FEDERAL COURT OF AUSTRALIA

Yarrabee Chicken Company Pty Ltd v Steggles Limited (No 2) [2011] FCA 750

FEDERAL COURT OF AUSTRALIA

Yarrabee Chicken Company Pty Ltd v Steggles Limited (No 2) [2011] FCA 750

CORRIGENDUM

1.    The date of hearing on the cover page should read “20 and 21 June 2011”.

Associate:

Dated:    31 January 2012

THE COURT DIRECTS THAT:

1.    The parties confer (including with respect to costs) and file agreed or competing draft orders reflecting these reasons for judgment within 7 days.

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 CLAIM

1    These reasons for judgment relate to a claim for damages for alleged breach of cl 7.4(a) of the standard form contract between the members of the Hunter Valley Tunnel Group (the HVTG) and the respondent, Steggles Limited (Steggles).

2    The claim is part of a broader dispute between the HVTG and Steggles. On 27 April 2010 I published reasons for judgment dealing with a number of issues which were agreed to be common to or to have consequences common for all members of the HVTG (Yarrabee Chicken Company Pty Ltd v Steggles Limited [2010] FCA 394 (the earlier judgment)). As explained in those reasons, the proceeding is a representative proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth). The HVTG is authorised to represent its members in dealings with Steggles relating to the standard form contract (the contract). In the contract the members of the HVTG (all of whom are growers of broiler chickens in the Hunter Valley region and are party to the contract) are defined as the Growers. The contract sets out the terms and conditions pursuant to which the Growers grow broiler chickens for Steggles in mechanically ventilated sheds (a method known as tunnel ventilation) for processing at the Steggles processing plant in Beresfield.

3    One of the common issues between the parties was the proper construction of cl 7.4 of the contract. Clause 7.4 is in these terms:

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.

4    I dealt with the construction issue at [53]-[64] of the earlier judgment in the following terms:

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[s] 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.

5    The Growers claim that, in breach of its contractual obligations, Steggles has “reduced batch rates provided to the Growers in order to allocate chickens intended for processing at its Beresfield plant to other growers” (para 33C of the further amended fast track statement). They claim damages for breach “relating to Steggles’ failure to give preference to the Growers when allocating chickens for processing at its Beresfield plant” (para 6C of the further amended application). Steggles denies breach and any liability for damages. By closing submissions it became apparent that resolution of the claim raises the following issues for consideration:

Are the Growers precluded from claiming breach in the manner now articulated by reason of the pleadings?

If not, have the Growers established breach of cl 7.4(a) of the contract?

If the Growers have established breach, have they established a right to damages and, if so, in what amount?

THE GROWERS’ CASE

6    The foundation of the Growers’ case is that cl 7.4(a) of the contract requires Steggles to offer to them the capacity to rear chickens for processing at the Beresfield plant first and in preference to all other growers. The Growers contend that in 2009 and 2010 Steggles breached this obligation. According to the Growers, breach is established by the following circumstances.

7    In 2009 and 2010, each of the Growers had the capacity to rear 6.3 batches of chickens per year. This is apparent from the findings in the earlier judgment at [114], [144] and [147], where I said:

[114] … 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…

[144] … 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).

[147] … 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…

8    This conclusion as to the Growers’ capacity is also supported by evidence of historical batch rates of 6.1 to 6.45 through the period July 2004 to June 2005 and predicted batch rates of 6.4 for 2006 and 2007. Each of the Growers, moreover, has given evidence to the effect that the sheds on that Grower’s farm were fully operational and capable of rearing chickens throughout 2009 and 2010, and that there was no disease, contamination or other bio-security issue during this period. As a result, if additional chickens had been made available in 2009 and/or 2010, each Grower “would have taken those additional chicks so far as the capacity” of that Grower’s farm allowed.

9    The Growers submitted that in 2009 and 2010 there were chickens available to be placed with them for rearing in a manner that would have enabled them to achieve an annual batch rate of 6.3 batches in both years. The Growers contended that this was established by a combination of facts which should be found on the evidence. First, the Growers pointed to the fact that Steggles controls the process by which chickens are reared, including the placement of chickens with growers and their collection for processing. Second, to achieve an annual batch rate of 6.3 batches each batch must be grown for no longer than 48 days. On average, a chicken grown for a period of 48 days will have an average live weight (or ALW) of 2.75 kg. Third, in order to achieve an annual batch rate of 6.3, the break between each batch should not exceed ten days, which is the minimum period generally required for cleaning of the sheds. Fourth, it is apparent that in 2009 and 2010 other growers grew chickens with an average live weight of less than 2.75 kg for processing at the Beresfield plant. On the Growers’ calculations, 9,621,058 chickens in 2009 and 14,961,388 chickens in 2010 with an average live weight of less than 2.75 kg were grown by growers other than the Growers and processed through the Beresfield plant. The Growers submitted that, despite these facts, Steggles did not offer to place sufficient chickens with the Growers to enable them to achieve an annual batch rate of 6.3 in 2009 and 2010. None of the Growers received 6.3 batches of chickens to rear in 2009 or 2010. If each Grower had been given 6.3 batches of chickens to rear in 2009 and 2010 then the Growers, in total, would have raised an additional 3,635,983 chickens in 2009 and an additional 4,396,007 chickens in 2010. These totals are calculated by comparing the actual number of chickens placed with each Grower in 2009 and 2010 with the number that would have been placed if the annual batch rates for those years had been 6.3, assuming the same average batch size as in fact each Grower had in those years. These circumstances, according to the Growers, establish breach of cl 7.4(a) of the contract by Steggles in 2009 and 2010.

10    The Growers claim that damages are payable to each Grower as a result of this breach. Damages were detailed in spreadsheets prepared by the applicant, and were calculated using the following method:

(a)    calculate each Grower[’s] average batch size returned to Steggles by each Grower for the year based on saleable bird numbers (Column G);

(b)    determine each Grower[’s] per bird growing fee (Column J) based on the agreed Standard Growing Fee for each year by:

(1)    adjusting the Standard Growing Fee in accordance with Appendix B of the contract to account for the higher batch rate of 6.3 using the batch rate adjustment mechanism (Batch Adjusted Fee) (see Schedule 1 for relevant methodology);

(2)    adjusting the Batch Adjusted Fee for each Grower fee by accepting and applying Steggles’ average BPIF adjustments for each Grower in each year (Column J) (BPIF Adjusted Fee);

(c)    determine each Grower[’s] average gross batch payment for each year by multiplying the average saleable birds per batch by the BPIF Adjusted Fee for each Grower (Column K);

(d)    determine the non-variable cost/profit component of each Grower[’s] average batch payment by multiplying the average batch payment described in “(c)” above by 66% (being the non-variable costs component of the growing fee as agreed between the parties) (Column L);

(e)    multiply the figure referred to in “(d)” by 0.3 representing the additional part batch allegedly owing to the Growers above 6 batches per year based on each Grower’s average placement densities for the relevant year (Column M).

11    Exhibit B shows the result of the calculation (in terms of both damages and interest) for each Grower, as well as the total damages for all Growers combined. The total damages yielded by this calculation are $459,965.80 for 2009 and $458,789.46 for 2010. In respect of those amounts, interest has been calculated in the sums of $72,105.94 for 2009 and $36,848.75 for 2010.

12    The Growers contended that Steggles’ answers to their case were unsustainable. Insofar as those answers included the proposition that the reduced batch rates the Growers experienced in 2009 and 2010 were due to Steggles’ requirement for larger-sized birds to be grown (and the consequent need for a growing period in excess of 48 days), the Growers provided two responses. First, they submitted that the evidence did not support a finding that the reduced batch rates up to March 2010 had anything to do with longer growing periods. To the contrary, the growing periods up to March 2010 were generally consistent with the 48-day period necessary for the Growers to achieve 6.3 batches per year. Accordingly Steggles’ argument could not answer the Growers’ claim, at least up until March 2010. Second, insofar as the Growers did experience longer growing periods for the remainder of 2010, cl 7.4(a) of the contract obliged Steggles to ensure that it offered to the Growers, first and in preference to other growers, the capacity to rear as many as possible (having regard to the capacity of each Grower) of the 9,621,058 chickens in 2009 and 14,961,388 chickens in 2010 which had an average live weight of less than 2.75 kg, and which were instead grown by other growers and were processed through the Beresfield plant. Steggles did not fulfil this obligation and thereby acted in breach of the contract.

STEGGLES’ CASE

13    Steggles acknowledged that since mid-2009 the Growers have experienced a reduced annual batch rate of around 5.8 batches. According to Steggles, however, these reduced annual batch rates have nothing to do with the allocation of chickens to growers other than the Growers as claimed in para 33C of the further amended fast track statement. Rather, the annual batch rates have decreased because Steggles, after the takeover by the Baiada Group (Baiada) in late July 2009, implemented a business model of growing larger chickens involving a longer growing period of about 55 days. On the basis of this longer growing period, none of the Growers could achieve an annual batch rate of greater than about 5.6 having regard to the minimum period for cleaning of sheds between batches.

14    Insofar as the Growers sought to avoid the consequences of the longer growing periods by arguing that cl 7.4(a) required Steggles to permit the Growers to grow smaller chickens (for a 48-day growing period), Steggles said that no such case had been pleaded against it. As Steggles put it:

The [Growers’] case solely concerns a claim that Steggles failed to prefer the Growers in the allocation of chicks. If the [Growers’] real complaint has changed and is now that (e.g.) Steggles was obligated to grow smaller chickens with the Growers (i.e. collect them earlier), or that Steggles had an obligation to allow the Growers to attain 6.3 batches, this has nothing to do with Clause 7.4(a), nothing to do with the case pleaded and is not a case that Steggles has met.

15    Steggles contended that the Growers should be held to their case as pleaded concerning the alleged allocation of chickens to growers other than the Growers for processing at the Beresfield plant.

16    To the extent that the Growers were permitted to depart from the case as pleaded, Steggles submitted that whatever the scope of the obligation imposed by cl 7.4(a) it could not extend to the collection of chickens, which is regulated by cl 12 of the contract. Further, and in any event, breach has not been established because there is no evidence that any Grower actually had capacity in 2009 or 2010 to: – (i) take more chickens than were delivered by Steggles, (ii) receive a batch of chickens that was instead sent by Steggles to another grower, or (iii) grow 6.3 batches of chickens per year. Moreover, and as noted above, Steggles contended that the Growers’ case failed on causation because the cause of the reduced batch rates was not any alleged breach of cl 7.4(a) but the longer growing periods required to produce larger chickens, which was a matter for Steggles’ business judgment under cl 12 of the contract.

17    Steggles also contended that the Growers’ approach to damages was invalid on three bases. First, the Growers had pleaded (at para 20(r)(3) of the further amended fast track statement) that until 30 June 2009 they “exclusively supplied” the Beresfield plant, so it must follow that there could be no breach as alleged. Second, the Growers could not have achieved an annual batch rate of 6.3 in 2009 or 2010 for the reasons outlined above. Third, it is impermissible for there to be a “rolled-up” claim for damages when the position of each Grower was different.

FACTS

18    The evidence supports the following factual findings.

19    Before 2009, the Growers had achieved batch rates of up to 6.4 batches per year.

20    There had been no material change in the circumstances of any Grower reducing that Grower’s capacity to take and rear chickens throughout 2009 and 2010.

21    None of the Growers experienced any disease or bio-security issue affecting that Grower’s capacity to take and rear chickens throughout 2009 and 2010.

22    While some Growers may be more efficient at cleaning out their sheds than others, nothing in the circumstances of any Grower in 2009 or 2010 supports an inference that any Grower required materially longer than the period of 10 days for the cleaning out of the sheds.

23    Steggles places chickens with growers in batches. The chickens are also collected from the growers by Steggles in batches, although Steggles’ practice includes “thin-outs” by which chickens may be collected from a batch in a sequence. The arrangements for the placement and collection of batches of chickens are planned weeks and even months in advance, although the planned arrangements may be changed depending on circumstances.

24    Steggles classifies chickens into different weight categories. At the Beresfield processing plant the relevant categories are small (1.75 kg ALW), medium (2.10 kg ALW), large (2.75 kg ALW) and big (3.50+ kg ALW). The growing periods for these categories are different. Small birds need a growing period of about 35-36 days. Medium birds need about 39-40 days. Large birds need about 48-49 days. Big birds need about 53-56 days. The growing period means the period from the first chick in the batch being placed in the shed to the last chicken in that batch being removed from the shed. It does not include the clean-out period, which, as noted above, is generally 10 days.

25    Steggles controls the process (including the timing) of placing chickens with and collecting them from growers. It also controls the process by which it determines its requirements for chickens in different weight categories. Accordingly, subject to the capacity of any particular grower, Steggles controls the number of chickens that a grower grows in any given year and the number of batches in which those chickens are grown.

26    An annual batch rate of 6.3 requires a growing period of no more than 48 days and a clean-out period after final collection of a batch of no more than 10 days. This means that if a grower were to achieve an annual batch rate of 6.3, the chickens grown would have an ALW of no more than 2.75 kg (that is, they would weigh no more than the average live weight of chickens in the “large” category).

27    In about 2004-2005, Steggles designated the Beresfield processing plant as a “small bird” plant. During that period the Growers did not grow birds with an ALW of more than about 2.4 kg.

28    Baiada took over Steggles in late July 2009. The principal decision-makers of Baiada and its related companies are Simon Camilleri, the general manager of Baiada Pty Limited, and his brother John Camilleri, the managing director of Baiada Pty Limited. Simon Camilleri explained that, as Steggles is owned by Baiada, he and his brother are also the principal decision-makers for Steggles. Mr Camilleri gave evidence that, at the time of the takeover, he and his brother considered that Steggles were growing both too many chickens overall and too many chickens at the smaller end of the range. Baiada’s business model involves maximising every kilogram of meat that can be produced from each chicken. One element of that model is producing more chickens at the larger end of the scale. Although this business model is not documented, there is no reason to doubt that Simon Camilleri’s evidence about the business model accurately reflects Baiada’s approach to its business, including the Steggles business.

29    As part of the integration of the Baiada and Steggles businesses, Baiada closed its processing plant at Pendle Hill in August 2009. Simon Camilleri explained that one consequence of the closure of the Pendle Hill plant was that approximately 150,000 big birds (that is, birds with an ALW of 3.5 kg or more) were processed at Beresfield rather than Pendle Hill. In his oral evidence Mr Camilleri explained another consequence of the closure of the Pendle Hill plant. The evidence was as follows:

In making the decision that you did to process birds through Beresfield [scil] that had not come from the Hunter Valley Growing Group, in the second half of 2009, you had no regard whatsoever, did you, to clause 7.4 of the contract you had with the Hunter Valley growers? Not correct.

You made no attempt, did you, to give them any preference at all over anyone else; that’s right, isn’t it? Not correct.

If you had wanted to give them preference over others, all of the birds that were grown outside by other growers and processed through Beresfield [scil] could have been given to them in 2009, couldn’t they? Yes. However, you would have sent 30 other growers to the wall and put them on the sword, who have brought the business from 1950 to where it is today. So it was a short-term shortfall of supply that the Hunter Valley Grower Groups, which we made up through compensation so they’re not out of pocket, and we have got a sustainable outcome now with them growers and the Hunter Valley growers going full speed ahead.

Well, this was a consequence, Mr Camilleri, of a commercial decision by Baiada to close the Pendle Hill processing plant, wasn’t it? That’s correct.

And when you made the decision to close the Pendle Hill processing plant, you knew, didn’t you, that a consequence would be a reduction in the annualised batch rates for the Hunter Valley Growing Group, didn’t you? For a short term only.

And you were prepared to wear the consequences of that in terms of whatever the contractual obligation happened to be in Baiada’s commercial interests, weren’t you? And that we did through payment of compensation.

30    The compensation to which Mr Camilleri referred in his evidence is the damages Steggles paid the Growers pursuant to the earlier judgment.

31    Mr Camilleri also gave evidence about the effect of Baiada’s business model generally on the Growers. His evidence was as follows:

MR GYLES: All right, I will put it another way. You’re not saying, are you, that you were seeking to maximise the annualised batch rates for the Hunter Valley growing group at the back end of 2009, are you? Categorically, yes.

Well, how can you explain, then, the batch breaks at the end of 2009 were up to 30 or 40 days between batches? How much time do you have?

Well, are you? Two factories: one at Beresfield, one at Pendle Hill. One closes so you’ve got double the capacity you go from one plant. Physically, Beresfield doesn’t have that capacity until we change and rationalise our business, and over the last six or nine months we have done that. So categorically, we have – we have been determined to increase our productivity and I think it’s demonstrated over the past 18 months of takeover, where we’ve gone from an 80-day cycle down to a 64-day cycle.

But what you’re really saying, Mr Camilleri, is because of matters external to the Hunter Valley growing group and the Beresfield processing plant, is that birds which would otherwise have been processed through the plant from the local growers came from other growers, agreed? In addition, as well.

In addition to what? I beg your pardon?

In addition to what? In addition to what the Hunter Valley growers were growing.

[…]

And so when you came in with your business model, which you told us yesterday, although not documented, is something that you and your brother have come up with, was to grow larger birds, all right? No, our document – our business model is to maximise every kilo we can produce off any particular chicken. So to maximise our average live weight, that’s our model. Not to just grow large birds.

All right. But whatever the reason, the consequence is, you end up growing birds that were larger than were being grown before? That is correct, sir.

And what we see from the documents here, that so far as these growers go, we see the consequence of that decision not reflecting itself on the ground until, as you have said, some time beyond March of 2010? According to these documents, it’s around March or even a bit sooner, depending on the grower. I just went through all of them.

[…]

Now, if that’s right, obviously enough, any business strategy that the growers grow larger birds had not reflected itself in the – in practice by the end of 2009, had it? We were only in control for three or four months.

I’m not being critical at all― Right, okay.

―in this, Mr Camilleri. I’m not – what I’m really putting to you is that you came in in August 2009, agreed? Yes.

You had various things going on, including the closure of Pendle Hill? Yes.

Agreed? Yes.

That caused problems for you because it gave you an excess of shed capacity which you had to deal with in the way we discussed yesterday? Correct, sir.

You then, with your brother, came up with the business model for reasons you have just expressed to change the average live weights of the birds you were growing? That’s right.

In terms of what was, in fact, happening on the ground, we don’t see, in 2009, this group of growers being asked to grow or being required to grow large birds in any significant volume, do we? In the short term, no.

No? But if you look further through these documents, it shows that they were.

All right. But that’s beyond March 2010? It’s within that period I spoke about yesterday, that short term period, that six to nine months period.

Right. So is what you’re saying that as you have read those figures, that from about March 2010, the number of large birds that these growers were required to grow were increasing? Yes. There’s also that transitional period.

Right. So it must be the case, then, mustn’t it, that if the decision that was made to grow large birds didn’t reflect itself in these particular group of growers growing large birds until about March of 2010, that the reason that their batch rates were reduced in 2009 and the first part of 2010 was not related to the growing of large birds. That must be the case, mustn’t it? The reason their growing cycles were reduced is because we had two factories; one of them closed. We had an abundance of growers for a short period of time, which was about six months, until we converted a lot of the Sydney growers to growing another species, be it free-range. They were probably growing the large birds for the Beresfield plant at that time. So by March, the Hunter Valley growers and the rest of the growing group were probably growing large birds, and that’s what’s indicated in this document.

Okay? So there has been that transitional period where we have rationalised both businesses into one.

But what I was putting to you was that to the extent that the batch rates were reduced in 2009 and up until March of 2010, for this group of applicant growers, that wasn’t because they were being asked to produce large birds, was it? Not in the short term

Well? But that was our strategy for the business.

But can you just listen to the question. I’m not – I would just like you to answer the question, which is this. You would accept that for 2009 and for the period up until about March 2010, to the extent that these growers had lower batch rates, it was not related to them being required to grow larger birds, was it? No, there was – they were – Steggles were producing too many smaller birds.

But to the extent that the justification for the reduction in batch rates is a business model that required the growing of larger birds, that didn’t, in fact, happen with these growers until – I think you have agreed – about March 2010? That is correct, yes.

All right. Now, so far as why the batch rates were lower in the period up until August 2009, you simply wouldn’t know that, would you, because you weren’t there? For the first period of 2009?

August 2009? Beyond my knowledge.

[…]

You know that the batch rates in the back end of 2009 were well below six batches, don’t you? Yes, that’s correct.

Right. And that’s the reason that there was a claim made that you spoke about yesterday? A make-up payment or a compensation payment, correct.

So batch rates were – sorry, you would agree the batch rates were lower than six, right? Agreed.

In the back half of 2009? Yes, agree on that.

We also see that the breaks between batches were uncharacteristically long at the back end of 2009? We can agree on that.

Right. And there is very likely to be a correlation between the two, isn’t there, that the reduction in batch rates is very likely… ? Definitely. It goes hand in hand.

32    Mr Camilleri also gave this evidence:

MR SIRTES: If you only grew small birds with the tunnel growers, what impact would that have on the Steggles business?

[…]

THE WITNESS: In answer to the question, I have two impacts. First of all, it will generate too many small birds for our market or our demands, and therefore creating over capacity. And the second thing, we will be left with a shortfall of large birds to meet our market.

33    Both parties took issue with aspects of Mr Camilleri’s evidence. Steggles submitted that it could not be said that Baiada’s business model had no impact on the Growers until March 2010. As the growing period does not end until the last chicken is collected, growing even one large or big bird in a batch will extend the growing cycle for that batch. In addition, the documentary records show some longer growing cycles in late 2009 being experienced by some of the Growers. The Growers objected to Mr Camilleri’s evidence about the impact on Steggles’ business if the Growers were allocated the capacity to grow only smaller chickens. In summary, they characterised that evidence as mere assertion, unsupported by either reasoning or any objective evidence, and indeed as inconsistent with the documentary evidence available. The Growers said this part of Mr Camilleri’s evidence could not be given weight as anything more than a statement of his own belief about the impact.

34    The documentary records support Mr Camilleri’s evidence about the changes to the growing periods of chickens placed with the Growers. Steggles’ documents record the batches delivered to each Grower in 2009 and 2010, the number of days in the growing period (both excluding and including the clean-out period), and the number of days that the Growers had “spare capacity”. Steggles’ documents disclose that:

1.    While individual growing periods varied, in 2009 all of the Growers had an average growing period of less than 50 days (not including the clean-out period). The average growing period (excluding the clean-out period) for each Grower in 2009 was 47.4, 47, 44.6, 48.2, 42.4, 38.2, 43.8, 48.6, 49.2, 43.8, 47, 46.2, 44.75, 48.4, 47.5, 45.2, 45.6, 46.4, 46.5, 45.4, 46.75, 47.6, 46.4, 45.8, 42.25, 49.8, 46.2, 45.6 and 49.2 days. Across all Growers the average growing period was thus 46 days in 2009. Only six of the Growers had a growing period that, on average, exceeded the 48-day period necessary to achieve an annual batch rate of 6.3 and, in those cases, the excess ranged from 0.2 to 1.8 days longer than the 48 days.

2.    In the latter half of 2009, the Growers generally experienced significantly more days when they were neither cleaning out their sheds nor growing chickens in them than was the case in the earlier half of that year. Furthermore, all of the Growers had a number of these “spare capacity” days over the course of 2009. The number of spare capacity days for each Grower in 2009 was 66, 54, 74, 43, 56, 66, 68, 48, 50, 87, 65, 81, 64, 47, 62, 75, 62, 73, 63, 65, 49, 51, 80, 53, 74, 58, 68, 63 and 32 days.

3.    In 2010, the average growing period for the Growers increased as compared to 2009. The average growing period for each Grower in 2010 (excluding the clean-out period) was 55.6, 56, 56.75, 52.2, 53.4, 51.8, 53.4, 55.8, 56.4, 56.5, 56.5, 56, 52, 55.4, 53, 56.25, 55.25, 56, 56.5, 53, 56, 48, 53, 56.8, 51.25, 56.5, 56, 51.6 and 55.8 days. Across all Growers, the average growing period was thus 54.6 days in 2010.

4.    As in 2009, all of the Growers had days in 2010 when they were neither cleaning out sheds nor growing chickens in them. The number of spare capacity days for each Grower in 2010 was 37, 35, 59, 45, 30, 24, 45, 36, 33, 47, 53, 42, 34, 38, 37, 50, 104, 59, 62, 50, 83, 75, 54, 31, 90, 42, 36, 57 and 35 days.

35    The documentary evidence lends weight to Mr Camilleri’s evidence that the impact of Baiada’s business model (involving growing larger chickens) was not generally apparent until about March 2010. While a few of the Growers may have experienced one or more growing periods greater than 48 days in 2009, that experience was not representative of the Growers generally. Nor was the length of these longer growing periods greatly in excess of 48 days. By March 2010, however, Baiada’s move towards growing larger chickens was generally creating longer growing periods for all of the Growers. The average growing period for the Growers thus changed from 46 days in 2009 to 54.6 days in 2010. This represents a shift from the Growers mainly growing smaller chickens (that is, chickens with an AWL of less than 2.75 kg) in 2009 to growing larger chickens (that is, chickens with an AWL of more than 2.75 kg) in 2010. And as Mr Camilleri explained, “once a farm has to grow a large bird, its growing cycle will always be [an average of] 55 days plus clean out, even if most of the birds in the cycle are small birds and are removed from the shed earlier in that cycle.”

36    Mr Camilleri’s evidence about the hypothetical impact on Steggles’ business if the Growers grew only smaller chickens must be accepted as accurately conveying his perception of that impact. While that perception is entitled to some weight given Mr Camilleri’s role in the business, it is apparent that his perception was not supported by any objective material, such as data reflecting the demands of Steggles’ customers and how those demands are met across the Steggles business. Insofar as objective evidence was available, it supported Mr Camilleri’s evidence about the implementation of Baiada’s business model but did not permit any conclusions to be drawn about the potential impact of any change to that business model. Hence, in 2009 Steggles (using its own interpretation of its data) processed only 437,426 larger birds at the Beresfield plant. In 2010 that number increased to 4,045,000 larger birds. This clearly supports Mr Camilleri’s evidence about the shift to producing more chickens at the larger end of the scale. Mr Camilleri’s evidence about the business model is also supported by a summary data sheet which Steggles prepared. This data sheet shows the following:

1.    In 2009 the Growers grew 65.74% of all the chickens processed at the Beresfield plant (19,0901,497 out of a total of 29,042,401 chickens). In 2010 that percentage decreased to 51.19% (17,613,534 out of a total of 34,409,425 chickens).

2.    In 2009, of the chickens the Growers reared, 95.66% had an ALW of 2.1 kg or less, 4.12% had an ALW of between 2.1 and 2.75 kg, and 0.22% had an ALW of over 2.75 kg. In 2010, of the chickens the Growers reared, 49.71% had an ALW of 2.1 kg or less, 37.74% had an ALW of between 2.1 and 2.75 kg, and 12.55% had an ALW of over 2.75 kg.

3.    Of the 28,604,975 chickens with an ALW of up to 2.75 kg processed at the Beresfield plant in 2009, the Growers reared 19,049,005 or 66.59%. Of the 30,364,425 chickens with an ALW of up to 2.75 kg processed at the Beresfield plant in 2010, the Growers reared 15,403,037 or 50.73%. Putting it another way, growers other than the Growers reared 9,555,970 or 33.4% (in 2009) and 14,961,388 or 49.3% (in 2010) of chickens processed at the Beresfield plant with an ALW of up to 2.75 kg. While my calculation of the number of these smaller chickens reared by other growers in 2009 differs from that of the Growers (9,555,970 compared to 9,621,058), this difference is immaterial to the damages claim, which is based on the Growers’ capacity to grow a proportion of the smaller chickens processed through the Beresfield plant but grown by other growers.

37    The data sheet thus shows an increase in the number of larger chickens being processed at Beresfield in 2010 by comparison with 2009. It does not show, however, a decrease in the overall number of smaller chickens (that is, chickens with an ALW of up to 2.75 kg) being processed there. In absolute terms the number of smaller chickens being processed in fact increased from 28,604,975 to 30,364,425. Expressed as a percentage, these smaller chickens represented 98.5% of all chickens processed at Beresfield in 2009 and 88.2% of all chickens processed there in 2010. What the data sheet does disclose is that, compared to other growers rearing chickens for processing at Beresfield, the Growers have been allocated a decreased share of the smaller chickens processed at the Beresfield plant. As noted above, the percentage share of the Growers in the rearing of smaller chickens decreased from 66.59% in 2009 to 50.73% in 2010, whilst the overall number of smaller chickens being processed at Beresfield increased (again as noted above) from 28,604,975 in 2009 to 30,364,425 in 2010. The difference, as noted, was made up by other growers who increased their overall percentage share of smaller chickens grown for processing at Beresfield from 33.4% in 2009 to 49.3% in 2010.

38    If the Growers had reared all chickens processed at the Beresfield plant with an ALW of up to 2.75 kg to their respective capacities, then the Growers have calculated that they would between them have reared an additional 3,635,983 chickens in 2009 and 4,396,007 chickens in 2010. Steggles did not dispute this calculation.

39    In the light of this evidence it appears that the demand for smaller chickens (with an ALW of up to 2.75 kg) being processed through Beresfield in fact increased between 2009 and 2010 (the production being about 6% greater in 2010 than 2009). The demand for larger chickens simply increased far more. Larger chickens, however, remained a lesser percentage of the overall chickens processed at Beresfield, amounting to some 1.5% and 11.8% of the total number of chickens processed at Beresfield in 2009 and 2010 respectively.

40    Subject to one matter, there is no evidence from which it might be inferred that any particular circumstance prevented Steggles from arranging its business of allocating and collecting chickens in a manner that enabled the Growers to rear the same overall percentage of smaller chickens for processing at Beresfield in 2010 as in 2009, or some greater or lesser percentage capped only by the shed capacity of each of the Growers. The one matter which is disclosed by the evidence is that Baiada’s decision to close the Pendle Hill plant in August 2009 meant that it had a surplus of growers. The evidence discloses that Baiada tried to preserve the financial viability of the growers who previously provided chickens for processing at the Pendle Hill plant by allocating to those growers batches of chickens for processing at the Beresfield plant. This strategy remained in place until about March 2010. Otherwise, the implementation of Baiada’s business model did not result in an overall decrease in the number of smaller chickens being processed at Beresfield. To the contrary, and as indicated, overall demand for smaller chickens increased in 2010 as compared to 2009.

41    All of this evidence, including the evidence of the detailed planning necessary to ensure the system of allocating chickens to and collecting them from various growers meets customer demand, indicates that the consequence (posited by Mr Camilleri) of the Growers being permitted to grow only smaller chickens (with an AWL of up to 2.7 kg) – namely that it would “generate too many small birds for [Steggles’] market or [its] demands”, and leave it with “a shortfall of large birds to meet [its] market” – might result only if no other adjustment was made throughout the system. It is plain from the evidence that not only is the system flexible enough to allow Steggles to allocate to the Growers the capacity to grow only smaller chickens (if Steggles wished to do so), but that this very flexibility in the system resulted, in 2010, in the Growers being allocated a substantially reduced percentage of the overall (increased) number of smaller chickens processed at the Beresfield plant.

42    The Growers have said that, had more chickens been made available to them in 2009 and 2010, they would have taken the additional chickens insofar as the capacity of their sheds allowed. Nothing contradicts their evidence and it is accepted.

43    Finally, insofar as I have referred to Baiada above, it should be understood that the evidence supports the inference that Baiada runs the business of Steggles. In that sense, decisions of Baiada affecting Steggles are decisions of Steggles itself. Conduct of Baiada affecting Steggles is conduct of Steggles itself.

44    These are the facts established by the evidence. The next question is whether the Growers have thereby proved that Steggles has breached cl 7.4(a) of the contract and, in any event, whether the Growers are entitled to rely on these facts to prove breach given the way in which they pleaded their case.

BREACH OF CONTRACT?

The pleading point

45    The first issue is whether the Growers are precluded from attempting to make their case in the way they wish by their pleadings. A number of factors weigh against Steggles in respect of this issue. It is true that the Growers’ further amended fast track statement is the equivalent of a pleading (see the earlier judgment at [75]). The pleading in para 33C of the further amended fast track statement identifies the alleged breaches as involving “reduced batch rates provided to the Growers in order to allocate chicks intended for processing at its Beresfield plant to other growers”. The reference to “reduced batch rates” in this description of the alleged breach cannot be ignored. While it is open to Steggles to argue that cl 7.4(a) cannot be breached by any conduct relating to the collection of chickens (as, indeed, Steggles has argued), it is not open to Steggles to claim that the Growers are precluded from relying on “reduced batch rates” to establish breach of cl 7.4(a) because their pleading relates only to the allocation and not to the collection of chickens. Batch rates are a product of the time at which chickens are placed and the time at which they are collected. By contending breach of cl 7.4(a) by reduced batch rates, the Growers were raising for determination the issue of the cycles throughout 2009 and 2010 by which they grew chickens for processing at the Beresfield plant.

46    Moreover, it was not the Growers who first raised considerations of Steggles’ demand for larger chicken sizes as relevant to the reduced batch rates. Steggles sought to answer the claims against it by explaining its business model as implemented after the takeover by Baiada. The Growers, by their correspondence and evidence, disclosed that (on their case at least) the desire for larger chickens was no answer to their claim because there were plenty of smaller chickens being processed through Beresfield which had been placed with growers other than the Growers. Similarly, it was not for the Growers to identify as a cause of the alleged breach the difficulties which arose as a consequence of the closure of the Pendle Hill plant. The Growers do not have to prove the cause of breach. They have to prove the fact of breach and of loss occasioned thereby.

47    To the same general effect, the communications between the parties about the lack of particulars of the alleged breach disclose no more than the parties’ different approaches to cl 7.4(a). The Growers do not accept that, in order to prove breach, they have to prove that, on a particular day, Steggles delivered chickens to another grower for processing at the Beresfield plant when one of the Growers could have accepted that delivery had Steggles offered it to them. This is Steggles’ case, but it is not the Growers’. The Growers say that it was a breach of cl 7.4(a) for Steggles not to ensure that the Growers achieved an annual batch rate of 6.3 in 2009 and 2010 in circumstances where each Grower had capacity to take that number of batches if only smaller chickens were allocated to that Grower, and more than enough smaller chickens were processed at the Beresfield plant from other growers to enable that to occur. On this difference of approach it is apparent why the Growers could not provide the particulars that Steggles requested.

48    The salient point is that nothing in the further amended fast track statement confines the Growers to the case Steggles has defined. The Growers’ case as argued is their case as pleaded. Moreover, I do not accept that the way in which the case has unfolded has unfairly prejudiced Steggles. Steggles dealt with the issues raised by the Growers through Mr Camilleri’s evidence. It is Mr Camilleri’s evidence that raised the issues of demand for larger chickens and the effects of the closure of the Pendle Hill plant. It is not unfair for the Growers to rely on that evidence to support their case. The Growers’ claim should be determined on its merits in the light of the whole of the evidence and by reference to the competing submissions which the parties have made to support their respective positions.

Clause 7.4(a)

49    As noted above, in the earlier judgment (at [53]-[64]) I rejected Steggles’ argument that cl 7.4(a) had nothing to do with the provision of chickens to the Growers but merely obliged Steggles to offer to the Growers the capacity to build any additional sheds that Steggles required in the Hunter Valley region. I accepted the Growers’ argument that cl 7.4(a) required Steggles to offer to the Growers, first and in preference to any other grower, the capacity to grow any chicken to be processed at the Beresfield plant. In so construing cl 7.4(a) I had regard to the whole of the contract (including cl 12, which provides that Steggles will arrange for the chickens to be taken from the farm when, in Steggles’ reasonable opinion, the chickens are marketable as broiler chickens) and to the commercial context in which the contract was made. The fact that the contract did not guarantee that any minimum number of chickens or minimum number of batches would be allocated to the Growers in any year was relevant to the construction of cl 7.4(a) which I adopted. Part of Steggles’ argument is that the case the Growers now make would have the effect of rewriting the commercial bargain between the parties so as to, amongst other things, guarantee that the Growers would continue to achieve an annual batch rate of 6.3 batches, and so would enable the Growers rather than Steggles to dictate when the chickens must be collected (that is, after a growing period equating to an ALW of no more than 2.75 kg rather than when, in Steggles’ reasonable opinion, the birds are marketable as broiler chickens).

50    Nothing in the arguments presented during this hearing persuades me to depart from the construction of cl 7.4(a) which I determined in the earlier judgment. The clause requires Steggles to offer to the Growers, first and in preference to any other grower, the capacity to grow any chicken to be processed at the Beresfield plant. To the extent that Steggles submitted that cl 7.4(a) does not require the giving of any preference to the Growers, I reject that submission. The obligation is to first offer the relevant capacity to the Growers in preference to any other grower. I also reject Steggles’ submission that this construction, or the Growers’ case, somehow conflates the obligations in cl 7.4(a) and cl 12. To the contrary the construction, and the Growers’ case, recognises that cl 7.4(a) is as much a part of the contract as cl 12.

51    The answer to the question whether Steggles complied with its obligations under cl 7.4(a) in 2009 and 2010 cannot be determined by reference to abstract concepts such as the number of chickens each Grower processed, the number of batches each Grower received on an annualised basis, or Steggles’ requirements for chickens to be grown to certain sizes. Clause 7.4(a) requires consideration of Steggles’ treatment of the Growers compared to its treatment of other growers in respect of chickens in fact processed through the Beresfield plant. More specifically, cl 7.4(a) requires Steggles to offer to the Growers, first and in preference to any other grower, the capacity to grow any chicken to be processed at the Beresfield plant. This construction is supported by cl 7.4(b), which provides that “any additional capacity will be allocated at the discretion of Steggles”. In other words, insofar as any of the Growers has the capacity to raise any chicken to be processed at the Beresfield plant, Steggles must first offer to that Grower (indeed, to every Grower with the capacity) the opportunity to raise that chicken. Insofar as the capacity of all the Growers to raise chickens for processing at the Beresfield plant is exceeded, Steggles may allocate that additional capacity to any other grower as it sees fit under cl 7.4(b).

52    Contrary to Steggles’ arguments, this conclusion does not involve any rewriting of the contract. Clause 7.4(a) is part of the contract. Given the lack of any guaranteed minimum number of chickens or minimum number of batches, it is an important part of the commercial bargain which the Growers and Steggles struck. This construction of cl 7.4(a) does not write into the contract the very guarantees (that is, minimum batch rates and numbers of chickens per annum) that the contract does not provide. This argument of Steggles’ overlooks the fundamental fact that what cl 7.4(a) is about is the treatment of the Growers compared to other growers growing chickens for processing at the Beresfield plant. To explain by example, if the chicken industry collapsed and no chickens were processed through Beresfield cl 7.4(a) would have nothing to say about the situation. If the maximum capacity of Beresfield, for some operational reason, were reduced to 1,000,000 chickens per year then, absent any circumstance removing the capacity of the Growers to grow chickens, by cl 7.4(a) Steggles would have to offer to the Growers the capacity to rear each and every one of those chickens. This is because, given the Growers’ capacity, there would be no additional capacity to offer to other growers under cl 7.4(b). Provided, however, that Steggles offered to the Growers the right to rear those 1,000,000 chickens, Steggles would not be in breach of cl 7.4 notwithstanding the fact that the Growers would achieve an annual batch rate of less than 6.3 batches. Steggles would have complied with its obligation to offer to the Growers, first and in preference to any other grower, the capacity to rear any chicken for processing at the Beresfield plant. Similarly, if Steggles implemented a policy of growing only big chickens for processing at the Beresfield plant, Steggles would not be in breach of cl 7.4(a) by requiring the Growers to grow only big chickens (again, despite the inevitable reduction in their annual batch rates). Clause 7.4(a) says nothing about the size of chickens Steggles may choose to grow. But the clause does regulate Steggles’ capacity to allocate to other growers the right to grow chickens for processing at the Beresfield plant.

53    It follows that Steggles’ submissions about the consequences of accepting the Growers’ case should not be accepted. The Growers’ case does not involve accepting the notion that whatever maximum number of batches the Growers happen to process in any year somehow sets the benchmark for all future years. Steggles’ obligations to the Growers under cl 7.4(a) depend entirely on what chickens Steggles processes through the Beresfield plant. In other words, Steggles is free to determine what the market requires in terms of the processing of chickens through the Beresfield plant. Again, all that cl 7.4(a) requires is that the Growers be given the first opportunity in preference to any other grower to grow every chicken processed through the Beresfield plant to the extent of the Growers’ capacity. If the chickens to be processed through the Beresfield plant exceed the capacity of the Growers, then by cl 7.4(b) that additional capacity may be allocated to any other grower as Steggles determines in its discretion. It is thus incorrect for Steggles to suggest that cl 7.4(a) means that it will be exposed to an allegation of breach every time the market changes. To the contrary, the terms of cl 7.4(a), in contrast to a provision requiring a minimum annual batch rate (which the contract does not contain), provides Steggles with considerable flexibility to respond to market conditions. This is because cl 7.4(a), in essence, is about the comparable or relative treatment of the Growers and other growers. Insofar as least as the Beresfield plant is concerned, by cl 7.4(a), Steggles has given priority (in terms of allocation of chickens for processing at that plant) to the Growers first and in preference to all other growers. These considerations also answer Steggles’ rhetorical question as to why the Growers bothered with the estoppel claims the subject of the earlier judgment. Contrary to Steggles’ arguments, nothing in these conclusions about cl 7.4(a) undermines the relevance of the estoppel claims resolved in the earlier judgment.

54    It may be acknowledged that the obligations which Steggles accepted under cl 7.4(a) impose some constraints on the management of its systems for the allocation, collection and processing of chickens. Nevertheless, it is apparent from the evidence that these systems, both before and after the takeover by Baiada, are able to accommodate the obligations which Steggles accepted on entering into the contract with the Growers. It may also be acknowledged that cl 7.4(a) imposes some constraints on Steggles’ dealings with the Growers which may or may not exist in respect of Steggles’ dealings with other growers. Whether cl 7.4(a) imposes greater constraints on Steggles’ dealings with the Growers as compared to other growers, however, is beside the point. It is the deal which Steggles did and Steggles is bound by that deal.

55    Once it is accepted that cl 7.4(a) has this meaning, it is apparent that the Growers’ claims must be accepted – but not because they have a right to some absolute number of chickens or number of batches in any given year, and not because they have the right to dictate to Steggles the size to which chickens should be grown. As noted above, clause 7.4(a) does not dictate these absolutes to Steggles. Rather, it regulates Steggles’ dealings with the Growers relative to its dealings with other growers in respect of chickens processed through the Beresfield plant. The Growers’ claims, accordingly, must be accepted because the evidence makes plain that Steggles allocated chickens to other growers for processing at the Beresfield plant when the Growers had capacity to grow those chickens. To establish these facts it was not necessary (nor even perhaps possible) for the Growers to show that, on a day on which Steggles allocated chickens to some other grower, one of the Growers could have taken them. Steggles plans the delivery and collection cycle weeks in advance. It was (and remains) well within Steggles’ power to ensure that, insofar as their respective capacities allowed, each of the Growers was allocated as many chickens as that Grower could accommodate first and in preference to any other grower insofar as chickens are processed at the Beresfield plant. This could have been achieved, for example, by minimising the breaks between batches so as to reduce the Growers’ spare capacity days and, from around March 2010, by allocating to the Growers the capacity to grow the smaller chickens processed at the Beresfield plant which, in fact, Steggles allocated to other growers. The evidence discloses that this did not occur.

56    The Growers’ approach of considering allocations and capacity on an annual basis is a reasonable and appropriate way of ascertaining whether Steggles complied with its obligations under cl 7.4(a). It also reflects the workings of the contract insofar as the contract provides for payment to the Growers per batch based on adjustments made by reference to their batch rate, which is the number of batches delivered to each Grower in one year.

57    The evidence establishes that Steggles allocated to other growers the capacity to rear 9,555,970 chickens in 2009 and 14,961,388 chickens in 2010 for processing at the Beresfield plant with an ALW of up to 2.75 kg. The Growers had the capacity to rear an additional 3,635,983 of these chickens in 2009 and 4,396,007 of these chickens in 2010. As such, throughout 2009 and 2010 Steggles gave to other growers the capacity to rear millions of chickens which were processed at the Beresfield plant when the Growers had the capacity themselves to rear many of them. Clause 7.4(a), as outlined above, required Steggles to offer to the Growers the capacity to rear those chickens first and in preference to other growers. The fact that these chickens were reared by other growers and processed at the Beresfield plant when the Growers had the capacity to grow them establishes that Steggles breached cl 7.4(a) in 2009 and 2010. The evidence also supports the inference that in 2009 and 2010 the Growers, systematically, were not given preference in the allocation of chickens for processing at the Beresfield plant compared to other growers. The allocations to other growers (or, more precisely, the lack of the giving of preference to the Growers in allocations) cannot be dismissed as trivial or de minimis. Furthermore, it is not the case that Steggles’ desire to grow larger chickens inevitably led to this result. As noted, the number of smaller chickens (with an ALW of up to 2.75 kg) processed through Beresfield increased between 2009 and 2010 even as the proportion of those smaller chickens reared by the Growers (as opposed to other growers) substantially decreased.

58    For these reasons the Growers have established that Steggles breached cl 7.4(a) of the contract in 2009 and 2010. It will also be apparent from these reasons that I consider it unnecessary to deal with the obligation in cl 2(d) of the contract (the good faith obligation). As the Growers indicated, they do not need to rely on that clause to make good their case and thus the question whether they pleaded any breach of cl 2(d) does not arise.

DAMAGES?

59    Steggles’ arguments against the Growers’ approach to damages are not persuasive.

60    First, insofar as Steggles relied on the Growers’ pleading at para 20(r)(3) of the further amended fast track statement that “until 30 June 2009 all of the Growers exclusively supplied Beresfield’s processing plant”, Steggles must have known that the pleading did not mean that every chicken processed at Beresfield was reared by the Growers because Steggles knows that not to be the case. Read in light of the facts (known to Steggles), the pleading could mean only that all of the chickens the Growers reared were processed at Beresfield.

61    Second, the Growers have established that, of chickens reared by other growers and processed at the Beresfield plant, the Growers had the capacity to rear an additional 3,635,983 of these chickens in 2009 and 4,396,007 of these chickens in 2010.

62    Third, the Growers’ approach to damages, when analysed, is not a “rolled-up” claim. The approach would permit a separate order for damages to be made for each Grower if appropriate or necessary. If the evidence established that one or other of the Growers was subject to some special circumstance, then separate consideration of that Grower’s position might be required. The evidence, however, is to the contrary. All of the Growers’ farms were fully operational throughout 2009 and 2010. On that basis the method for calculating the loss which the Growers have suffered by Steggles’ breaches of cl 7.4(a) in 2009 and 2010 appropriately reflects both the individual position of each Grower and Steggles’ contractual obligation (set out in cl 7.5 of the contract) to act in a manner that is equitable to all Growers and to treat them on materially similar terms. I am satisfied that the claimed damages, calculated in accordance with the method described in the summary of the Growers’ case above, will appropriately compensate the Growers for the loss which they suffered by reason of Steggles’ breaches of contract in 2009 and 2010. The parties should prepare draft orders reflecting these reasons for judgment and their position as to costs.

Associate:

Dated:    6 July 2011