FEDERAL COURT OF AUSTRALIA

Yarrabee Chicken Company Pty Ltd v Steggles Limited (No 4) [2013] FCA 604

THE COURT ORDERS THAT:

1.    Within 14 days of the date of this order, the parties are to confer and are to file and serve agreed or competing proposed orders in accordance with the reasons for judgment published today.

2.    If the proposed orders are not agreed the parties are to indicate in their proposed competing orders whether they seek any further hearing in respect of the form of the orders to be made and the dates for such a hearing convenient to both parties.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

PROCEDURAL HISTORY

1    Before dealing with the substantive issues to which the remaining pleading in this matter, a cross-claim, gives rise, it is appropriate to say something about the procedure adopted for the resolution of this matter.

2    The matter was commenced in 2009 by the filing of a fast track statement. The matter was commenced as a representative proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth). The matter was urgent because the “growing contracts” under which the applicants, tunnel growers of broiler chickens in the Hunter Valley who were members of the Hunter Valley Tunnel Group (the HVTG), were about to expire and the respondent, Steggles Limited (Steggles), a chicken processing company which operates a chicken processing plant at Beresfield in the Hunter Valley, refused to renew the contracts as required by cl 21, a provision which provided for an option for contract renewal for a term of not less than five years at the election of the growers. The contractual dispute arose in circumstances where Steggles was in the process of being bought out by another company, Baiada Poultry Pty Ltd (Baiada). The disputed issues about the operation of the contract were many in number and varied in terms of urgency and importance, the most urgent issue at that time being the renewal of the contract.

3    By 28 July 2009 the parties had managed to resolve between themselves that part of the contractual dispute relating to Steggles’ obligation to renew the contract. The parties agreed that a declaration was appropriate to reflect the resolution of this part of the dispute. I was satisfied that the declaration they sought should be made. On 28 July 2009 I made orders which included the following:

2.    Subject to the notation below, a declaration that the respondent is obliged to renew the growing agreement of each of the Growers on the same terms as the existing growing agreement between each of the Growers and the respondent (subject to the deletion of any references to such of the roles of the Poultry Meat Industry Committee which are now severed and unenforceable as a result of legislative changes made in relation to that body’s powers) and incorporating:

(a)    the terms of the document which comprises schedule A to this order; and

(b)    a provision that those parts of the renewed growing agreement which deal with the matters prescribed by the Poultry Meat Industry Regulation 2008 are included in the renewed growing agreement in compliance with section 7 of the Poultry Meat Industry Act 2008.

…

AND THE COURT NOTES THAT:

14.    Notwithstanding the declaration in order 2, the parties remain at issue, inter alia, as to the existing terms and proper construction of the existing growing agreement of each of the Growers insofar as those agreements deal with matters concerning the methodology of adjustments to the calculation of the Standard Growing Fee, the batch rate and the density.

4    Schedule A to this order is a copy of the standard “Broiler Chicken Growing Contract” (the contract) between members of the HVTG and Steggles.

5    Some of the outstanding issues about the operation of the contract remained urgent. In accordance with the submissions of the parties I agreed that an order should be made so 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. I was convinced that the principles which require caution about the making of such an order were satisfied and that requiring the usual course of resolving all issues at once would be unfair, particularly to the growers who claimed that they were substantially out-of-pocket as a result of Steggles’ position about how the contract operated.

6    The course of this proceeding provides another example of the risks of acceding to what might appear at the time to be a compelling case for the determination of separate issues. In Tepko Pty Ltd v Water Board [2001] HCA 19; (2001) 206 CLR 1 (Tepko) Kirby and Callinan JJ, referring to Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180, said at [168] :

In light of the experience in this case, what was there said should be restated with emphasis. The attractions of trials of issues rather than of cases in their totality, are often more chimerical than real. Common experience demonstrates that savings in time and expense are often illusory, particularly when the parties have, as here, had the necessity of making full preparation and the factual matters relevant to one issue are relevant to others, and they all overlap.

7    With hindsight, the following is now apparent. The matter was commenced in 2009 in the fast track due to its urgency. It was removed from the fast track in December 2009. Because I acceded to what appeared at the time to be a persuasive case put by both parties for the separation of the liability and damages issues, the last (hopefully) remaining issue in the proceeding now is being determined in 2013, more than three years after the proceeding was commenced. The decision on the construction, equitable estoppel and misleading conduct issues was published on 27 April 2010 (Yarrabee Chicken Company Pty Ltd v Steggles Limited [2010] FCA 394) (Yarrabee [2010]). When the time came to determine damages, it emerged that there were issues between the parties about whether the construction previously determined led to one result or another. The decision on damages was published on 6 July 2011 (Yarrabee Chicken Company Pty Ltd v Steggles Limited (No 2) [2011] FCA 750). Steggles, the unsuccessful party, appealed against part of the orders. The Full Court, on 26 June 2012, allowed the appeal (Steggles Limited v Yarrabee Chicken Company Pty Ltd [2012] FCAFC 91). In so doing, the Full Court held at [84] that:

In her second judgment the primary judge addressed further arguments on construction that were put to her during the second hearing. Although she said she was not persuaded to depart from the construction adopted in her first judgment, it seems to us that she did so.

8    This inconsistency could not have arisen if all issues had been heard and resolved at once.

9    It gets worse. In between the first and second hearings, or perhaps at some earlier time (this too is now in dispute), Steggles became aware of yet another issue between it and the growers about the operation of the contract. The growers contended that the contract, as required to be renewed under cl 21, had to contain cl 21 and that cl 21 vested in the growers a perpetual right of renewal. Steggles contended that cl 21 provided for a single right of renewal only which had been exhausted by the renewed contracts it was taken to have entered into with the growers on 1 July 2009. Steggles filed a cross-claim in the proceedings raising this issue. It was not practical to hear and determine this cross-claim as part of the second hearing. The issues in this cross-claim and the defence to it are what must now be determined. However, because I had agreed to deal with separate issues as set out above, in this final part of the hearing I am now confronted by yet further issues which could not have arisen had I resisted the urging of the parties and insisted that all issues be tried together despite the apparent hardship which this would occasion. These further issues are whether the growers’ defence should be struck out as an abuse of process because it is inconsistent with the case they ran before me in 2010 and 2011 and whether Steggles is precluded from running its case on construction by reason of the principles of res judicata, issue estoppel or Anshun estoppel (Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589) having regard to the declaration I made on 28 July 2009 and the case Steggles ran before me in 2010 and 2011.

10    I have set out this history in order to demonstrate that an apparently compelling case for the separation of issues, urged by experienced senior counsel for both parties and appearing to enable the urgent resolution of issues which, if not resolved, would cause serious hardship, has proved to be unwise. The benefits it appeared to offer have now been far outweighed by delay in the parties achieving an overall resolution and the additional expense (not only to the parties but to the court system also) and time consumed by three hearings. The issues in the last two hearings have also been added to in number and complexity. I hope that this history might act as a warning to parties and as a bulwark to judges confronted by similar procedural issues in the future (including me). That the potential disadvantages of a trial on separate issues cannot be foreseen and the advantages appear overwhelming in a particular case is no answer to the caution based on experience which underlies the statement of Kirby and Callinan JJ in Tepko.

The CONSTRUCTION ISSUE

Contractual provisions

11    The contract in evidence is one example of a standard form contract between Steggles and a grower which is a member of the HVTG. Although the contracts are in standard terms, one (or at least one) has a different Start Date and End Date (as defined). The cover page of the contract in evidence contains the following:

BASIC INFORMATION

12    Clauses 1 and 2 of the contract are in these terms:

1    DEFINITIONS

In this contract, capitalised terms have the meaning set out in Appendix G and in the Basic Information. The interpretation provisions set out in Appendix G apply to this contract.

2    HOW THIS CONTRACT WORKS

Without limiting the operation of the other provisions of this contract, Steggles and the Grower acknowledge and agree that this contract is intended to operate as follows:

(a)    the Grower intends to produce Saleable Birds on the Farm for Steggles and aims to meet and exceed BPIF Performance Benchmarks;

(b)    in return, Steggles must pay the Grower a fee for this service based on the Best Practice Payment System;

(c)    in the event that changes are made to the Act then the terms and conditions (other than as to Term) will, to the extent the changes to the Act materially affect the obligations or costs of the parties, be renegotiated by the parties; and

(d)    the parties will carry out their respective obligations under this contract promptly and will act reasonably and in good faith in all matters relating to the interpretation and carrying out of this contract.

…

13    Clause 21 is as follows:

21    RENEWING THIS CONTRACT

(a)    Unless this contract has been terminated sooner, a party wishing to enter into negotiations for a new growing contact to commence on the End Date must notify the other party in writing, by no later than 7  months before the End Date (notice of intent).

(b)    If the Grower gives a notice of intent to Steggles in accordance with clause 21(a), then Steggles must offer the Grower a new growing contract for a term of not less than 5 years from the End Date, within 30 days of receiving the Grower’s notice of intent.

(c)    The contract will expire on the End Date and no new growing contract will be entered into if:

(1)    neither party provides the other with a notice of intent; or

(2)    Steggles provides the Grower with a notice of intent and the Grower declines the notice of intent, or fails to respond to the notice of intent within 30 days of receiving it.

(d)    Steggles may require common amendments as between all Growers to the specifications or requirements of any clause of or any appendix to this contract in any such new contract and any new contract must in include such amendments. Any such amendments which give rise to additional expenses or overheads to be incurred by the Grower will be made after agreement with the Grower Representative Group and, if applicable, after obtaining the approval of the PMIC.

(e)    Any proposed amendments are to be notified to the Grower Representative Group and agreed at least 3 months prior to the end of the current contract.

(f)    Failure to agree will lead to dispute resolution as described in Appendix F of this contract.

…

14    Relevant definitions in Appendix G to the contract include:

Basic Information means the information set out in the table headed “Basic Information” on page 1;

…

End Date means the later of the end date listed in the Basic Information and the date at which the last Birds in a Batch on the Farm and at the end date listed in the Basic Information are collected from the Farm;

…

National Minimum Standards means, at the Start Date the edition of Steggles’ publication National Minimum Standards set out in Appendix E, and, thereafter, the most recently published edition of that publication including any standards specific to the Region;

…

Start Date means the start date listed in the Basic Information;

…

Term means the period commencing on the Start Date and ending on the End Date;

…

15    Other provisions of Appendix G include:

3    Interpretation

In this contract, unless the contrary appears:

…

(b)    other documents – a reference at a particular time to a particular deed, document or arrangement, or to any of its provisions:

(1)    is a reference to it as in operation at that time; and

(2)    if the contract, document or arrangement has been remade or novated – is also a reference to it as remade or novated;

…

4    Basic Information and appendices

The basic Information and the appendices to this contract form part of this contract.

5    Headings

Headings (including those in brackets) and notes in this contract are for convenience only and do not affect the interpretation of this contract.

Facts

16    It is common ground that the members of the HVTG notified Steggles in writing that each wished to renew their contract more than 7 months before the End Date as contemplated by cl 21(a). It is also common ground that, other than the amendments identified in the declaration made on 28 July 2009, Steggles did not require any other amendments to be made as contemplated by cl 21(d). The declaration of 28 July 2009 reflected Steggles’ ultimate acceptance of the fact that, by cl 21(b), it was bound to offer each grower “a new growing contract for a term of not less than 5 years from the End Date”. There is not in fact any written renewed contract between any grower and Steggles but it is common ground that each member of the HVTG accepted Steggles’ offer and that, since the End Date, each grower has been growing chickens for Steggles pursuant to a renewed contract as contemplated by cl 21. This renewed contract, although not in writing, is on the same terms as the existing contract, as set out in the declaration (subject to the amendments noted therein).

Competing submissions

17    Steggles’ arguments on construction may be summarised as follows:

(1)    The “End Date” in the contract is a specific date, being 30 June 2009 for all but one grower (who entered into the contract later), and a specific later date for that grower.

(2)    The renewed (or second) contract has a term of not less than five years from the End Date as set out in cl 21(b).

(3)    The renewed (or second) contract does not obtain a new End Date. The End Date remains 30 June 2009 (or the later date as relevant) but the term of the renewed (or second) contract is from 30 June 2009 until 30 June 2014, being a period of not less than five years.

(4)    Clause 21, accordingly, does not contain any continuing obligation on Steggles to offer another renewed contract (and third then fourth contract, and so on) on the expiry of the renewed (or second) contract.

(5)    Rather, cl 21 has a single application only.

(6)    The fact that the declaration requires the renewed (or second) contract to be on the same terms is immaterial. Clause 21 has an obvious meaning which reflects a contract with a term of five years and an option to renew for another (single) term of five years.

(7)    This obvious meaning accords better with the provisions of the contract overall than the meaning proposed by the growers.

(8)    This obvious meaning also accords better with commercial practicality and common sense. Why Steggles would bind itself to a form of perpetual option remains unclear.

18    The growers’ arguments on construction may be summarised in these terms:

(1)    The declaration is critical because it discloses that cl 21, as a whole, is part of the renewed (or second) contract.

(2)    Steggles’ construction gives cl 21 no work to do and renders the provision, as it appears in the renewed (or second) contract, meaningless.

(3)    The End Date in the renewed (or second) contract cannot be 30 June 2009, as that would render most of the contract absurd and meaningless. The End Date in the renewed (or second) contract must be read as 30 June 2014.

(4)    Steggles’ case is that in the renewed (or second) contract End Date takes one meaning in cl 21 (30 June 2009) and another meaning (30 June 2014) in all other provisions of the contract. This is an untenable construction. End Date must have the same meaning wherever used.

(5)    Caution needs to be taken in respect of notions of commerciality (Schwartz v Hadid [2013] NSWCA 89 at [86], (Schwartz)). In this case, there is no evidence of what might or might not be commercially practical.

(6)    There is thus no warrant for construing cl 21 as having a single application only.

19    It is convenient here to identify other provisions of the contract on which the parties relied.

20    Clause 4.1 requires the growers to comply with certain basic requirements “at all times throughout the Term”. Term means the period commencing on the Start Date and ending on the End Date. The growers said if Steggles is right then the obligation in cl 4.1 does not apply in the term of the renewed (or second) contract because the obligation is expressed to apply throughout the period commencing on the Start Date (30 August 2004) and ending on the End Date (30 June 2009). The same point may be made about cl 8.3(b) which requires growers to provide Steggles with certain information “during the Term”.

21    Clause 8.9 provides for a minimum return to each grower which equates to approximately two thirds of the average return to all growers “as at the Start Date”. Steggles said that if the growers are right then it is not only the End Date that must be read as 30 June 2014, the Start Date must be read as 30 June 2009. Yet this would make a nonsense of cl 8.9. Steggles made the same point about cl 14.4(a) which requires a fee review in the first January following the Start Date.

22    The growers noted that cl 16.7(b) provides that all of the representations and warranties given by both parties “are regarded as being repeated on each day during the Term”. If Steggles is right there are no such representations and warranties in force between 30 June 2009 and 30 June 2014 given the definition of Term.

23    The growers also referred to cl 20.1 which provides that unless sooner terminated, the contract ends on the End Date. According to the growers, if Steggles’ construction is right, then the renewed (or second) contract will end on the same day as it began, which is absurd.

24    Steggles referred to cl 20.6 which provides for Steggles to acquire assets of the growers if Steggles decides to stop processing chickens at Beresfield. In that event, under cl 20.6(d) there is an agreed value for the specified assets to be acquired. Clause 20.6(e) provides that this total agreed value will reduce by $525 per month starting at the Start Date. Steggles submitted that if the End Date is 30 June 2014 and the Start Date 30 June 2009, then it must be the growers’ case that the depreciation provided for in cl 20.6(e) re-commences on 30 June 2009, which is absurd.

25    Both parties sought to rely on cl 25(d) which provides for Steggles to give a grower a letter of intent and specify the assurance, if any, Steggles will give about renewing the contract on expiry of the Term. Steggles said that this would be unnecessary if the contract provided a perpetual option in cl 21. The growers said that cl 25(d) relates to cl 21(d) and is intended to protect growers from being exposed to any common amendment that would require substantial capital investment.

26    The growers also pointed to references to End Date in cl 4 of Appendix A (the table of fee adjustment factors said to run between the Start Date and the End Date) and Term in cl 5.2(c) of the same Appendix.

Discussion

27    In the judgment of the Full Court in the appeal relating to this matter Jacobson, Lander and Foster JJ identified the general principles relating to the construction of contracts in these terms:

56 The proper approach to construction of cl 7.4(a) of the contract is to construe it by reference to the principle of objectivity stated by the High Court in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22] and Toll (FGCT) Pty Ltd Alphapharm Pty Ltd (2004) 219 CLR 165 at [40].

57 That approach requires the Court to ascertain the intention of the parties by reference to what a reasonable person would understand the language of the contract to mean. It:

… normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.

See Toll at [40]; and also see Pacific Carriers at [22].

58 It is well accepted that a commercial contract such as the present is to be construed fairly and broadly but the Court has no power to remake a contract for the purpose of avoiding a result which may be considered unjust Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 (ABC v APRA) at 109.

59 That said, in approaching the construction of the contract, if a detailed, semantic and syntactical analysis of words in a commercial contract will lead to a conclusion that flouts business common sense, it must be made to yield to business common sense: Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at [43] citing Antaios Companios Naviera SA v Salem-Rederiesna AB [1985] AC 191 at 201; see also ABC v APRA at 109.

60 Nevertheless, orthodoxy requires that evidence of prior negotiations is ordinarily to be excised from the process of construction: Royal Botanical Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45 at [39]; Western Export Services Inc v Jireh International Pty Limited (2011) 282 ALR 604 at [2] – [4] (application for special leave to appeal per Gummow, Heydon and Bell JJ, query whether this constitutes a binding precedent, see O’Brien, D, Special Leave to Appeal (2nd Ed, Supreme Court of Queensland Library, 2007) at pp 46-50); see also Australian Medic-Care Company Ltd v Hamilton Pharmaceutical Pty Ltd (2009) 261 ALR 501 at [118].

28    The growers also stressed the observations in Schwartz at [86] that:

The correct approach to the construction of a commercial contract, such as the Deed, is discussed in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603, esp at [19]. The underlying task remains one of construing the words which the parties have used. In construing the language in question, regard must be had to the other parts of the text so that, as far as possible, the various provisions are given a consistent or congruent operation: Australian Broadcasting Commission v Australasian Performing Right Assn Ltd [1973] HCA 36; 129 CLR 99 at 109; Wilkie v Gordian Runoff Ltd [2005] HCA 17; 221 CLR 522 at [16]). The meaning to be ascribed to the language adopted by the parties is to be assessed objectively, in the sense that it is not governed by the subjective beliefs or understandings of the parties, but rather by what a reasonable person would understand by the use of that language: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at [40]. In a commercial context that usually requires that the preferred meaning is that which makes commercial sense and gives effect to the aims and purposes of the parties, to the extent that they can be identified legitimately from the text and context. Of course, minds may differ as to what constitutes “business common sense” in a particular case: Maggbury Pty Ltd v Hafeli Australia Pty Ltd [2001] HCA 70; 210 CLR 181 at [43]. In the end, it remains the position that the meaning ascribed to the language must be an available one, albeit adopting an approach to construction which is not “narrow or pedantic”. Reference to notions of commercial or business common sense does not permit “judicial rewriting” of an agreement in disregard of the language which the parties have adopted: Australian Broadcasting Commission v Australasian Performing Right Assn Ltd at 109; Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; 149 CLR 337 at 352; Jireh International Pty Ltd v Western Exports Services Inc [2011] NSWCA 137 at [55].

29    The first observation to make having regard to these principles is that there are two standard contracts. The first is the written contract which, other than for one grower, operated between 30 August 2004 and 30 June 2009 (the first contract). The second is the renewed contract which came into existence by reason of the offer Steggles was bound to make under cl 21(b) and which each of the growers accepted (the renewed or second contract). The first contract is a circumstance which was known to the parties at the time the second contract came into existence. Accordingly, the first contract is part of the context which it is permissible to consider irrespective of any ambiguity in the language of the second contract (Schwartz at [85]).

30    The relevant point about the first contract in this regard is that the provisions of cl 21, including the use of the End Date, gives rise to no potential anomaly. In the context of the first contract (and leaving aside the grower with a different Start Date), the Start Date is 30 August 2004, the End Date is 30 June 2009, the Term is the period commencing on the Start Date and ending on the End Date, and all of the obligations expressed by reference to these defined terms operate harmoniously, including cl 21 itself. The same is true for the grower with the different Start Date – the dates may be different but the position remains the same (and, contrary to the growers’ submissions, that grower need not be considered further for this reason). By cl 21(a), a party wishing to enter into negotiations for a new contract to start on the End Date (30 June 2009), must give notice by no later than seven months before the End Date, which each of the growers did. By cl 21(b), Steggles was bound to offer a new contract for a term of not less than five years from the End Date within 30 days of receiving the notice of intent (which Steggles did not do but ultimately accepted it was bound to do). Steggles did not require common amendments to the contract as set out in cl 21(d) other than those matters identified in the declaration to which the growers agreed. In accordance with cl 21(d), the second contract includes those amendments but, as implicitly contemplated by cl 21(d) and made express in the declaration, the second contract is otherwise on the same terms as the first contract.

31    The anomalies identified by the parties arise only in respect of the second contract. Clause 21 is not the source of the anomalies. Even if cl 21 were not part of the second contract, the anomalies would remain because the Start Date is still defined to be 30 August 2004, the End Date is still 30 June 2009, and the Term is still the period from the Start Date to the End Date. Clause 21(a) contemplates negotiations for a new contract and cl 21(d) permits common amendments to specifications or requirements of any provision of the contract. Accordingly, it is possible that the parties could have resolved the anomalies through that process. In that event, however, the function of cl 21 would nevertheless have remained in issue between the parties because Steggles contends that it contemplates a single option and the growers contend that, as cl 21 must be part of each renewed contract, it provides a form of perpetual option at each grower’s election. Implicit in the growers’ position is that Steggles could not require, as a common amendment, the deletion of cl 21 because cl 21(d) permits such common amendments only to “specifications or requirements” and cl 21 itself is not a specification or requirement. Whether this is so or not is not an issue in the cross-claim.

32    The lack of anomalies in the first contract does not mean that cl 21, as it appeared in the first contract, was free from ambiguity. Apart from the operation of cl 21(d), it is important to recognise that the second contract is the result of the obligations imposed by the first contract. Whatever those obligations are, they are obligations imposed in and by the first contract. That is to say, if there is a single five year option it was created by cl 21 of the first contract. If there is a form of perpetual five year option, it too was created by the first contract.

33    These considerations indicate that the first contract is relevant. In the context of the first contract there are numerous indications that cl 21 provides to the growers the option to require Steggles to offer a single further contract of five years. In cl 21 itself the language used contemplates a (single) notice and a (single) new contract. The new contract is to be for a term of not less than five years from the End Date. No words are used that might indicate that there was intended to be a form of perpetual or rolling option for five year contracts at the discretion of the grower. If that had been intended, then cl 21, which refers to a single new contract running for not less than five years from the End Date, is an extremely strange way to achieve it. There is simply nothing on the face of cl 21 which, in the context of the first contract, would support the growers’ construction. The other provisions of the first contract also all work in harmony with this approach to cl 21. For example, it is apparent that the depreciation arrangement in cl 20.6 reflects a contract with a five year term and a five year option. By the end of 10 years, depreciating at the specified $525 per month, the entire amount of $63,000 will have depreciated to zero. The notion that the renewed or second contract under cl 21 should take a new Start Date and a new End Date so that, wherever those words appear in the second contract they are to be read as 30 June 2009 and 30 June 2014 respectively, undermines the operation of cl 20.6 – a clause which has plainly been devised to reflect a contract for five years with one five year option. No other provision is in conflict with this construction of cl 21. Moreover, no reasonable person would understand from the language of cl 21 that the parties had agreed to provide a grower with a form of perpetual, as opposed to a one-off, five year option. Recourse to commercial practicalities is unnecessary to reach this conclusion; but, if permissible to consider commercial considerations on the state of the evidence in this case, the question Steggles posed is telling – what possible commercial justification would there be for Steggles to have granted a perpetual option to the growers? No justification is apparent.

34    There are undoubtedly anomalies in the second contract. That the parties might have been able to negotiate a form of second contract without those anomalies does not alter the fact that the second contract exists and has to be construed in accordance with its terms, including cl 21. Finding a construction of the second contract which harmonises all provisions is not easy. But nothing commends the growers’ construction other than some of the anomalies if considered in isolation from the overall context. In the context of the second contract, cl 21 still refers to the End Date as defined (30 June 2009). The fact that the second contract contains cl 21 and that cl 21 has no work to do is only anomalous if it is assumed that the first contract, by cl 21, created a form of perpetual option. As I have said, I am unable to see any reason supporting that construction of the first contract. Given that the second contract is simply the contract required by the first contract, the continued presence of cl 21 in the second contract as a dead letter is not particularly anomalous. Nor are the other anomalies on which the growers relied. When analysed, the growers’ argument boils down to a single proposition which happens to have a fortuitous consequence for them. The proposition is that because the contract uses the Term to identify the period within which obligations are imposed and the Term operates by reference to the Start Date and the End Date, the second contract must be construed so that Start Date means 30 June 2009 and End Date means 30 June 2014. The fortuitous consequence is that End Date in cl 21 thus becomes 30 June 2014 and the growers get a perpetual option. I describe this consequence as fortuitous because, as I have said, there is simply nothing in the first contract to suggest that such a consequence was ever intended by reason of the second contract.

35    The growers’ case about the second contract requires the defined terms, Start Date, End Date and Term to be read as meaning something different from what has been defined. The justification for doing so is that unless this is done the second contract will not operate as intended given that various obligations operate during the Term. The consequence of doing so is said to be the perpetual option in cl 21 because (newly) defined terms should take the same meaning wherever used. The case is internally logical but, in my view, specious and opportunistic. It is as if the plain intent of cl 21 as it appeared in the first contract has somehow been transformed because of a lack of foresight about how the defined terms would operate in the second contract. No doubt the provisions of the second contract need to be construed so as to be as congruent and consistent as the language permits, but achieving congruence and consistency in a manner which would transmogrify what was a one-off five year option in cl 21 in the first contract into a perpetual option in the second contract is inconsistent with the basic obligation to give effect to the words the parties have used. In short, if there is tension between achieving congruence and consistency on the one hand and giving effect to the objective intention of the parties when they entered into the first contract which included cl 21 and the obligation to enter into the second contract, then the objective intention must prevail even if the price is some incongruence and inconsistency.

36    Not that I find the resulting incongruence and inconsistency overwhelming in the growers’ favour. For every clause that the growers can point to in the second contract which appears to favour them (such as cl 4.1) there is another which appears to favour Steggles (such as cl 20.6). In any event, it is plain from cl 21(b) that the term of the renewed or second contract is five years from the End Date. Given that only limited common amendments were made why would cl 4.1 not be read as applying throughout the term (small “t” as opposed to capital “T”)? What possible reason would there be for construing cl 4.1 as not applying throughout the second contract merely because it uses “Term” instead of “term”? The same conclusion applies to cl 8.3(b) and cl 16.7(b), as well as cl5.2(c) of Appendix A. It is true that cl 17 and cl 20.1 are redundant but it is plain from cl 21(b) that the term of the second contract is five years commencing on 30 June 2009 so these provisions were always going to be redundant in the second contract. Clause 20.2 is more of a problem but can also be treated as redundant and if the parties wish to agree to apply it to the second contract they may do so at any time during the term. Clause 21 is redundant but, consistent with the views expressed above, redundancy does less violence to this contract than the growers’ case. Clause 25(d) is also redundant. End Date and Start Date otherwise retain their defined meanings of 30 August 2004 and 30 June 2009 which enables cll 8.9, 14.4, 20.6 and cl 4 of Appendix A to operate in the second contract as intended.

37    Contrary to the growers’ submissions, I do not see the declaration as having any particular significance for the resolution of the preferred construction of the renewed or second contract. The declaration reflects the agreement between the parties that Steggles was bound to offer the renewed or second contract and that this contract was to be on the same terms as the first contract subject to limited common amendments. The fact that those terms include cl 21 does not resolve the issue of construction between the parties. As discussed, there was always ambiguity in cl 21, including ambiguity about how it would operate in the second contract. Accordingly, that Steggles agreed the second contract should be on the same terms as the first contract says nothing about the resolution of the ambiguity. It is for these reasons that I can see no substance in the growers’ vague and never fully articulated contentions about res judicata or issue estoppel. The declaration did not resolve the ambiguity created by cl 21. The presence of cl 21 in the second contract is a result of that ambiguity and not the resolution of it. The proper construction of cl 21 was in no way part of or necessary for the making of the declaration. It follows that the proper construction of cl 21 as it appears in the second contract cannot give rise to any inconsistency with the declaration and cannot found any res judicata or issue estoppel in that regard.

38    The growers’ Anshun estoppel submission, also never fully articulated, is equally ill-founded. It may be accepted that Steggles could have raised the proper construction of cl 21 before the declaration was made. However, whether they should have done so is another question. Even if I take the evidence of Andrew Stevenson, one of the growers who attended a meeting with Steggles’ representatives on 9 July 2009, at its highest, it means only that Steggles should have been aware at that time that the growers’ position was that cl 21 operated to vest in them a form of perpetual option for contracts of not less than five years. But that was not the issue requiring urgent resolution in July 2009. The issue in July 2009 was the fact that Steggles was refusing to comply with the obligation to renew the contract at all and the growers were all growing chickens without a contract (as required by law) being in place. In these circumstances it is hardly surprising that Steggles was not focused on what might happen in 2013 before the expiry of the second contract. One of the growers’ submissions made this point inadvertently. The submission was that this cross-claim is premature because the time had not yet arrived for the growers to give their notices of intent. I do not accept this submission of prematurity because the dispute already exists, but it is difficult to see how a claim can be both the subject of an Anshun estoppel for not having been raised at an earlier time and premature.

39    Assuming, moreover, that there is any scope for the operation of an Anshun estoppel in the circumstances of this case (which I doubt given that the cross-claim is brought in the same proceedings), I am unable to see any basis upon which it could be said to be unreasonable for Steggles not to have raised the issue earlier. The inference that should be drawn from the evidence, even accepting everything Mr Stevenson said for the purposes of resolving this aspect of the case, is that Steggles raised the issue as soon as it became aware of what the growers were truly contending and its significance. There would also be gross injustice to Steggles if it is estopped from prosecuting the cross-claim if this would have the result for which the growers contend. But in any event, the lack of scope for any Anshun estoppel is demonstrated by the fact that if and when the growers came to serve a notice under cl 21 on the basis of their construction of the second contract, Steggles would no doubt refuse to offer a third contract and the issue would still remain for resolution. The declaration, as I have said, does not resolve it. The issue might then be whether the growers’ would be subject to an Anshun estoppel themselves, for the same reason that Steggles’ maintains that the growers’ defence on the construction issue is an abuse of process – that is, because it is inconsistent with the growers’ earlier claims resolved in the growers’ favour and by reason of which Steggles has paid the growers money by way of damages. All of this shows why there cannot possibly be any Anshun estoppel against Steggles in all of the circumstances.

40    For these reasons I accept Steggles’ construction. The contract which is in existence is the renewed or second contract. This second contract is not in writing. The second contract came into existence on 30 June 2009 and expires on 30 June 2014 in accordance with the offer (and acceptance) contemplated by cl 21(b) of the first contract. The second contract is on the same terms as the first contract except for limited amendments as noted in the declaration. The second contract thus includes cl 21. Clause 21, however, does not give the growers a right to serve any notice or impose any obligation on Steggles to offer a new contract for a term of not less than five years because the End Date, as it appears in cl 21, remains 30 June 2009. Clause 21 has thus been exhausted. To the extent that this creates anomalies elsewhere in the second contract they are to be resolved as I have indicated. They are not to be resolved by changing the meaning of End Date to 30 June 2014. Steggles is entitled to a declaration which accurately reflects this construction of cl 21 of the second contract. The terms of the declarations Steggles proposed in its cross-claim do not accurately reflect this construction. The parties should be given the opportunity to consider these reasons for judgment and the terms of any appropriate orders, including declarations.

RECTIFICATION

41    Steggles claimed rectification of the contract if its construction was not accepted. As I have accepted Steggles’ construction it is not necessary to deal with the rectification claim but I shall do so, albeit in an abbreviated form.

42    The growers’ submissions summarised the applicable principles, referring to Cohen v iSoft Group Pty Ltd [2012] FCA 1071 (reversed on appeal on another ground in Cohen v iSOFT Group Pty Ltd [2013] FCAFC 49) and Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603, in particular. The claim for rectification was based on common mistake. Accordingly, to obtain an order for rectification Steggles had to show that the HVTG which negotiated the contract on behalf of the growers and Steggles agreed on terms and the contract does not reflect those terms. There needs to be a sufficient evidentiary foundation for an inference to be properly drawn as to the existence of a shared actual (as opposed to objective) intention of the parties that the contract be on particular terms. This intention must be found to exist at the date of execution of the contract. For the intention to be common each party must be aware of their own and the other party’s intention, all being the same intention.

43    The growers also relied on the observations in International Advisor Systems Pty Ltd v XYYX Pty Ltd [2008] NSWSC 2 at [21], referring to the judgment of Wilson J in Pukallus v Cameron (1982) 180 CLR 447 at 452, as follows:

(1) that though there need not be a concluded antecedent contract, there must be an intention common to both parties at the time of the contract to include in their bargain a term which by mutual mistake is omitted from it; (2) that a plaintiff must advance convincing proof that the written contract does not embody the final intention of the parties; and (3) that the omitted ingredient must be compatible of such proof in clear and precise terms, so that the Court must not assume for itself the task of making the contract for the parties.

44    Further, in Carlow Castle Pty Ltd t/as Greenhill Capital Partners v Aztec Resources Ltd [2013] NSWSC 188 at [61] it was said:

Where a written agreement does not, as a result of a common mistake by parties, express their true agreement correctly, the court may rectify the agreement. The words may have been purposely used, but not give effect to the true intention of the parties. It must be established by clear and convincing proof that the parties had an actual intention as to the legal and factual operation of the instrument which was inconsistent, in a clearly identified way, with the legal and factual operation it does have, although an outward expression of accord as to their common intention is not required. Where there has been prolonged negotiations resulting in a formal instrument, with parties having their own legal advisors, there is a strong assumption that the instrument represents their real intention: Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662 at 664–665; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at 350; NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740; Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329.

45    In the present case Steggles had solicitors acting for it throughout the contract negotiations. Mr Stevenson, who is a lawyer, was heavily involved in the negotiations for the HVTG. The contract was the subject of negotiations extending over more than two years. Assuming my construction of cl 21 is incorrect, Steggles’ evidence falls short of the clear and convincing proof that would be needed to enable rectification of cl 21. It appears that the governing mind of Steggles at the time the first contract was entered into was Peter Barrter with Mr Ryan heavily involved in negotiations. Neither has given evidence about their intention when the contract was executed for Steggles, by Andrew Henderson (another person who has not given evidence). No-one from Steggles then solicitors has given evidence. Only one contract is in evidence, which Mr Henderson executed for Steggles. It is unclear who executed the other contracts, although it is common ground they are all on the same terms (leaving aside the date for one grower). The authorised representative of the HVTG, Mr Thompson, has not given evidence. While there are documents which can be construed as reflecting a subjective intention on the part of Steggles and some growers that the contract was to be for a “5 plus 5” term there are other documents which support a contrary intention. In any event, the growers who gave evidence were not authorised representatives of the HVTG and were not involved in the negotiation of the contract other than Mr Stevenson. And “5 plus 5” is itself potentially ambiguous – its meaning might depend on how far ahead the person using it is looking.

46    All in all the evidence is confounded by ambiguity and omission. Accordingly, I cannot be satisfied that the parties did have an actual common intention at the time of execution of the contracts that cl 21 should provide for a single option for a five year term. It follows that the remedy of rectification is not available. Steggles’ cross-claim should be dismissed to this extent.

ABUSE OF PROCESS

47    Given that I prefer Steggles’ construction of cl 21 it is also not necessary to consider Steggles’ interlocutory application but I will do so, albeit again in an abbreviated manner.

48    Steggles relied on r 16.06 of the Federal Court Rules 2011 (Cth) which precludes inconsistent pleadings other than in the alternative and the principles underlying that rule intended to avoid embarrassment by reason of inconsistency. In its fast track statement as amended the growers claimed an equitable estoppel and consequential relief against Steggles. These claims were reflected in issues (8), (9) and (12) as set out in Yarrabee [2010] at [8] as follows:

(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)?

…

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

49    I found in favour of the growers on issues (8) and (9). On 30 August 2010 I made orders which the parties agreed reflected the reasons for judgment including orders 4, 5 and 6 as follows:

4.    Declares that Steggles is estopped from resiling its promise to Marianne Peen to provide her with chicks at a stock density of 19.5 birds per square metre and a batch rate of no less than six per year during her growing agreement..

5.    Declares that Steggles is estopped from resiling from its promise to Malcolm Wood to provide him with chicks at a stock density of 19.5 birds per square metre and a batch rate of no less than six per year during his growing agreement.

6.    Declares that, as a result of the matters declared in orders 1, 4 and /or 5 above, Steggles is contractually obliged, as far as is reasonably practicable, to provide each of the Growers with chicks at a stock density of 19.5 birds per square metre and a batch rate of no less than six per year during their growing agreements in the absence of obtaining written consent of 75% of the Contract Growers allowing it to vary batch rates between them.

50    In using the formula “during [her or his] growing agreement” in these orders neither party suggested that the order involved any potential ambiguity. In the reasons for judgment the factual basis for the equitable estoppels is clear. I was satisfied that Ms Peen had relied on Steggles’ conduct in terms of batch rates and throughputs for the period of her contract until 30 June 2009 and for a further period of five years thereafter by reason of her option to renew (see, for example, at [151] and [152]). Hence, when I referred to the life of the contract at [163] I meant the period of 10 years which Ms Peen had referred to in her evidence. Precisely the same may be said of my conclusions about Mr Wood (see, for example, at [183]). If there had been any suggestion at that time that the term of the contract was not five years plus a single option of five years (that is, a total of 10 years) it would have been dealt with in the reasons for judgment. There was no such suggestion. To the contrary, the case was run by the growers on at least an implicit basis that the contract was for a period of five plus five years or a total of 10 years.

51    This is not to say that the growers would not have been entitled to relief had their position on cl 21 been exposed during the first hearing. The growers might well have still been entitled to relief on the basis that, if the growers’ construction were correct, the equitable estoppel would operate for the first two contracts (that is, a period of 10 years) only and not thereafter. But this is speculation. It is not possible to know what argument Steggles might have run had the growers disclosed their position on cl 21 at that time. The growers’ submission that the relief they sought at that time had nothing to do with the term of the contract, and was related only to batch rates and throughput, is untenable. This is exposed by the fact that the orders made are tied to the term of the contract. It is also obvious that if the growers had been contending that cl 21 provided a perpetual option then the case of Ms Peen and Mr Wood on the issue of detriment, potentially at least, would have taken on a different complexion. After all there is a vast difference between a contract which lasts 10 years (at the grower’s election after the first five years) and one that lasts forever (at the grower’s election). Notions of detriment are affected by the term of the contract. So too is the concept of the minimum equity to avoid the detriment. One thing is clear. The growers could not have obtained relief in the form of orders 4, 5 and 6 on 30 August 2010 if there had been any suggestion at that time that cl 21 provided a perpetual option. The relief would have had to have been tailored to the period of 10 years which the evidence of Ms Peen and Mr Wood had made clear was at the centre of their case on reliance and detriment.

52    Accordingly, while there is no inconsistency between Steggles’ construction of cl 21 and the declaration made on 28 July 2009, there is inconsistency between the growers’ construction of cl 21 and the orders of 30 August 2010.

53    I do not consider it necessary or appropriate to treat statements made by counsel for the growers or by Ms Peen and Mr Wood as admissions made by or with the authority of the HVTG or its members to reach this conclusion. The fact is that each member of the HVTG was the subject of and took the benefit of the orders made on 30 August 2010. Orders 4, 5 and 6 of those orders could not have been made in the form they were made if the growers had disclosed their position at that time that cl 21 vested in them a form of perpetual option because the conduct on which Ms Peen and Mr Wood relied and their detriment related to the reduced batch rate and throughput over the period of not more than 10 years (that is, the first contract and the second contract). If I had accepted the growers’ construction of cl 21 then there would be inconsistency between that position and the orders of 30 August 2010.

54    It has often been said that the types of abuse of process which might arise are not closed. The problem is that the growers’ case in 2010 was run on the basis that the contract which Ms Peen and Mr Wood had with Steggles was a five year contract with one five year option and orders were made in the growers’ favour reflecting that assumption whereas the growers’ case now is that the contract provides for continuing five year options at the election of each grower. While it cannot be said that the operation of cl 21 was an issue in the 2010 proceedings, I have no doubt that the case which the growers ran assumed that the contract was a five year contract with one five year option. If it be the case that the growers all shared Mr Stevenson’s view that the contract provided for a perpetual option at the time of the 2010 hearing then the basis upon which the growers conducted the case at that time is inexplicable. Accordingly, it does not assist the growers at all to say they always held this view about the contract. Nor does it assist them to say they communicated this view to Steggles in the meeting on 9 July 2009. To the contrary, these facts operate against the growers on the abuse of process issue. This is because it was up to the growers to make clear the basis upon which they ran their case and it cannot be seriously questioned that they ran the case in 2010 on the basis that the contract was for 10 years, being an initial term of five years plus one five year option. The construction of cl 21 which the growers have adopted in response to the cross-claim is inconsistent with, and a form of collateral challenge to, that common assumption which underpinned the 2010 hearing and the orders which were made consequential upon it. If permitted, the effect would be “to erode public confidence in the administration of justice by generating conflicting decisions on the same issue” (Rogers v The Queen (1994) 181 CLR 251 at 257).

55    As this is not a case involving a res judicata or issue estoppel, the appropriate remedy to prevent the abuse of process is discretionary. Steggles sought to strike out the growers’ defence but this is obviously too broad a remedy because the defence extended to the claim for rectification. If confined to the striking out of those parts of the defence concerning the construction of cl 21 there would be more substance in Steggles’ position. The difficulty is that attempting to resolve a discretionary issue when I have already determined that the growers’ construction should be rejected runs a real risk of artificiality. If I had accepted the growers’ construction then it is likely that I would have invited the parties to make further submissions about the appropriate remedy to prevent the abuse of process in all of the circumstances. Striking out part of the defence might have been a remedy of last resort. In these circumstances I do not consider it appropriate to attempt to identify whether I would have made an order striking out part of the defence. It is appropriate, however, that I record my conclusion (as I have done) that the growers’ defence to Steggles’ claim in respect of the proper construction of cl 21 involves a form of abuse of process by reason of inconsistency with the growers’ conduct of the hearing in 2010 and the orders made consequential upon that hearing, and that such an abuse of process would not be permitted.

CONCLUSIONS

56    For the reasons given I conclude that:

(1)    Steggles’ construction of cl 21 is to be preferred.

(2)    Steggles has not established a proper evidentiary foundation for rectification.

(3)    The growers’ construction of cl 21 as now sought to be advanced is inconsistent with the case they ran in 2010 and the orders they obtained as a result. Accordingly, to this extent, the growers’ defence constitutes a form of abuse of process which should not be permitted. However, as the remedy would be discretionary and I have resolved the construction issue in Steggles’ favour it is artificial to attempt to formulate the discretionary remedy which would be appropriate in all of the circumstances to prevent the abuse of process.

57    The parties should be given an opportunity to consider these reasons for judgment and submit proposed orders reflecting its terms.

Associate:

Dated: 20 June 2013