determined by the parties.  The PMIC’s role was to approve or reject that recommendation.  The fact that the parties provided a mechanism for the adjustment to be determined between themselves in advance of PMIC approval does not undermine the PMIC’s role.  It also does not involve an invalid attempt to contract out of Pt 4 of the Poultry Act as Steggles contended. 

84                                          This construction, moreover, is consistent with the language of cl 14.4(a) insofar as it refers to “a recommendation” and not, as follows from Steggles’ construction, to “competing” or “individual recommendations”.  It is also consistent with the statutory context.  Section 10(4)(a) of the Poultry Act required the PMIC, in determining a base rate, to have regard to “any suggested base rate agreed to by processors and growers”.  Clause 14.4 and Appendix B reflect the fact that, as contemplated by the statute, Steggles and the Growers had made their own arrangements to agree on regular reviews of and adjustments to the Standard Growing Fee derived from the base rate. 

85                                          Steggles referred to evidence that, after entry into the contracts, it made individual recommendations to the PMIC about the base rate because it had not agreed the adjustment to the base rate with the Growers.  This evidence is immaterial at least insofar as it relates to construction of the contract.  Subsequent conduct cannot be used as an aid to construction (Franklins v Metcash per Allsop P at [10]-[13], Giles JA at [58] and Campbell JA at [307]-[318], [330]-[332]). 

86                                          It follows that, as the Growers contended, subject to the fact that the parties agreed that the period of review was varied from six monthly to annually, cl 14.4 of and Appendix B to the contract requires Steggles to adjust the Standard Growing Fee having regard to the batch rate provided to the Growers over the previous six months in accordance with the Standard Growing Fee Formula.

VARIATION TO CONTRACT IN SEPTEMBER 2004 (ISSUE (4))

87                                          On 2 September 2004, Tim Ryan (then Steggles’ Hunter Region Livestock Manager), sent a letter to Robert Thompson (the principal of Yarrabee Chicken Company and a representative of the HVTG).  The letter said that it confirmed in writing previous agreements to review a section of the contract and was to be read in conjunction with the contract notwithstanding cl 35 (the entire agreement clause).  The letter relates to the table of fee adjustments.  This is the table in cl 4 of Appendix A to the contract which provides fee adjustment factors to operate to December 2006 and from January 2007.  The letter states:

…this [that is, the table] is to be jointly reviewed by the Grower Representative Group and by [Steggles] before there is any change to adjustment levels due in January 2007.

This review will take into account the then current range of Growers’ results and incomes and the effect that the scheduled changes in the adjustment levels will have.

88                                          The Growers contended that this letter operates to vary, or confirmed an earlier variation to, the contract (that is, to each and every contract between Steggles and a Grower).  By the variation the fee adjustment factors due to start in January 2007 could not start until the Grower Representative Group and Steggles had carried out a joint review.  Further, the joint review would take into account the matters nominated (the then current range of Growers’ results and incomes and the effect that the scheduled changes in the adjustment levels will have) and no other matters. 

89                                          Steggles contended that the letter did not vary the contract. Clause 25 requires all variations to be in writing.  The Growers have not executed the letter.  The promises contained in the letter are not supported by consideration.  The letter does not say that there will be no adjustment in January 2007, only that there would be a review before the adjustment took place.  The letter also does not say that the review would be undertaken having regard only to the nominated matters.

90                                          Construed objectively and in context, the letter of 2 September 2004 proves that the contracts were varied in accordance with the Growers’ contention.  By the contract Steggles accepted that each Grower was represented by the Growers Representative Group.  Mr Thompson has been an elected representative of the Growers Representative Group since the date of his contract in August 2004.  The letter confirms that, before 2 September 2004, Mr Ryan on behalf of Steggles and Mr Thompson on behalf of the Growers, agreed to something “notwithstanding” cl 35.  On the plain and ordinary meaning of the letter they agreed to vary the operation of the table of fee adjustment factors in Appendix A to the contract.  Consideration is to be inferred from the circumstances.  The table of fee adjustment factors involves performances both above and below the BPIF Performance Benchmark.  By the agreement both Steggles and the Growers relinquished the right to an automatic adjustment (up or down) in January 2007 in favour of a joint review.  Clause 25 is immaterial.  Parties can vary a contract by agreement including any requirement for variations to be in writing.  In this case the letter confirms the existence of an oral agreement to vary the contract which must involve a variation to the requirements of cl 25.  Clause 35 is also immaterial for the same reason.

91                                          The terms of the agreed variation are clear.  Clause 4 of Appendix A provides for calculation of the Growing Payment by reference to the relevant Fee Adjustment Factor as set out in the table.  The factors depend on performance.  Performance may exceed or not meet the benchmark.  If the Grower exceeds the benchmark, the Growing Payment is more.  If the Grower fails to meet the benchmark, the Growing Payment is less.  Both Steggles and the Growers stood to gain or lose from the application of the factors.  They agreed that the factors set to operate from January 2007 (which effectively doubled their respective risks of gain and loss) should not operate until the Growers Representative Group and Steggles conducted a review.  It follows that unless and until this review has occurred the fee adjustment factors in the table said to apply from January 2007 onwards do not apply.  Instead, the factors for the period up to December 2006 continue to apply.  The Growers’ contention to this effect is correct.

92                                          The next issue is the matters the review will take into account.  According to the letter, which records the agreement, the review is not to be at large.  It will take into account the matters specified.  Should this be construed as an agreement that the review is to take into account those and no other matters?  Steggles and the Growers Representative Group were free to agree that the review would take into account any matter they saw fit.  The agreement which they reached, as reflected in the terms of the letter, is that the review is to take into account the nominated matters.  Steggles has not identified any reason why that description should not be given its ordinary meaning other than the fact that the range of matters is not expressed to be exclusive.  In my view, it did not need to be so expressed.  There is a clear statement in the last paragraph that the review will take into account certain matters.  The parties agreed to undertake the review taking into account these nominated matters.  It follows that they agreed that the review would be on this nominated basis.  This obligation is meaningful only if other matters are not to be part of the review.  Otherwise the review would be at large and the common intention of the parties as identified in the last paragraph of the letter would not be fulfilled.

93                                          For these reasons I am satisfied that Steggles and the HVTG (on behalf of the Growers) varied the contract in or about September 2004 by agreeing:

(a)               to a joint review of the fee adjustment factors before the change to adjustment levels in January 2007 set out in Appendix A to the contract operated; and

(b)               that the criteria for the review would be confined to the then current range of the Growers’ results and incomes and the effect the scheduled changes in the adjustment levels will have.

AGREEMENT ABOUT FEE REVIEWS (ISSUE (5))

94                                          The Growers contended that in or about February 2005 Steggles and the Growers (through the HVTG, their representative) made an agreement to conduct annual fee reviews under the contract solely in accordance with a cost recovery template.  Steggles denied the existence of any such agreement. 

95                                          Mr Thompson (representing the Growers) and Mr Ryan (representing Steggles) met in February 2005.  According to Mr Thompson, Mr Ryan gave him a document during the meeting and said to him “here is a template that we will use to negotiate the fee reviews”.  Mr Thompson said “OK”.  Mr Ryan then said that the company wanted to conduct fee reviews annually rather than on a six monthly basis and Mr Thompson said “Yes, we agree with that”.  As I understand it this latter oral agreement is the source of the common ground between the parties that fee reviews are required to be conducted annually and not every six months (a fact inconsistent with Steggles’ position that the contract could be varied only in writing). 

96                                          Mr Ryan did not dispute the fact of the meeting or the terms of this conversation.  Taking into account the effect of his answers in cross-examination, which clarified and corrected certain parts of his affidavit, Mr Ryan said that before the meeting he had in his mind other factors which he took into consideration as part of the negotiations.  These other factors were not limited to the matters specified in the template. 

97                                          Mr Ryan’s evidence about the cost recovery template does not assist Steggles.  The existence of an agreement is to be determined objectively.  Mr Ryan’s evidence, properly understood, related to his own state of mind rather than any communication with the Growers or their representatives.  The same conclusion applies to the evidence from other witnesses on behalf of Steggles.  These witnesses either were not involved in the meeting, never directly involved in any negotiations or, if involved, had matters in their own minds which they considered relevant but which were never communicated to the Growers or their representatives. 

98                                          According to the Growers, the making of the agreement in February 2005 is supported by numerous factors.  Mr Ryan and Mr Thompson had both been involved in the development of a precursor fee adjustment template in 2004.  Mr Ryan prepared the template and provided it to Mr Thompson in the context of a meeting for the purpose of the first fee review under the contract.  In other words, the exchange, while brief, is not merely in passing.  It occurred against a history of discussions and in a significant context.  Moreover, according to the Growers, the existence of the agreement is supported by subsequent conduct.  There is a wealth of evidence that the only factors ever discussed thereafter at fee review meetings related to Growers’ costs and expenses as identified in the template.  There is no evidence of any discussion about other factors.  Mr Ryan also prepared a file note on his departure from Steggles in November 2007 for the benefit of his successor referring to the existence of this agreement (“fee negotiations are based on a cost recovery model agreed in early 2004…”, which is a reference to the precursor template).  

99                                          The Growers submitted that, contrary to Steggles’ submissions, cl 25 has no work to do – the agreement made in February 2005 is not a variation to the contract but a new agreement about fee reviews.  For the same reason cl 35 (the entire agreement provision) is immaterial.  Further, and again contrary to Steggles’ submissions, consideration for the agreement is clear.  By the agreement the Growers bound themselves to negotiate fee reviews by reference to their costs and expenses.  By so doing they agreed to abandon any claim for increased profit margins on the basis of the assurance that their increased costs and expenses would result in a proportionate increase in growing payments in accordance with the template. 

100                                       I accept the Growers’ submissions.  Steggles’ answers are not persuasive.  The fact that the fee was not agreed in 2005 is immaterial.  The February 2005 agreement relates to the method of adjustment only, not the result.  So too the fact that Steggles, apparently without the Growers’ knowledge, made an independent submission to the PMIC addressing all of the factors which the PMIC was bound to consider does not undermine the existence of the February 2005 agreement.  Steggles’ submissions in reliance on the provisions of the Poultry Act elide the functions of the PMIC with the capacity of a processor and growers to reach their own agreements about matters to be put to the PMIC (a capacity specifically recognised by s 10(4)(a) of the Poultry Act). 

101                                       As discussed, it is true that the PMIC had the function of determining the base rate.  Further, that in determining that rate the PMIC had to consider a range of factors and not merely growing costs.  Moreover, the parties could not contract out of Pt 4 of the Poultry Act and thus could not agree to exclude or limit the role of the PMIC.  Consistent with the conclusions above, nothing in this part of the Growers’ case is inconsistent with the statutory context.  As noted, cl 14.4 and Appendix B required Steggles to jointly review the Standard Growing Fee to determine a recommendation to the PMIC about that fee.  Section 10(4)(a) of the Poultry Act recognised that a processor and grower might agree a base rate and suggest it to the PMIC.  If so, the PMIC was bound to take into account that suggestion (and, consistent with administrative law principle, to give that weight in its decision-making).  Nothing in Pt 4 of the Poultry Act purported to prevent a processor and grower determining a method for agreeing a base rate for suggestion to the PMIC having regard to a more limited range of factors than those to which the PMIC itself was to have regard in determining that rate.  By doing so the processor and the growers were not purporting to contract out of Pt 4. 

102                                       For these reasons the Growers’ contentions are not inconsistent with Pt 4 of the Poultry Act.  It also follows that Steggles’ submission that the Growers’ case is inconsistent with the PMIC’s functions is unpersuasive. 

103                                       The exchange between Mr Ryan and Mr Thompson is short and, on one view, might be described as casual.  The contract is not referred to in that exchange.  But these submissions on Steggles’ part overlook the fact that the words of the exchange took place in a particular context.  Clause 14.4 and Appendix B required the parties to determine the adjustment to the base rate for the purpose of putting a recommendation on the Standard Growing Fee to the PMIC.  Before the meeting Mr Ryan and Mr Thompson had been working on a template by which to conduct the negotiations about the fee reviews required by cl 14.4 and Appendix B.  The meeting in February 2005 was between Mr Thompson as the Growers’ representative and Mr Ryan as Steggles’ representative.  The purpose of the meeting was to conduct the fee review required by the contract.  The parties had to determine the adjustment to the base rate in order to formulate the recommendation to the PMIC.  The parties knew that the contract did not specify how that adjustment was to be made.  There had been a history of discussions about the way in which this should be done.  The context of the entire meeting was the contract and its operation in respect of fee reviews.  It was not a casual or informal context.  It was a serious context about the very issue of the method of adjustment. 

104                                       In this context Mr Ryan put to Mr Thompson and Mr Thompson accepted a proposal to use a particular template to conduct the fee reviews.  The proposal was not to use the template for that fee review alone.  It was for all fee reviews under the contract.  In the same meeting Mr Ryan sought Mr Thompson’s agreement to vary the time for the fee reviews from six monthly to annual.  Mr Thompson also agreed to that proposal (a variation of a matter in the contract).

105                                       When the evidence is assessed in this context it indicates an objective intention to be bound in respect of the conduct of the fee reviews, specifically an agreement to adjust the base rate as referred to in the definition of Standard Growing Fee by reference to the template which Mr Ryan provided to Mr Thompson.  The template specifies a limited class of factors to be taken into account in determining the adjustment.  This limited class, as the Growers’ submitted, involved a mutual yielding up of the right to rely on other factors.  By the template the Growers ensured that they were compensated for increased growing costs.  Steggles ensured that the Growers could not try to increase profit margins at its expense.  The agreement was thus supported by consideration.  The agreement reached did not vary the contract.  The contract does not specify how the adjustment to the base rate, required by cl 14.4 and Appendix B to enable the recommendation to be put to the PMIC, is to be made.  The agreement in February 2005 is a new and separate (albeit related) agreement about this matter.  Clause 25 is not engaged.  Nor is cl 35.  The February 2005 agreement operates according to its terms.  In conducting the fee reviews required by cl 14.4 and Appendix B, the template is to be used.  The use to which it is to be put is obvious in the context of the fee review process - to adjust the base rate as required on the (agreed) annual basis.

106                                       Contrary to Steggles’ submissions, the use of the template leaves room for negotiation.  The template identifies items relevant to the adjustment.  Negotiation about the amount of each item is required, as the course of fee reviews after February 2005 discloses.  The agreement also does not run counter to the commercial context or dealings between the parties until that point.  It is consistent with the contract and the commercial context.  The market for poultry meat was expanding.  At all times until late 2009 (and the present dispute) the trend had been increased batch rates.  Steggles preferred tunnel ventilation because it increased the efficiency of its Beresfield processing plant.  It allowed more chicks to be raised in the region, more to survive and thus more to be processed at the plant.  In this commercial context it is not improbable that Steggles would wish to tie the Growers down to their existing profit margin by agreeing to negotiate the adjustment to the base rate on the basis of a template relating to Growers’ costs.  Equally it is not improbable that the Growers, who had sunk the capital costs into the tunnel ventilated sheds and had fixed classes of costs, would wish to tie Steggles down to an agreement by which increased growing costs would be recognised by a proportional increase in the growing fee.  For the Growers, profit margins could thereby be maintained but increased only through greater efficiencies.  The deal the template represents makes commercial sense and is not commercially improbable.  It is consistent with the inferred common intention of the parties to be bound by the agreement.

107                                       There is no inconsistency in the Growers’ case on cl 14.4 and Appendix B and the cost recovery template.  To the contrary, the Growers’ case is internally coherent.  Clause 14.4 and Appendix B require the fee review to be conducted.  They require the Standard Growing Fee to be calculated by reference to batch rates in the previous six months.  Steggles is not at liberty to ignore its obligations under cl 14.4 and Appendix B merely because the PMIC has been abolished (see above).  The Standard Growing Fee is also to be calculated having regard to the base rate as adjusted by agreement between the parties.  As noted, this does not undermine the role of the PMIC.  The PMIC was bound to take into account any agreement the processor and growers reached.  Clause 14.4 and Appendix B provide a framework for agreement to be reached and for a recommendation to be put to the PMIC (when it existed).  The abolition of the PMIC means only that an agreement by Steggles and the HVTG as to the base rate is operative without any action by the PMIC.  This is the effect of cl 27(a) of the contract applied to cl 14 and Appendix B.  The agreement made in February 2005 identifies the method by which the adjustment of the base rate would be determined by the parties.  It would be determined on the basis of the items in the cost recovery template, with the cost of each relevant item being subject to negotiation.  The parties could claim (in the case of the Growers Representative Group) or challenge (in the case of Steggles) the costs in the classes identified in the template as they saw fit.  This is consistent with the contract. 

108                                       Subsequent conduct need not be considered to find in the Growers’ favour on this issue.  Nevertheless, the evidence of subsequent conduct also supports the Growers’ case of a further agreement having been made in February 2005 in respect of the use of the template.  All fee reviews involved negotiations about costs on the basis of the template.  No matters other than those in the template were negotiated as part of a fee review.  Comments about the market and Steggles’ subsequent freeze of its managers’ fees (during the course of the takeover of Steggles by Baiada) were made in response to the Growers’ claims for increased costs based on the template.  Steggles, moreover, took advantage of the template to claim a reduction in costs (for example, the negotiations relating to the reduction in gas prices that occurred). 

109                                       The fact that the contracts entered into after February 2005 contained cl 14.4 and Appendix B in the same terms as the standard contract is also beside the point.  Steggles agreed with the Growers Representative Group in February 2005 that the fee reviews would be conducted annually with the base rate to be adjusted in accordance with the cost recovery template. 

AGREEMENT ABOUT DISCOUNT AND BACK PAY (ISSUE (6))

110                                       The Growers contended that during the February 2005 meeting Steggles and the Growers Representative Group made another agreement.  They agreed that Steggles could obtain an upfront discount on the Standard Growing Fee for promised batch rates in excess of six per year provided Steggles adjusted the Standard Growing Fee at the end of the year based on actual delivered batch rates and paid back the difference to Growers.

111                                       According to Mr Thompson, during the February 2005 meeting, Mr Ryan said that Steggles had exceeded six batches per annum for 2004 and wished to claim a discount as set out in the “batch rate discount mechanism in the contract”.  This is a reference to the fact that Appendix B requires the Standard Growing Fee to be calculated by reference to the batch rates over the previous six months expressed as an annual figure.  Mr Thompson and Mr Ryan then calculated the discount as 0.9 cents per bird (or CPB) for the period July to December 2004.  Mr Ryan then said that because Steggles could “deliver the batch rates promised to you, would you agree to us claiming the batch rate discount up front to apply to the agreed fee for the 2005 calendar year?”.  Mr Thompson said the fee for 2005 had to be agreed first.  After handing to Mr Ryan the cost recovery template with Mr Thompson’s calculations on it, Mr Thompson said that if the fee was agreed then they (that is, the Growers) agreed to the upfront discount as long as they received the promised batch rates.  If the promised batch rates did not get delivered then the fee would have to be reviewed and adjusted on the actual batch rates delivered.  Further, the following fee review would be based on the pre-discounted figure, to which Mr Ryan agreed. 

112                                       Contrary to Steggles’ submission, Mr Ryan does not dispute that these conversations occurred.  Steggles also submitted that the conversations could not evidence a contract due to informality, the lack of any intention to be bound, the requirements of cl 25 of the contract and “contract law generally”.  Further, that the conversations do not support an agreement in the terms claimed. 

113                                       I do not accept Steggles’ submissions.  As discussed, the context of the discussions was the first meeting about the fee review required by the contract.  It was a meeting between two authorised representatives.  The context was serious.  Steggles asked for something to which it was not entitled under the contract – an upfront discount assuming that it would meet or exceed a promised batch rate of six batches per year.  Mr Thompson, as the Growers’ Representative, agreed to Steggles claiming that discount but on a specific basis.  If the batch rates fell below six, the fee would be “reviewed and adjusted”.  In context this can mean only that Steggles would pay back the discount to which it had no entitlement under Appendix B.  Further, the next fee review had to be conducted on the pre-discounted and not the discounted rates.  Consistent with my conclusions about the February 2005 meeting above, I consider that the communications evidence an intention to be bound.  They evidence a new agreement.  Clause 25 has no operation on that new agreement.  Nor does cl 35.  The terms of the conversations, construed in context and against the contract as it existed and the knowledge shared by the parties, supports the terms of agreement as the Growers alleged. 

114                                       Mr Ryan’s subsequent file note of 5 November 2007 (prepared for the information of his successor) also supports the existence of this agreement.  According to Mr Ryan’s note Steggles claimed upfront discounts based on promised batch rates exceeding six per year calculated in accordance with Appendix B to the contract.  Moreover, when the actual batch rates for 2007 and 2008 fell below the then promised batch rate of 6.4 batches per year Steggles provided the Growers with an increased stock density of 20.5 birds per square metre instead of the usual 19.5 birds per square metre.  This avoided the need for any back payment by Steggles to the Growers.  This subsequent conduct thus also supports the existence of the agreement reached about upfront discounts reached in February 2005 as claimed by the Growers. 

TERM ABOUT ADJUSTING BASE RATE AND ADMISSIONS (issue (7))

115                                       This issue involves the equivalent of a pleading point.  Given my conclusion about issue (5) above it is not clear that resolution of this point will add anything to the practical or legal position of the parties.  Nevertheless, it must be resolved.  As noted, the fact that the parties’ contentions are to be found in documents styled as a fast track statement and defence does not undermine the considerations of fairness which inform the general principle that a proceeding is to be resolved on the basis of the case as notified. 

116                                       In paragraph 20(j) of their fast track statement the Growers contended that the contract contained an implied term that the base rate adjustment would be calculated having regard to any increased growing cost incurred by the Growers since the last review (that is, the last fee review).  This claim was particularised as a term implied by reason of custom and usage (amongst other things).  In all versions of its defence Steggles responded to this paragraph by admitting that the contract contained an express term to this effect which was later varied by agreement.  The Growers also claimed in paragraphs 22 and 23 of their fast track statement that, after the amendments to the Poultry Act, this term (along with other terms) ceased to operate insofar as it referred to the PMIC but otherwise continued to operate.  Steggles admitted paragraphs 22 and 23 of the Growers’ fast track statement in its defence filed on 21 September 2009.  However, in its defence filed on 11 December 2009 (responding to the Growers’ further amended fast track statement filed on 1 December 2009 which made no amendments to paragraphs 20(j), 22 or 23 except to replace the reference “growing costs” for the reference “operational expenses”) Steggles continued to assert that the contract contained an express term as set out in paragraph 20(j) which was later varied but denied paragraphs 22 and 23. 

117                                       The Growers’ solicitors wrote to Steggles’ solicitors on 18 December 2009.  They noted that no material change had been made to paragraphs 22 or 23.  Further, that Steggles admitted those paragraphs in all earlier versions of its defence (filed 10 July and 21 September 2009).  According to the letter the withdrawal of the admissions to paragraphs 22 and 23 required leave.  The Growers’ solicitors said they would oppose the grant of leave.  On 22 January 2010 Steggles’ solicitors responded.  They said they had been instructed to prepare an amended defence admitting paragraphs 22 and 23 and would do so by 29 January 2010.  Steggles, however, did not do so.  Instead, Steggles prepared its written submissions on an apparent assumption that leave to withdraw was not required. 

118                                       During the hearing the Growers maintained their position that leave to withdraw the admission was required which the Growers opposed.  Steggles’ position was that leave was not required as O 13 r 4(1)(a) of the Federal Court Rules provides that where an applicant amends a statement of claim a respondent may amend the defence.  The Growers amended their claim, and thus Steggles could amend its defence.  According to Steggles this right to amend has no limit.  Steggles was free to amend any part of its defence whether or not the Growers had amended the corresponding part of their claim at all or in any material way. 

119                                       Steggles also sought leave to withdraw the admissions if, contrary to its principal case, leave was required to do so.  It relied on an affidavit of Stephen Gorry, solicitor, in support of the application for leave.  According to Mr Gorry Steggles’ original solicitors obtained instructions to make the admissions in paragraphs 20(j), 22 and 23 but did so in the context of a “narrow court timetable and the pending sale… to Baiada Poultry Pty Limited”.  Further, that in early December 2009, after receipt of the further amended fast track statement, Mr Elliott of counsel prepared a draft amended defence denying paragraphs 20(j), 22 and 23.  When this document was reformatted the denial of paragraph 20(j) was omitted by accident.  The document filed on 11 December 2009 reflects this accidental omission.  After receipt of the letter from the Growers’ solicitors, Steggles’ solicitors conferred with senior counsel, Mr Sheldon SC.  Mr Sheldon SC believed the defence contained an error in denying paragraphs 22 and 23.  The letter from Steggles’ solicitor was sent on that basis and not on instructions from Steggles.  Later, on 29 January 2010, the solicitors spoke to Mr Elliott who said the denials were intended.  The proceedings were listed for directions on 29 January 2010.  Before the direction hearing counsel for the Growers asked whether Steggles intended to amend the defence by including the previous admissions to paragraphs 22 and 23.  Mr Elliot advised Steggles would not be so doing.  The Growers did not thereafter apply to strike out paragraphs 22 and 23 of the defence as filed on 11 December 2009. 

120                                       According to Steggles, if leave to withdraw the admissions is required, it should be granted.  The response to paragraph 20(j) is meaningless.  To an alleged implied term Steggles admitted an express term to the same effect.  Yet there is no express term to that effect.  The Growers never sought clarification about the express term to which reference was being made.  Moreover, the Growers’ case as presented at the hearing is that the implied term requires Steggles and the Growers to have regard to increased growing costs only but the word “only” does not appear in paragraph 20(j).  Steggles’ other responses in its defence, particularly paragraph 9, disclose that the range of considerations relevant to the adjustment of the base rate was always in issue. 

121                                       According to the Growers, leave to withdraw the admissions should not be granted.  The explanation for the change in position is inadequate.  The Growers pleaded an implied term based on (amongst other things) custom and usage.  Steggles admitted that the contract contained and, after the abolition of the PMIC, continued to contain a term as pleaded (albeit express).  The Growers relied on that admission.  Steggles also knew that the allegation was that the base rate could be adjusted only in accordance with increased growing costs. This is obvious from Steggles’ case that the term existed but had been varied to enable matters other than costs to be taken into account.  Steggles filed no evidence in support of the alleged variation (and, as noted, did not press this part of its defence during the hearing).  Even when it denied paragraphs 22 and 23 for the first time on 11 December 2009 Steggles continued to assert the existence of the express term.  Steggles first changed its position about paragraph 20(j) when it served its submissions on 3 March 2010.  In these submissions Steggles denied the implied term and attacked the Growers for not having evidence to support the implied term based on custom and usage.  But for Steggles’ assertion that the contract contained a term (albeit express) to the same effect as the implied term the Growers could and would have called evidence supporting the implication of the term based on custom and usage as pleaded.  They did not do so because of the terms of Steggles’ defence.  An order permitting the Growers to re-open their case to adduce evidence as to custom and usage will not ameliorate the prejudice in terms of delay, cost and stress, particularly having regard to the fact that the Growers are still being paid at 2008 rates due to this dispute.  This prejudice will have been caused by Steggles’ conduct.

122                                       I accept the Growers’ submissions.  First, I do not construe O 13 r 4(a) of the Federal Court Rules in the way which Steggles submitted.  The rule should be construed as permitting a defence to be amended in a manner that is responsive to an amendment in a claim.  The change of position that Steggles made in the defence filed on 11 December 2009 was not responsive to any amendment made in the further amended fast track statement.  Further, it is apparent that Steggles must have understood that, by paragraph 20(j), the Growers’ case was that the base rate was to be adjusted having regard only to increased growing costs.  Steggles’ alleged subsequent variation to enable other maters to be taken into account (not pressed at the hearing) makes sense only on that basis.  Nor can any blame be sheeted home to the Growers for not asking Steggles to explain why its response to paragraph 20(j) asserted the existence of an express term of the contract containing the same substantive obligations as the alleged implied term.  It was not for the Growers to ask what Steggles meant.  Steggles contended in its defence that the contract contained a term to the same effect as that for which the Growers contended.  Until 11 December 2009 Steggles also admitted the related claims in paragraphs 22 and 23.  Steggles’ defence thus made redundant any evidence from the Growers to support the pleaded implied term based on custom and usage. 

123                                       When Steggles first denied paragraphs 22 and 23 on 11 December 2009 it still did not deny paragraph 20(j).  Steggles’ contention that the contract contained a term as the Growers alleged remained.  The Growers were not to know that some reformatting error had occurred as between Steggles’ counsel and solicitors.  Similarly, the Growers were not to know that when Steggles’ solicitors said they were instructed to prepare an amended defence admitting paragraphs 22 and 23 as previously admitted that instructions to that effect from Steggles had not been obtained.  It must follow that at all times (until 3 March 2010 when Steggles served its written submissions) the Growers proceeded on the basis that the contract contained a term to the effect alleged so that evidence supporting the implication of such a term by reason of custom and usage was not required. 

124                                       Given the terms of the letter from Steggles’ solicitors of 18 December 2009 the Growers did not have an obligation to apply to strike out the offending paragraphs of the defence.  The Growers were entitled to rely on the defence.  Steggles, not the Growers, had changed its position.  Moreover, nothing in the explanation given by Mr Gorry gives any basis for inferring that the original instructions on which Steggles’ defence was prepared are incorrect.  The fact that the Growers called no evidence about custom and usage to support the implied term is explicable by reference only to their reliance on Steggles’ case as set out in the defence.  As the Growers submitted, nothing can now be done to remove or ameliorate the real prejudice they would suffer if Steggles is permitted to change its position by withdrawing the admissions as pleaded in respect of paragraphs 20(j), 22 and 23.  Leave to re-open does not cure their prejudice. 

125                                       In my view Steggles is bound by the responses in the defence filed on 21 September 2009 to paragraphs 20(j), 22 and 23 of the Growers’ claim.  It follows that Steggles is not free to deny that the contract contains a term to the effect alleged by the Growers. 

PROMISSORY ESTOPPELS (ISSUE 8)

Principles

126                                       The promissory or equitable estoppel claims are brought by two of the Growers, Ms Peen and the MJ Wood Family Trust.  In essence, these Growers assert that Steggles promised to them the delivery of six batches of chicks per year at a standard stocking density of 19.5 chicks per square metre and, in the particular factual circumstances in which the promises were made and acted upon thereafter, is bound to satisfy that promise.

127                                       Brennan J identified the elements of equitable estoppel in Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 at 428-429 as follows:

In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.

128                                       In Franklins v Metcash at [558] Campbell JA explained the first requirement, insofar as it relates to an expected future legal relationship, as involving an expectation “that, at the time of the events alleged to give rise to the estoppel, the plaintiff expected that a particular legal relationship would in future exist with the defendant and, at that time, the plaintiff also expected that the defendant would not be free to withdraw from the expected legal relationship”. 

129                                       E K Nominees Pty Ltd v Woolworths Ltd [2006] NSWSC 1172 also discusses the development of principle relating to these requirements at [219]-[278].  After analysing the relevant authorities White J observed at [259] that:

…it is not the law that parties cannot find relief on the principles of equitable estoppel merely because they have not entered into contractual relationships. The fact that a party might rely upon a non-contractual representation or promise to his detriment is the very reason for the doctrine of equitable estoppel. The doctrine affords relief against people acting to their detriment on unenforceable promises, if all of the circumstances make it unconscionable for the estopped party to resile from the assumption which he or she has induced the other to make. The fact that the parties have not entered a contractual relationship provides the occasion for considering the doctrine of estoppel. It is not the end of the inquiry.

130                                       At [261]-[263] White J said:

[261] In other words, the recognition by one party that the other party is not legally bound by a contract, or is not legally bound to enter into a contract, (if there is a difference), cannot in all circumstances mean that it is not unconscionable for the opposite party to withdraw if it has induced the first party to act to its detriment in the belief that a contract will eventuate. Whether the first party is relying on the other’s contractual intentions, whether it is doing so reasonably, and whether it has accepted the risk of the allegedly estopped party not proceeding in any circumstance, are questions of fact depending upon particular circumstances.

[262] This is only to apply to this context what was said by Deane J in The Commonwealth v Verwayen (at 445) that:

Ultimately, however, the question whether departure from the assumption would be unconscionable must be resolved not by reference to some preconceived formula framed to serve as a universal yardstick but by reference to all the circumstances of the case, including the reasonableness of the conduct of the other party in acting upon the assumption and the nature and extent of the detriment which he would sustain by acting upon the assumption if departure from the assumed state of affairs were permitted.

[263] This statement was referred to with approval by Gleeson CJ, McHugh, Gummow and Callinan JJ in Giumelli v Giumelli at 123.

131                                       At [554] in Franklins v Metcash Campbell JA (with whom Allsop P and Giles JA agreed at [32]-[33] and [42] respectively) also dealt with the alleged effect of an entire agreement clause in a contract on the asserted equitable estoppel.  His Honour said:

I would accept that an entire agreement clause, even one that, like cl 14.2, specifically denies efficacy to all previous negotiations and representations, could not overcome an equitable estoppel, once established. An “entire agreement clause” might create a factual difficulty in the way of proof of the elements of equitable estoppel, most obviously, proof of inducement or reliance, and I would not want to rule out the possibility that it might be relevant to any precise remedy granted (though I cannot at present think of an example of when that might occur). However, it does not create an insuperable obstacle of principle. Consistently with the equitable principle that it will not allow a contract to be an instrument of fraud, equity would not permit an entire agreement clause to stultify the operation of its doctrines.

132                                       Steggles’ reliance on cl 35 of the contract (the entire agreement clause) to defeat the equitable estoppel claims did not acknowledge this principle.

133                                       Steggles also submitted that if an equitable estoppel is established, the proper remedy could never be to hold Steggles to the alleged expectation.  According to this submission, the estoppel can operate defensively only, to prevent Steggles from relying on its strict contractual rights (that is, its right to assert that the contract does not require Steggles to supply chicks at any particular batch rate or stock density).  On this approach, if Steggles cannot rely on the contract, the remedy is not requiring the delivery of chicks at the alleged promised batch rate and stock density but damages (citing Air Tahiti Nui Pty Ltd v McKenzie [2009] NSWCA 429 in support). 

134                                       The basis of Steggles’ submissions about damages as a potential remedy remained obscure.  Steggles did not refer to equitable compensation (for example, Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10; see also the discussion in E K Nominees Pty Ltd v Woolworths at [211]-[218]).  Steggles’ submissions appeared to depend on the principles relevant to common law estoppel by representation rather than equitable estoppel.  For example, Air Tahiti Nui involves a common law estoppel by representation.  Similarly the extract from Ashburner’s Principles of Equity (2^nd ed, Butterworths) at 447 on which Steggles relied relates to common law estoppel which is routinely described as defensive. 

135                                       As the Growers submitted, at least since Waltons Stores v Maher the position in respect of equitable estoppel is different.  Importantly, equitable estoppel is “enforceable as a cause of action in its own right, and not merely by way of some cause of action arising from the assumed state of affairs” (Halsbury’s Vol 12, 190 Estoppel, “Equitable Estoppel” at [320] citing Waltons v Maher at 416 and Commonwealth v Verwayen (1990) 170 CLR 394 at 430).  An appropriate remedy in the case of an equitable estoppel may include an order requiring a party to fulfil the promise, particularly if it appears that this is the only way in which the detriment may be avoided and if there is no basis upon which it might be inferred that it is impossible or inequitable for that party to do so (see Halsbury’s Vol 12, 190 Estoppel, “Equitable Estoppel” at [350]). 

136                                       For these reasons, I do not accept Steggles’ approach to the legal character of the claimed equitable estoppels or its analysis of the appropriate remedies if the claimed estoppels are established. 

Ms Peen

137                                       Ms Peen owns the Paterson Farm in the Hunter Valley region.  She has been involved in the chicken farming industry since 1987.  From the time she bought the Paterson Farm in 2001 Ms Peen had the long-term goal of converting the two existing sheds on that property to tunnel ventilation and constructing another two tunnel ventilated sheds.  To do so, however, she needed the security of a long-term supply commitment from Steggles.  Ms Peen received a letter from Steggles on 20 March 2001 advising that Steggles would commit to offering her a new contract on expiry of the existing contract (due in mid 2004) on the basis of conversion of the two existing sheds to tunnel ventilation.  As to her two proposed new sheds, Steggles advised that its prior consent to that additional floor space would be required but Ms Peen’s desire was “consistent with our longer term desire to increase average farm size”. 

138                                       Ms Peen obtained a loan from her bank of $135,000 to convert the two existing sheds to tunnel ventilation.  Acting on her bank’s advice, Ms Peen sought and obtained a letter from Steggles dated 14 May 2003 which advised that, although the contract then in existence was due for renewal, Ms Peen’s farm was part of Steggles’ “future capacity planning”, and that Steggles proposed a new contract of five years duration with an option for renewal for another five years.  At the time of this letter Ms Peen had converted one shed to tunnel ventilation (as referred to in the letter, that conversion fully met Steggles’ requirements).  The letter said that Ms Peen’s second converted shed would “not be required until the first half of 2004…”.  Ms Peen thereafter converted the second shed to tunnel ventilation in early 2004.

139                                       Also in 2004, after she had grown her first batch of chickens for Steggles, Ashley Etherington (then Steggles’ livestock manager) told Ms Peen that Steggles wanted her to build the two additional sheds straight away and that Steggles could guarantee chicks for those sheds as well.  Ms Peen responded that she had to renovate her house first but would then build the new sheds.  On 8 April 2004 Ms Peen received a letter from Steggles seeking submission of an expression of interest for the expansion of her farm.  The letter said “at this stage we are looking for expressions of interest only – this is not a commitment to allow your farm to expand”.  This letter needs to be understood against the background discussed above in which Steggles wanted growers to convert to tunnel ventilation from at least 2000 but had some difficulty in persuading sufficient growers to do so to meet Steggles’ processing capacity. 

140                                       Ms Peen responded in writing on 15 April 2004.  She noted that the conversion of the existing second shed would be completed soon and that she hoped to build two additional sheds over the next few years as they had moved to the farm with the intention of growing chickens for Steggles and building the four tunnel ventilated sheds.  

141                                       Ms Peen’s contract was renewed in or about August 2004 on the standard terms as set out above.  At this time Ms Peen’s farm consisted of the two tunnel ventilated sheds.

142                                       On 24 February 2005 Ms Peen received another letter from Steggles about her expansion plans.  The letter attached the required standards for shed construction.  The letter said that it was not “an approval for expansion” as Steggles “may not require all the new shedding that people offer”.  The letter sought a program from Ms Peen to which Steggles would respond in writing.  Ms Peen responded on 3 March 2005.  Ms Peen said that she intended to obtain quotes and to submit all costings to the bank for a separate loan for proposed shed 3.  Once shed 3 was complete she would apply for a loan for shed 4.  She would use the income from these sheds to pay off the loan as soon as possible.  As to Steggles’ position that there was no approval for expansion, Ms Peen noted that Mr Etherington and the author of the letter of 3 March 2005 (Mr Ryan) had “always told us that our other two sheds were incorporated in [Steggles’] long term planning”. 

143                                       In early August 2005 Ms Peen called Mr Ryan.  She said that she had spoken to her bank (about the loan for shed 3).  The bank asked for a letter from Steggles that Steggles “will put chickens in shed 3”.  Ms Peen requested a letter to that effect for the bank.  Mr Ryan agreed to do so. 

144                                       Before describing the contents of the letter Mr Ryan sent it is relevant to note that batch rates had been increasing since late 2003.  At the time of Ms Peen’s loan for conversion of the two existing sheds Steggles was supplying growers with 5.4 batches per year.  By the first half of 2004 the batch rate had increased to 6.1 batches per year.  It increased again to 6.36 batches per year for the second half of 2004.  Steggles predicted to the PMIC another increase in the first half of 2005 to 6.45 batches per year (with an average growing period of 47 days and stocking density of 19.5 birds per square metre). 

145                                       Mr Ryan wrote to Ms Peen on 12 August 2005 as requested. Mr Ryan’s letter said that he confirmed previous discussions that Steggles had accepted Ms Peen’s offer to build a third shed of 16,000 square feet on her farm.  Further that:

This capacity will be added to your existing growing contract and the new shed will be stocked at the normal rate.

For our planning purposes I would like a definite timetable of construction and commissioning as soon as it is available.

146                                       Ms Peen read this letter and understood that “the normal rate” meant the same rate that Steggles had always stocked her first two sheds after they had been converted to tunnel ventilation, being 19.5 birds per square metre and six batches per year.  This understanding was reasonable.  It accorded with the facts then in existence.  I infer that by “normal rate” Mr Ryan intended Ms Peen to understand that Steggles was promising her that, consistent with its practice for the existing sheds, Steggles would supply the two new sheds with birds at 19.5 birds per square metre and six batches per year.  Moreover, it is clear that Steggles was making this promise knowing that Ms Peen intended to rely on it for the purpose of obtaining a loan from her bank to enable her to construct two new tunnel ventilated sheds on her farm. 

147                                       In June 2006 Ms Peen provided information to the bank in support of her loan with her projected income from shed 3.  Unsurprisingly, given the terms of Steggles’ correspondence, Ms Peen’s income projections are based on six batches per year at a stocking density of 19.5 birds per square metre.  In fact, the projections range from a low of six batches per year to a high of 6.5 batches per year.  The projections show that Ms Peen’s capacity to repay the loan depended on these assumptions as to batch rates and stock density.  Ms Peen’s information as submitted to the bank also invited the bank to speak to Mr Ryan if it wished to do so. 

148                                       On 7 July 2006 Mr Ryan sent another letter to Ms Peen, I infer at her request in response to the bank’s requirements.  This letter said:

This is to confirm our phone conversation about your proposed third shed.

[Steggles] will place birds at a standard 19.5 per square metre running at six complete batches per year.

A contract for the new shed will be forwarded to you.  Should you or your bank require any further information, please contact me.

149                                       In the interim the fourth shed also came onto the agenda, apparently at the bank’s suggestion for a consolidated loan.  Mr Ryan sent Ms Peen another letter she had requested on 11 August 2006 as follows:

This is to confirm our phone conversation about your proposed third and fourth shed.

[Steggles] will place birds at a standard 19.5 per square metre running at six complete batches per year.

A contract for the new sheds will be forwarded to you.  The commencement date of the contract covering these sheds is 1 July 2006.  Should you or your bank require any further information, please contact me.

150                                       The bank lent Ms Peen $380,000 and $470,000 for the third and fourth sheds respectively (noting that the cost of constructing the new sheds far exceeded the conversion of the existing sheds).  Ms Peen accepted the loans and decided to construct the new sheds.  

151                                       According to Ms Peen although she always planned to build four tunnel ventilated sheds on the farm her plan was subject to having in place a long term contract with Steggles which incorporated those sheds and thus guaranteed enough income to justify the additional investment.  Further, she decided to build the new sheds on the understanding that Steggles had promised her a contract to 30 June 2009 with a five year renewal option and that, during the term of those contracts, she would be provided with six batches of chickens per year at a stocking density of approximately 19.5 birds per square metre for each shed Steggles had approved.  However, since Baiada had taken over Steggles (in the latter half of 2009) the batch rate had decreased as the breaks in between batches had increased to five and then seven weeks.  This “played bedlam” with her income and she had to borrow again to tide her over. 

152                                       In cross-examination Ms Peen accepted that the batch rate had increased after 2004.  She accepted that if a catastrophe hit the chicken industry she would expect the batch rate to go down.  However, once the batch rate had increased to six and above Ms Peen did not accept that she expected the batch right might fall below six due to factors other than catastrophe.  According to Ms Peen Steggles “couldn’t get enough chickens”.  Ms Peen accepted that it was her plan, indeed her dream, to have four tunnel ventilated sheds on the farm.  This also was her plan and dream when the batch rate was 5.4 batches per year.  However, Ms Peen said, on that batch rate, she could not afford to fulfil her dream and have four sheds.  For four sheds, she required a batch rate of six per year.  Ms Peen acknowledged that when she converted the two existing sheds she had no assurances from Steggles as to batch rates.  Ms Peen also accepted that, had she not had to renovate the house instead, she would have been happy to proceed with the third and fourth sheds in early 2004.  As to the contract, Ms Peen said she did not really read it as she relied on the Growers’ representatives to make sure the contract was right.  She knew it was for a term of five years with a five year option and that changes to the contract had to be in writing but otherwise trusted the Growers’ representatives. 

153                                       In re-examination Ms Peen confirmed that she had to borrow money in order to construct the third and fourth sheds.  She was never in a position to construct those sheds without borrowing.  She would not have been happy to borrow money that she could not repay as she would not then “have been able to sleep”. 

154                                       Steggles submitted that Ms Peen’s evidence showed that she had not relied on any representation by it.  Ms Peen did not ask for confirmation about the batch rates at any time.  She asked only about the supply of chickens.  According to Steggles, from 2001 Ms Peen intended to build four sheds, even when the batch rate was 5.4 batches per year.  Ms Peen would have gone ahead on that batch rate in 2001 if she had the money or if Steggles had approved her expansion plans at that time or in 2003 if she did not need to first renovate the house.  Ms Peen also knew that the contract had to be varied in writing.  Steggles submitted further that Ms Peen had not shown any net detriment.  Ms Peen had borrowed money but had also grown a large number of chickens and been paid for them.  Moreover, the Standard Growing Fee formula provides for an increased base rate if batch rates fall. 

155                                       I do not accept Steggles’ submissions.  The facts relating to Ms Peen satisfy each of the elements required for an equitable estoppel to arise.  In summary, the subject of the estoppel is Ms Peen’s expectation arising from Steggles’ promise that Steggles would supply chicks to her farm for the duration of the contract at a stocking density of 19.5 birds per square metre and a batch rate of six batches per year.  Ms Peen borrowed money and constructed two new tunnel ventilated sheds in reliance on that promise and her expectation, induced by Steggles, that it would not withdraw from that promise.  Steggles’ conduct since late 2009, in not supplying Ms Peen’s farm with chicks at a stocking density of 19.5 birds per square metre and a batch rate of six batches per year and its insistence that it has no obligation to do so for the duration of the contract, is unconscionable in all of the circumstances. 

156                                       As to the first requirement, the context was Ms Peen’s decision whether to construct the new tunnel ventilated sheds on her farm.  The fact that Ms Peen always dreamt of having a farm with four tunnel ventilated sheds does not undermine her evidence that she could not and would not have proceeded with any of her plans if not satisfied that she had a long-term contract with Steggles and a guaranteed supply of chicks for her sheds.  More specifically, it is clear from her evidence that the construction of two new sheds involved a substantial financial commitment, much greater than that involved in the earlier conversion of the two existing sheds.  Ms Peen could not construct the two new sheds without a substantial loan.  She would not take up a substantial loan unless she had a high degree of comfort that she could afford the repayments.  At the time Ms Peen came to commit to construction of the new sheds the batch rates had been not less than six per year at the usual stocking density of 19.5 birds per square metre for some time.  Moreover, the trend was increased batch rates in a known expanding market. 

157                                       In this context, Steggles took upon itself the role of approving the construction of her new sheds.  Consistent with its practice over many years Steggles actively managed the available shed space in the region to ensure that its demands for tunnel ventilated sheds could be satisfied.  As part of this active management Steggles either accepted or rejected offers to provide shed space in the region.  Steggles actively sought that Ms Peen convert the existing sheds and construct the new sheds, presumably because Ms Peen was a reliable and sound grower.  More specifically, when Ms Peen had to decide whether to construct the new sheds she sought and obtained certain assurances from Steggles.  She did so at a time when the contract was in force and did not bind Steggles to provide any particular batch rate or stocking density.  Steggles knew that Ms Peen needed loan funds to undertake the construction.  It knew that the bank sought an assurance about the supply of chicks.  It was obvious and Steggles must have known that Ms Peen’s capacity and decision to proceed depended on receiving the required assurances about supply.  Against this background, Mr Ryan for Steggles assured Ms Peen in writing that the new third shed would be “stocked at the normal rate”.  There cannot be any real doubt that, at the time of writing, Mr Ryan intended to refer to the normal rate of six batches per year at a stocking density of 19.5 birds per square metre.  Ms Peen so understood that letter.  Her understanding was reasonable and, indeed, correct.

158                                       Later, and again at Ms Peen’s request, Mr Ryan on Steggles’ behalf assured Ms Peen in writing in respect of her third shed that Steggles would place birds at a standard 19.5 birds per square metre running at six complete batches per year.  When the opportunity to obtain loan funds for the fourth shed arose shortly thereafter, Mr Ryan on Steggles’ behalf gave precisely the same assurance.  In all cases Mr Ryan also assured Ms Peen that her two new sheds would be included in her contract.  In context, the meaning of the assurances is clear.  Steggles assured Ms Peen that under her contract it would supply her with birds for her farm (including the two new sheds) at a standard 19.5 birds per square metre at a batch rate of six complete batches per year. 

159                                       These assurances must be (and were) understood as relating to all four sheds on the farm.  The subject of the assurances is supply of chicks in circumstances where growers are paid on collection.  For the assurances to make any sense they had to relate to all the sheds on the farm.  There would be no point in Ms Peen building two new sheds to be stocked at the assured rate if the two existing sheds remained empty or stocked at a lesser rate.  Steggles must have known this and must have known that this is how Ms Peen would have understood the assurances it gave in writing. 

160                                       In these circumstances I am satisfied that, in terms of the first element, Ms Peen expected a particular legal relationship would come to exist with Steggles.  The existing contractual relationship did not bind Steggles to a particular batch rate or stock density of supply; however, Steggles promised Ms Peen that if she built the two new tunnel ventilated sheds it would supply her with chicks to her farm under the contract at the nominated batch rate and stock density.  The fact that Ms Peen knew that the contract could be varied in writing only is immaterial.  Steggles was not varying the contract with Ms Peen.   It was giving her assurances about its future legal duties and her future legal rights.  The existing contractual context made the assurances more, not less, significant.  

161                                       The same conclusion applies to the fact that, when the contract was negotiated between Steggles and the Growers’ representatives in or about 2004, the Growers sought and Steggles refused to include a requirement for a minimum batch rate and stock density (see paragraphs 18E and 18F of the fast track statement and defence).  This demonstrates Steggles’ awareness of the importance of these factors to a grower.  Knowing this importance, when encouraging Ms Peen to construct two new sheds on her farm, Steggles promised Ms Peen that she would be delivered chicks at a certain batch rate and stock density. 

162                                       The fact that Ms Peen may have implicitly accepted that Steggles’ promises might not be fulfilled in the event of some catastrophe overtaking the chicken industry either nationally or in the Hunter Valley region does not make the promises worthless or any the less capable of founding a clear expectation about Steggles’ future legal duties to her.  The contract itself (cl 18) defines events which may suspend the contract including disease.  Steggles’ promises were to supply chicks at a certain batch rate and stock density under the contract.  The fact that the contract has exceptions and exclusions does not undermine the legal efficacy or commercial value of the contract.  So too Ms Peen’s assumed implicit acceptance that the same exceptions and exclusions would apply to Steglges’ promises does not mean that Steggles was somehow reserving to itself a right to withdraw or change its position at its own discretion. 

163                                       Mr Ryan did not give any evidence of conversations with Ms Peen by which he qualified the clear assurances given in the correspondence.  In the context of communications with Mr Wood, Mr Ryan said that he only promised batch rates for the period which he could foresee (which he explained as the upcoming period of about six months or a year).  However, no such qualification is apparent in, or reasonably able to be read into, Mr Ryan’s communications with Ms Peen.  The ordinary and natural meaning of the assurances which Mr Ryan gave Ms Peen is that, for the life of the contract, Steggles would supply Ms Peen’s farm (all four sheds) with birds at a standard 19.5 birds per square metre of shed space running at six complete batches per year.

164                                       The second element of the equitable estoppel is also satisfied.  Steggles induced Ms Peen to adopt this expectation.  Steggles wanted Ms Peen’s farm to increase in size as part of Steggles’ own commercial aim of ensuring that supply of grown chickens to its processing plant could be maintained.  It is obvious that the purpose of the written assurances given by Mr Ryan to Ms Peen in the letters of July and August 2006 was to induce Ms Peen to proceed with the two new sheds. 

165                                       The third element of the equitable estoppel, reliance, was the focus of Steggles’ submissions.  There are two difficulties with these submissions.  First, Steggles took parts of Mrs Peen’s evidence out of context (specifically, those parts where Ms Peen confirmed that it was always her dream to have four sheds and would have proceeded earlier if she could have done so).  However, when the evidence is considered as a whole it is apparent that while Ms Peen had plans and dreams, she is also a rational and sensible person.  She would not proceed with her plans or dreams unless she had the financial capacity to do so.  When she did not have that capacity she did not proceed.  To obtain that capacity she needed to borrow money.  Steggles knew this (as she had told Steggles about her need to borrow) and knew that Ms Peen needed assurances for the purpose of obtaining loans to give her the financial capacity to construct the sheds that, I infer, Steggles wanted her to construct for its own commercial ends.  Second, given the factual context described above, the submission that I should infer that Ms Peen did not rely on Steggles’ assurances when she proceeded to construct the two new sheds defies common sense.  Ms Peen’s evidence, taken as a whole, compels the conclusion that but for Steggles’ assurances as to its future dealings with her, Ms Peen would not have constructed the third and fourth sheds.  Ms Peen acted on the faith of the expectation which Steggles had knowingly induced in her.

166                                       These conclusions also mean that the fourth element of the equitable estoppel is satisfied.  Steggles knew that Ms Peen was acting in reliance on Steggles’ assurances.  It intended that she so act.  Steggles wanted the new sheds as part of its active management of shed space in the region.  It wanted the new sheds available within a particular time.  It approved the new sheds for the purpose of rearing its chickens.  In this context it guaranteed supply at a particular batch rate and stock density.  Its guarantee was intended to ensure Ms Peen constructed the sheds. 

167                                       The fifth element, detriment, is also satisfied.  Steggles’ submissions to the contrary again overlook the evidence and cannot be reconciled with common sense.  The adjustment provision in Appendix B of the contract by which the Standard Growing Fee increases if batch rates decrease does not offset the whole of the detriment.  If her expectation is not fulfilled (as has been the case over the last six to nine months) Ms Peen’s income will be substantially reduced and her capacity to repay the bank severely compromised.  Steggles knows how the Growers are paid.  It knows how much the Growers receive per bird.  It knows how many birds it supplies to the Growers.  It always knew all of these things.  It knew Ms Peen had to borrow to construct the third and fourth sheds.  It knew that its assurances were intended to be communicated to the bank to support Ms Peen’s loan application.  Steggles’ submission that “net” detriment has not been proved (apparently because Ms Peen was supplied with and paid for a large number of birds) is no answer to the fact that Ms Peen has and will continue to suffer a very real detriment if Steggles continues to act inconsistently with the expectation which it induced Ms Peen to hold when it wanted her to construct the third and fourth sheds.  In this regard it must also be recalled that cl 8.4(b)(1) of the contract provides that the Grower must ensure that birds supplied by Steggles are the only poultry on the farm.  I am satisfied that Steggles’ refusal since late 2009 to fulfil its promise to Ms Peen is unconscionable in the circumstances. 

168                                       The sixth element is also satisfied.  Steggles has not acted to avoid the detriment.  To the contrary, the evidence is that batch rates have continued to fall well below the level which Steggles promised Ms Peen.

169                                       In terms of remedy, there is no evidence suggesting that it is impossible, impractical, or in any way difficult for Steggles to supply birds to Ms Peen in accordance with its promises.  A notable feature of Steggles’ case is the lack of any explanation for the dramatic decrease in supply to the Growers after the take-over by Baiada and the arising of the commercial dispute which this litigation represents.  There is no evidence that the market for poultry meat has contracted, that market conditions are difficult, that profit margins are low, that some disease has affected the region or the industry, or that the Beresfield processing plant is experiencing some difficulty, or even that production levels from that plant have decreased.  The only evidence is that the supply of birds to the Growers has substantially decreased over the past six to nine months after the take-over by Baiada and in the context of this dispute. 

170                                       Although Steggles submitted that the minimum equity was not to hold it to its promise, Steggles did not identify any lesser relief which could or would ameliorate Ms Peen’s detriment (apart from its contention that the proper remedy was damages, which I have rejected above).  I am unable to see any way in which the detriment to Ms Peen can be avoided other than by holding Steggles to its promises.  As an equitable estoppel can found a cause of action, the appropriate remedy is a declaration and, if necessary, an order requiring Steggles to supply birds to Ms Peen under the contract at “a standard 19.5 per square metre running at six complete batches per year”.

MJ Wood Family Trust

171                                       Mr Wood had been involved in growing chickens for Steggles over many years but left the industry in 2004.  By 2006 he wanted to get back into the industry.  A farm in the Hunter Valley region, the Buladelah farm, was available for purchase.  It had five conventional sheds on it.  Before he purchased the farm in November 2006 Mr Wood met with Mr Ryan.  Mr Wood told Mr Ryan about the farm and his desire to get back into the industry.  Mr Ryan told Mr Wood that the farm had the go ahead for the standard five-plus five-year contract if it was tunnel ventilated.  According to Mr Wood Mr Ryan said also:

We will offer you the same contract as other tunnel farms which include the same stocking density and batch rates.  Batch rates will be no less than 6 batches per year and the stocking density will fluctuate from 0.5 to 0.55 square foot per bird. This is within the usual stocking densities for farms and should not attract any animal welfare issues.

172                                       According to Mr Wood Mr Ryan also told him that:

I may have to drop a conventional farmer off the Steggles contract to maintain the 6 batches per year.

173                                       Before the purchase Mr Ryan also sent Mr Wood a letter dated 26 April 2006.  The letter congratulated Mr Wood on the purchase (which, in fact, occurred later in November 2006).  The letter confirmed that the farm had been offered a long-term contract to commence on 1 July 2006 on the proviso of its conversion to tunnel ventilation.  The letter continued:

Stocking densities and batch rates are not specified in the contract but are 19.5 birds per square metre and six batches per year at time of writing.

174                                       Mr Wood acknowledged that he had read the standard contract before purchasing the farm.  He knew that the contract did not guarantee a minimum batch rate.  He had shown the contract to his lawyer.  Mr Wood said he had known Mr Ryan for a long time and took him at his word as a representative of the company.  Mr Ryan, he said, assured him that “there would be no less than six batches provided”.  Throughout his cross-examination Mr Wood’s position remained that he “was assured by Mr Tim Ryan that I would be given no less than six batches and I’d be given a five-plus-five contract, which is essential in order to pay back the bank over ten year period”.  Mr Wood agreed that he had noticed the words “at time of writing” in the letter.  He said he was quite surprised because Mr Ryan had given him clear assurances before the letter as described.  Mr Wood then said that he recalled making a call to Mr Ryan after receiving the letter seeking clarification and Mr Ryan said “yes, that, you know, he still stood by his word that there was six – that they would provide no less than six batches a year”.  Mr Wood acknowledged that he did not mention this further call in his affidavit and that it involved a potentially significant difference in his evidence.  Mr Wood said that he had not recalled this when he prepared his affidavit because it was years ago and he had more than one discussion with Mr Ryan.  Mr Wood rejected the proposition that the further conversation never occurred.  Mr Wood said that he told “Mr Tim Ryan at the time that I could not afford to pay the bank back unless I was provided with the six batches and that particular stocking over and above conventional farms” and Mr Ryan assured him he would be supplied with birds at that rate.  Mr Wood agreed that he did not ask the contract to be amended to reflect the assurances as he took Mr Ryan as a man of his word. 

175                                       Mr Wood provided information to his bank in support of his loan application to purchase the farm and convert the sheds to tunnel ventilation.  The bank’s records, based on that information, state that tunnel growers received “an average 6.5 batches per annum however our numbers are all based on 6 batches per annum”.  Mr Wood’s application for the loan was approved.  He purchased the farm in November 2006.  The purchase price was $2.2 million.  Mr Wood borrowed $2.9 million and had available another $1.7 million for the purchase and the conversion of the farm to tunnel ventilated sheds.  Mr Wood said that he would not have purchased the farm and converted the sheds but for the assurances he obtained from Mr Ryan as to batch rates and stock density.  He started the construction program in 2007 with all construction works completed by December 2007.  In 2008 Steggles supplied birds to the farm at a stocking density of not less than 19.5 birds per square metre (which equates to 0.55 feet per bird) at six to seven batches per year.  After Baiada took Steggles over in late 2009 the batch rate had decreased substantially with longer gaps between batches. 

176                                       Mr Ryan did not deny meeting Mr Wood.  He did not deny any part of the conversation with Mr Wood as set out in Mr Wood’s affidavit other than that, according to Mr Ryan, he did not say “batch rates will be no less than 6 batches per year”.  Mr Ryan accepted that he may have said “we can send you 6 batches for the remainder of this period” but no more.  According to Mr Ryan he could predict only the number of birds he had to place in the current financial year and was “not able to promise any grower they would receive 6 batches per year on an ongoing basis”.  According to Mr Ryan there was also no reason for Steggles to make such a promise.  Mr Ryan did not deny any other part of the conversation to which Mr Wood referred in his affidavit.  He did not deny, for example, saying that the farm had been given the go ahead for the five-plus-five year contract.  He did not deny saying that he might have to drop a conventional farmer off the Steggles contract to maintain the six batches per year.  He did not deny that the topic of batch rates was discussed in terms of six batches per year.  He said only that his reference to six batches per year was qualified by reference to “this period”. 

177                                       Mr Ryan was called in Steggles’ case after Mr Wood had given evidence.  Due to the scheduling of the hearing the matter was adjourned for two weeks after the close of the Growers’ case.  Despite this Mr Ryan gave no evidence, either by way of additional affidavit or by answering any question in chief, about the further telephone call which Mr Wood said happened after he received the letter of 1 July 2006.  The Growers submitted that this omission was significant.  In the circumstances it should be inferred that Mr Ryan was not asked to give evidence about the further conversation because its substance would not have assisted Steggles’ case (citing Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418-419).

178                                       Steggles’ submissions with respect to Mr Wood’s claim were the same as those put in respect of the claim of Ms Peen.  Additionally, however, Steggles submitted that Mr Wood’s evidence about the additional telephone call should not be accepted.  Mr Wood knew his affidavit was important.  He had the letter of 1 July 2006 available when he made the affidavit.  The letter would have brought to mind any important further communication had it occurred or had he in fact relied upon any such communication.  The fact that Mr Wood did not recall any such communication until pressed in cross-examination, said Steggles, was inconsistent with any inference of reliance.  Nor was it to the point that Mr Ryan had not been asked about the further conversation.  Mr Wood’s evidence did not come up to proof irrespective of Mr Ryan’s evidence.  Mr Ryan’s evidence also made his position clear – he had not made any predictions other than for the next period.  Mr Ryan could not add to that evidence by being asked about the alleged further conversation.  The reasoning in Ferrcom did not apply and thus did not assist the Growers’ case.

179                                       My conclusions above about the applicable legal principles apply equally to Mr Wood’s claim.  In Mr Wood’s case the observations of Campbell JA in Franklins v Metcash at [554] about entire agreement clauses are particularly important.  The issue created by Mr Wood’s knowledge of that clause (and the other contractual provisions) is factual.  It is relevant to reliance.  Mr Wood’s position about reliance never changed.  Nor did his evidence about the substance of the assurances he had been given.  The assurances were that Steggles would supply the farm he proposed to purchase with chicks at a rate of six batches per year and stocking density of 19.5 birds per square metre if the sheds were converted to tunnel ventilation.  The details Mr Wood recalled about the time when the assurances were given did change.  He did not recall making the further telephone call in response to the letter when he prepared his affidavit.  Considered in the context of his evidence as a whole this omission did not undermine the reliability of Mr Wood’s evidence.  If anything, the sequence by which he recalled more detailed information when pressed confirmed the impression that Mr Wood was a truthful, careful, candid, and reliable witness.  

180                                       These conclusions about Mr Wood’s evidence should not be understood as involving any conclusion adverse to Mr Ryan’s credit.  I accept that Mr Ryan did his best to recall what he had said to Mr Wood and gave evidence consistent with that recollection.  Mr Ryan too was a candid and reliable witness.  Mr Ryan’s evidence, however, has to be weighed as a whole.  Mr Ryan was dealing with many growers on a day-to-day basis.  He had numerous conversations with growers about many issues.  He could not recall the details of all of these conversations (which is hardly surprising).  Mr Ryan, moreover, was not the one making significant financial decisions based on the information provided.  Mr Wood had every reason to recall the substance of the assurances Mr Ryan had given him about batch rates and stock densities.  Mr Ryan had far less reason to recall the specifics of his discussions with Mr Wood.  The tenor of Mr Ryan’s evidence, properly understood, is that it is evidence of what he believed he would or would not have said given his knowledge at the time rather than evidence of a particular recollection that something occurred or did not occur. 

181                                       Other factors support Mr Wood’s version of events.  Mr Ryan had written to Ms Peen at about the same time giving the same assurances in the unqualified terms in which Mr Wood said he received them other than in the letter of 1 July 2006.  Batch rates had exceeded six per year for some time.  The market was expanding.  Steggles had an interest in ensuring sufficient tunnel ventilated sheds to meet its requirements.  Steggles was able to supply chicks to tunnel ventilated farms in preference to conventional farms.  Conventional farms still existed and were under short term (one year) contracts with Steggles.  This gave Steggles flexibility if it needed it to give preference to the tunnel ventilated farms that Steggles preferred to use.  Mr Wood provided information to the bank consistent with the assurances he said Mr Ryan had given.  The financial commitment Mr Wood was making was substantial.  Common sense dictated that the feasibility of his venture depended on a guaranteed supply rate.  Mr Wood did not proceed without speaking to Mr Ryan.  He contacted Mr Ryan for the very purpose of obtaining the information he needed to make the substantial commitment involved in the purchase and conversion.  Mr Ryan knew (because Mr Wood told him) that the commitment was substantial and would be funded by a loan that would take Mr Wood at least 10 years to repay.  The context invited information in the form of the assurances which I am satisfied Mr Ryan gave to Mr Wood.  Taken together these matters indicate that Mr Wood’s evidence is to be accepted, including his evidence that but for the assurances he would not have purchased the farm and converted the five sheds on it to tunnel ventilation. 

182                                       If it is necessary to deal with the submission based on Ferrcom, my conclusions are as follows.  I accept Mr Wood’s evidence about the further conversation with Mr Ryan after receipt of that letter.  Mr Ryan gave no evidence about that further conversation despite ample opportunity for Steggles to have such evidence prepared in the form of a further affidavit or by asking questions in chief (noting the two week gap in the hearing when an affidavit could have been prepared and served).  The Growers could not have objected to Steggles having leave to rely on such evidence given that it emerged for the first time during Mr Wood’s cross-examination.  The Growers had no forensic obligation to ask Mr Ryan about that call.  It was a matter for Steggles to deal with Mr Wood’s evidence in the way it saw fit.  It chose to leave the evidence unchallenged on the basis that, irrespective of Mr Ryan’s possible response, Mr Wood’s evidence was unreliable and should be rejected.  It follows that no inference can be drawn in Steggles’ favour about the evidence Mr Ryan might have given had he been asked.  Consistent with Ferrcom, an inference can be drawn more readily in Mr Wood’s favour. 

183                                       I am satisfied that the elements necessary to establish equitable estoppel are met in Mr Wood’s case.  Mr Wood expected that a legal relationship would come to exist between his family trust (as the contracting party) and Steggles in which Steggles would supply the farm to be purchased at a rate of six batches per year and stocking density of 19.5 birds per square metre for the term of the five-plus-five year contract.  Steggles induced Mr Wood to hold that expectation by making the assurances about supply.  Mr Wood acted in reliance on the expectation Steggles induced by purchasing the farm and converting the sheds.  Steggles knew that Mr Wood intended to do so and intended that he do so as part of its own commercial aim to ensure sufficient supply of tunnel ventilated sheds in the region.  If the expectation is not fulfilled, Mr Wood will suffer detriment.  He purchased the farm and converted the sheds using borrowed funds and has substantial repayment commitments (approximately $32,000 per month).  His capacity to repay depends on income in the form of the Growing Payments.  Steggles has not acted to avoid this detriment.  Over the past six to nine months Steggles has not supplied birds in accordance with the expectation it induced Mr Wood to hold.  Steggles’ conduct in failing to fulfil its promise is unconscionable in all of the circumstances.  Consistent with my reasoning above, the appropriate remedy is a declaration and, if necessary, an order requiring Steggles to supply birds to Mr Wood at a stocking density of 19.5 birds per square metre and a rate of six batches per year.

CONSEQUENCE OF THE ESTOPPELS (ISSUE (9))

184                                       The Growers contended that if Steggles is bound to supply Ms Peen and/or Mr Wood with birds at a certain stock density and batch rate per year then cl 7.5 of the contract requires Steggles to provide the same stock density and batch rate to all Growers unless 75% agree in writing to a variation.  According to the Growers, this follows from the fact that the supply of birds is an act which Steggles takes under or as contemplated by the contract (cl 5.1).  Clause 7.5 is thus engaged.

185                                       Steggles denied this claim.  It submitted that any obligation in respect of supply did not arise under the contract but by reason of an equitable obligation.  Hence, supply to fulfil that equitable obligation would not be supply complying with or acting as contemplated by the contract.  The contract did not require or contemplate that Ms Peen or Mr Wood would be supplied at any particular batch rate or stock density.  Hence, cl 7.5 could not be engaged.  Steggles also relied on its submissions set out above about the meaning of cl 7.5, which I have rejected.

186                                       The difficulty for Steggles is that the equitable estoppels operate (or will operate) to require Steggles to supply birds under the contract in accordance with the expectations that Steggles induced.  The required supply remains supply under, in accordance with and thus as contemplated by the contract.  The supply will be a supply in accordance with cl 5.1.  All requirements of the contract about that supply, as well as the obligations of Ms Peen and Mr Wood as Growers, as set out in the contract will apply.  It follows that in meeting its equitable obligations to Ms Peen and Mr Wood (properly, the MJ Wood Family Trust which Mr Wood represented) cl 7.5 of the contract will be engaged.  The clause will operate so as to bind Steggles, insofar as reasonably practicable, not to vary the batch rates and densities as between Growers.  The practical consequence is that, insofar as reasonably practicable, all Growers must be provided with the same stock density and batch rate as Ms Peen and the MJ Wood Family Trust.

MISLEADING AND DECEPTIVE CONDUCT (ISSUE (10))

187                                       The problem with this claim for breach of s 52 of the Trade Practices Act is that it depends on finding that Mr Ryan had no reasonable basis for the representations he made as to batch rates and stock densities over the five-plus-five year period of the contract.

188                                       It is true that Mr Ryan said that he could predict supply over the next financial period but no further.  If this is accepted at face value then the misleading and deceptive conduct claim on behalf of Ms Peen and the MJ Wood Family Trust should succeed.  For the reasons given the representations were made in trade and commerce.  The representations were clear and unambiguous.  Each of the recipients relied on the representations.  Each has and will continue to suffer loss and damage by reason of the (on this basis) misleading and deceptive conduct. 

189                                       However, given my conclusions above about the equitable estoppel claims it is difficult to accept this evidence at face value.  Mr Ryan, at the time the representations were made, had every reason to believe that Steggles could continue to supply birds to the Growers at a batch rate of six per year and stocking density of 19.5 birds per square metre.  The evidence shows that:

(1)               Steggles had managed the supply of shed space in the region over many years to match its demands for birds to process at the Beresfield processing plant. 

(2)               Steggles had difficulty in obtaining enough tunnel ventilated shed space in the region to meet its demands.

(3)               Steggles preferred a bird which was small and had a shorter growing period of about 42 to 47 days.  On the basis of a two week shed cleaning period (which the evidence suggests was standard barring a disease outbreak) it was possible for each shed to take seven batches per year.

(4)               Tunnel ventilated sheds were more efficient in production terms and allowed a greater stock density of birds than conventional sheds.

(5)               Steggles had a pool of conventional sheds available as part of their supply chain.  Mr Ryan gave evidence, consistent with the documentary record, that he could direct supply to tunnel ventilated farms in preference to conventional farms to meet the promised batch rates.

(6)               The market for poultry meat was expanding. 

(7)               Batch rates had been increasing since 2004.  As Ms Peen said the evidence indicates that Steggles, if anything, had a surplus of birds to place.

190                                       It is true that Mr Ryan could not foresee or rule out the possibility of some catastrophe overtaking the poultry market, the Hunter Valley region or Steggles itself.  But he had no reason to expect any such event.  Moreover, and as noted, there is no suggestion in the evidence that the recent decrease in batch rates has been caused by any such unforeseen event or even any inability on Steggles’ part to supply the Growers with birds at a rate of six batches per year and stocking density of 19.5 birds per square metre.  In these circumstances, which support the conclusions I have reached about the equitable estoppels, I am not satisfied that Steggles had no reasonable basis for its representations as to future matters.  It made the representations that found the equitable estoppels and Ms Peen and Mr Wood relied on them because they did have a reasonable basis. 

191                                       It follows that I reject this aspect of the Growers’ claims.

BREACHES OF CONTRACT (ISSUE (11))

192                                       The Growers allege that Steggles is in breach of contract by reason of the fact that it has not: - (i) reviewed and adjusted the base rate for 2009 in order to compensate the Growers for any increase in their growing costs since the date of the previous review, (ii) reviewed and adjusted the base rate for 2009 in accordance with the cost recovery template agreed in February 2005, and (iii) adjusted the Standard Growing Fee for 2009 in accordance with the Standard Growing Fee Formula having regard to delivered batch rates.

193                                       The first alleged breach relates to the implied term dealt with under issue 7 above.  Consistent with my conclusions in that regard, Steggles is bound by its admission that the contract contains a term that the base rate adjustment would be calculated having regard to any increased growing cost incurred by the Growers since the last fee review.  The second alleged breach relates to the further and separate agreement dealt with under issue 5 above.  Consistent with my conclusions in that regard, Steggles and the Growers made a further agreement in February 2005 requiring annual fee reviews under the contract to be conducted solely in accordance with the cost recovery template.  The third alleged breach relates to the further and separate agreement dealt with under issue 6 above, as well as Steggles’ obligations under cl 14.4 of the contract (see issue 3 above).

194                                       The Growers’ case is that on several occasions the HVTG, and individual growers themselves, attempted to negotiate a review of the base rate and adjustment of the Standard Growing Fee for 2009.  According to Mr Thompson, during a meeting on 19 May 2009 Mr Witherspoon said that Steggles had no money to pay any fee reviews and this had been its position since November 2008.  Instead, Mr Witherspoon indicated that the Growers would be offered a new contract by Baiada (which was then in the process of taking over Steggles).  Further, Mr Thompson sent a letter to Steggles on 9 November 2009 claiming moneys as due and owing in accordance with cl 14.4 and Appendix B to the contract (the adjustment for decreased batch rates) and the agreement reached in February 2005 in respect of Steggles’ capacity to apply an upfront discount on the basis of expected batch rates provided it paid back any difference if batch rates fell below those expectations.  Steggles has not replied to Mr Thompson’s letter.

195                                       Steggles’ case on the breach issues (insofar as it made one) was that negotiations for the review of the base rate for 2009 are continuing.  One reason for rejecting this defence is that, if Steggles is continuing to negotiate as it claimed, then it is doing so on the basis of an incorrect understanding of its contractual obligations.  Another reason, however, is that cross-examination of Mr Witherspoon exposed the true factual position – since 19 May 2009 no one from Steggles has been or is negotiating with the Growers about any review or adjustment of payments to them.  Instead, the Growers continue to be paid at 2008 rates (that is, without regard to the Growers’ increased growing costs since that time and on the basis of assumed higher batch rates when the evidence establishes a decline in batch rates). 

196                                       In their affidavits Mr Witherspoon, Mr Howard and Mr Kirby denied that Mr Witherspoon said Steggles had no money to pay any fee increase which had been its position since last November.  Those denials, even if accepted, do not alter the fact that there has been no change to the fees paid to the Growers since 2008 and that there is no continuing negotiation by any representative of Steggles to that end.  I do not accept those denials, however.  First, Mr Witherspoon said that money at Steggles was “very tight” at the time the takeover by Baiada was taking place.  Second, managers at Steggles were subject to a pay freeze at this time.  Third, the takeover was causing employees of Steggles uncertainty about their future employment with the incoming owner, Baiada.  Fourth, after the meeting on 19 May 2009 Mr Witherspoon understood from the chief executive officer of Steggles that, pending the sale to Baiada, Steggles should not enter into any new contracts or agree to any changes to fees and that this had been the position of Steggles since late 2008.  All of these factors establish a context in which the making a statement to the effect alleged is probable. 

197                                       Further, cross-examination of Mr Witherspoon, Mr Howard and Mr Kirby exposed a problem with the preparation of their affidavits.  When dealing with Mr Thompson’s version of the meeting of 19 May 2009 the affidavits of Mr Witherspoon, Mr Howard and Mr Kirby followed the same general pattern of denials of certain parts, including the statement attributed to Mr Witherspoon that Steggles had no money to pay any fee increase which had been its position since November 2008.  However, in cross-examination it became apparent that a number of material matters denied in the affidavit were no longer denied – the witness either did recall the matter or accepted it was probably or possibly said or did not believe it had been said.  This pattern of answers, together with the pattern of the affidavits, is sufficient to found a general conclusion that Mr Thompson’s version of various conversations should be accepted in preference to the versions of Mr Witherspoon, Mr Howard and Mr Kirby.

198                                       As to the particular statement about fee reviews during the meeting of 19 May 2009, Mr Witherspoon’s evidence was that he was “not aware” of having made that statement.  He did not believe he said it but accepted he may have done so.  Mr Kirby did not recall if Mr Witherspoon had said that or not.  The effect of Mr Howard’s evidence was to deny Mr Witherspoon having made such a statement.  However, the problems with affidavit preparation were particularly apparent in Mr Howard’s case.  Mr Howard’s explanation of these matters and for the differences between his oral evidence and affidavit were not persuasive.  For these reasons, I prefer and accept Mr Thompson’s evidence of the course of the meeting of 19 May 2009.

199                                       Clause 14.4 of the contract (as subsequently varied by agreement) requires Steggles and the Growers to review jointly the Standard Growing Fee (on an annual basis as per the agreed variation).  I am satisfied that Steggles has refused to conduct such a joint review for the year 2009 and, thereby, is in breach of cl 14.4 of the contract.  Clause 14.4, read with Appendix B, requires the Standard Growing Fee to be adjusted having regard to the batch rate over the previous six months.  Steggles has refused to conduct the joint review having regard to the decreased batch rate and, thereby, is in breach of cl 14.4 of the contract. 

200                                       Further, Steggles is bound to adjust the base rate for 2009 having regard to the Growers’ increased growing costs.  The agreement between Steggles and the Growers of February 2005 also requires the joint review for the year 2009 under cl 14.4 and Appendix B to be conducted on the basis of a base rate adjusted solely by reference to the cost recovery template.  Steggles has refused to do so. 

201                                       Finally, Steggles has breached its obligations under the other agreement reached in February 2005 by which it was entitled to pay a discounted fee assuming a batch rate in excess of six per year provided it paid back the difference in the event batch rates fell.  Batch rates have fallen but Steggles continues to pay the Growers at the same rate as negotiated for 2008. 

REMEDIES

202                                       I have answered all issues in dispute in favour of the Growers other than the misleading and deceptive conduct claims.  I have also concluded that the proper remedy for the equitable estoppels is to ensure that Steggles is held to the expectations it induced in Ms Peen and Mr Wood (as representative of the MJ Wood family Trust).  I propose to hear further from the parties as to the form of any declarations and orders that should be made to give effect to these reasons.

203                                       I thus answer the separate questions as follows:

1.          On a proper construction of the material terms of the Contract:

(a)       is Steggles obliged to review and adjust the base rate (Base Rate) used to calculate the ‘Standard Growing Fee’ under the Contract (the Standard Growing Fee) in or about January and July of each year in order to compensate the growers listed in Schedule A of the Amended Application (the Growers) for any increase in growing costs since the date of the previous fee review;

Yes

(b)       is Steggles obliged not to vary the stock density or batch rates between Growers without the written consent of at least 75% of the Growers;

Yes

(c)       in allocating chicks for processing at its Beresfield plant to growers, must Steggles give preference to growers in the Hunter Valley region using "tunnel ventilated" growing facilities over conventional growers and/or growers from regions outside of the Hunter Valley;

Yes

(d)       in allocating chicks for processing at its Beresfield plant to growers, must Steggles give preference to growers who are parties to growing agreements with Steggles in the same or substantially the same form as the Contract over growers who are not a party to such growing agreements;

Yes

(e)       are the "fee adjustment factors" referred to in appendix A.4 of the Contract only to be adjusted after a joint review by the Growers’ representatives from the Hunter Valley Tunnel Group and Steggles to be conducted having exclusive regard to the then current range of the Growers' production results and incomes;

Yes

(f)        must Steggles adjust the Standard Growing Fee in January and June of each year (as part of the six monthly fee review) in accordance with the Standard Growing Fee formula set out in Appendix B of the Contract (Standard Growing Fee Formula) (by applying the batch rate provided to the Growers over the previous six months).

Yes

2.          After about February 2005, were Steggles and the Growers bound by an agreement reached between them at about that time to conduct fee reviews in accordance with the “Accepted Review Practice” described and defined in paragraph 26(a) of the Further Amended Fast Track Statement (Accepted Review Practice)?

Yes

3.          After in or about February 2005, were Steggles and the Growers bound by an agreement reached between them at about that time to the effect that:

(a)       if, at the time of each fee review, Steggles promised or expected to provide the Growers with a batch rate in excess of 6 per year (which was the batch rate used to calculate the initial Standard Growing Fee in 2004), Steggles could claim a discount on the Standard Growing Fee for the ensuing year (after making an appropriate Base Rate adjustment in accordance with the Accepted Review Practice) by applying the Standard Growing Fee Formula having regard to such promised or anticipated batch rates;

Yes

(b)       if Steggles did not deliver in the ensuing year the batch rate promised or anticipated at the time of each fee review, Steggles would adjust the Standard Growing Fee at the end of the year based on delivered batch rates and back pay the difference in the growing payments so adjusted to the Growers?

Yes

4.          If the answer to any or all of questions 1(a) to 1(f) above is “yes”, should declarations as to the effect of the terms of the Contract be made in accordance with such findings?

The parties make further submissions as to the form of any orders to reflect these reasons for judgment.

5.          If the answer to either or both of questions 2 or 3 is “yes” should declarations be made as to the effect of those agreements?

The parties make further submissions as to the form of any orders to reflect these reasons for judgment.

6.          Is Steggles estopped from refusing to provide the “Standard Tunnel Throughput” (as defined in subparagraph 18B(c)(2) of the FAFTS) (the Standard Tunnel Throughput) to Marianne Peen during the term of her growing agreement?

Yes

7.          Is Steggles estopped from refusing to provide the Standard Tunnel Throughput to the Grower identified in Schedule A to the Further Amended Application as the trustee for M J Wood Family Trust (Malcolm Wood) during the term of his growing agreement?

Yes

8.          If the answer to question 1(b) and either or both of 6 and 7 above is “yes”, is Steggles bound to provide all of the Growers with the Standard Tunnel Throughput in the absence of obtaining the written consent of 75% of the Growers allowing it to vary batch rates between them?

Yes

9.          If the answer to any or all of questions 6, 7 or 8 is “yes”, should declarations be made to give effect to those findings?

The parties make further submissions as to the form of any orders to reflect these reasons for judgment.

10.      Has Steggles engaged in misleading and deceptive conduct within the meaning of section 52 of the Trade Practices Act 1974 (Cth) (TPA) towards Marianne Peen?

No

11.      Has Steggles engaged in misleading and deceptive conduct within the meaning of section 52 of the TPA towards Malcolm Wood?

No

12.      If the answer to question 1(a)(i) is “yes”, has Steggles breached the terms of the Contract requiring it to review and adjust the Base Rate for 2009 in order to compensate the Growers for any increase in their growing costs since the date of the previous fee review?

Yes

13.      If the answer to question 2 is “yes”, has Steggles breached the terms of the Contract by failing to review and adjust the Base Rate for 2009 in accordance with the Accepted Review Practice?

Yes

14.     If the answer to question 3 is “yes”, has Steggles breached the terms of the Contract requiring it to adjust the Standard Growing Fee for 2009 in accordance with the Standard Growing Fee Formula having regard delivered batch rates?

Yes

Associate:

Dated:         27 April 2010