FEDERAL COURT OF AUSTRALIA

Sealed Air Australia Pty Limited v Aus-Lid Enterprises Pty Ltd [2020] FCA 29

ORDERS

THE COURT ORDERS THAT:

1.     On or before 6 February 2020 the applicant file and serve:

(a)    a proposed minute of orders giving effect to these reasons for judgment; and

(b)    written submissions on costs and/or interest (not exceeding 5 pages).

2.    On or before 18 February 2020 the fourth respondent file and serve any submissions (not exceeding 5 pages) in response to:

(a)    the applicant’s proposed minute of orders; and

(b)    the applicant’s written submissions on costs and/or interest.

3.    On or before 18 February 2020 the first respondent file and serve any submissions (not exceeding 5 pages) in response to:

(a)    the applicant’s proposed minute of orders; and

(b)    the applicant’s written submissions on costs and/or interest.

4.    On or before 10 February 2020 the applicant file and serve on the first respondent:

(a)    a copy of these orders; and

(b)    a copy of the reasons for judgment delivered today.

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

REASONS FOR JUDGMENT

KENNY J:

Introduction

1    The applicant, Sealed Air Australia Pty Ltd (formerly Cryovac Australia Pty Ltd) seeks damages in tort against the fourth respondent, Visy Packaging Pty Ltd, for procuring or inducing a breach of contract by the first and second respondents, Aus-Lid Enterprises Pty Ltd and Auslid Operations Pty Ltd. Sealed Air also seeks damages against Visy for misleading or deceptive conduct under s 236 of the Australian Consumer Law (in Schedule 2 of the Competition and Consumer Act 2010 (Cth) (ACL)). It does not now pursue the other relief sought in its Further Amended Originating Application filed on 16 October 2015 (Further Amended Application). Visy denies the allegations against it.

2    For the reasons stated below, I find that Visy induced a breach of contract by Aus-Lid Enterprises and Auslid Operations and would fix damages in the amount of $1,635,417. Also for the reasons stated below, I find that damages against Aus-Lid Enterprises are to be assessed in the sum of $1,316,971.

3    The proceeding was instituted by Cryovac and has subsequently been carried on in the name of Sealed Air. Much of the evidence, especially concerning earlier events, referred to Cryovac by name, although some of it referred to Sealed Air. Nothing is said to turn on this and, in these reasons, a reference to “the applicant” is a reference to either Cryovac or Sealed Air (as appropriate at the relevant time). Further, as explained below, although there were originally numerous respondents, the claims considered in these reasons are almost entirely those made against the fourth respondent, Visy. There is also the matter of damages to be awarded against Aus-Lid Enterprises following an order on 21 May 2018 that there be judgment in default against it.

The parties

4    At all material times, the first respondent, Aus-Lid Enterprises, was the registered owner of the Patent AU754978 for an invention entitled ‘Container Lid and implement’ (Aus-Lid’s Patent). Briefly, the Patent was for a lid (for a container), which had an integral implement (such as a spoon) for removing the container’s contents (for example, yoghurt). Mr Simon Shale, former General Manager of Visy’s Plastics Division, explained in evidence that the “intelligent bit” of the patented product was the fact that it was made in one piece with a spoon hinged on a mechanism that folded under and then clipped on the inner side of the lid.

5    The second respondent, Auslid Operations, was the exclusive licensee of Aus-Lid’s Patent. The third respondent, Ashlyn Graeme de Souza, was the sole director of Auslid Operations prior to its liquidation, and a director of Aus-Lid Enterprises when the proceeding was instituted.

6    At all material times, the applicant carried on a business of manufacturing and selling containers, including lids for tubs for pre-packaged food containing dairy products. Until March 2015, one such product was a ‘spoon-in-lid’ made from a single piece of plastic. This product was called the Combo-Lid and fell within the claims of Aus-Lid’s Patent. The applicant’s Combo-Lid comprised a circular lid designed for a 160g tub containing yoghurt (or another dairy product). The applicant manufactured and sold Combo-Lids under licence from Aus-Lid Enterprises and Auslid Operations.

7    At all material times, Visy was also in the business of manufacturing and selling containers, including containers for dairy products. (I note that the parties mostly used the word ‘Visy’ to refer to the fourth respondent but occasionally ‘Visy’ referred to another Visy-related entity. Nothing turns on this.)

8    Visy’s interest in the patented product stemmed from the fact that it could be manufactured as a single unit, with the consequence that it was easier to assemble and the spoon could not be lost during assembly or distribution. This kind of spoon-in-lid product also offered ‘on-the-run’ convenience to the end user.

The circumstances in which the proceeding arose

The Patent Licence Agreement

In January 2011, Aus-Lid Enterprises and Auslid Operations (collectively Aus-Lid) entered into a Patent Licence Agreement with the applicant. The evidence discloses that Mr de Souza, on behalf of Aus-Lid, told Visy that this agreement did not prevent Aus-Lid from granting Visy the right to exploit Aus-Lid’s Patent by manufacturing and selling the patented product to Chobani Pty Ltd and Chobani Australia Pty Ltd (collectively, Chobani). Mr de Souza, for Aus-Lid, purported to give Visy the right to do so and, in so doing, breached the Patent Licence Agreement.

9    The applicant had acquired a valid sublicence under the Patent Licence Agreement, which was enforceable according to its terms. In their Amended Defence, Aus-Lid and Mr de Souza admitted the applicant’s claim to this effect: see Amended Defence at [9]; Third Further Amended Statement of Claim at [9]; also Further Amended Statement of Claim at [9]. The Patent Licence Agreement was contained in a document, which it is not disputed bore the seals of Aus-Lid Enterprises and Auslid Operations. The unchallenged evidence of Mr Martin Yii, a director of the applicant at the relevant time, was that he signed the Patent Licence Agreement on 29 January 2011 in conformity with his authority to execute the Agreement on the applicant’s behalf. Mr Yii also authorised the payment to Aus-Lid of the licence fee of $125,000.

10    At one point, as discussed below, Visy’s in-house lawyer raised doubts about the due execution of the Patent Licence Agreement. These doubts were ill-founded. A company’s power to make a contract may be exercised by an individual acting with the company’s authority: Corporations Act 2001 (Cth), ss 126 and 127(4). There was no suggestion that the signed document was not intended (in the relevant sense) to create legal relations: cf Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; 219 CLR 165 at [38], [40].

11    Under cl 3.1 of the Patent Licence Agreement, Auslid Operations (defined as ‘Auslid’) granted the applicant “an irrevocable, exclusive sublicence” to exploit Aus-Lid’s Patent (see cl 1) “in the Field in the Territory”. Under cl 3.2, Aus-Lid Enterprises (defined as “The Patentee”) consented to the grant. As defined in cl 1, the “Field” relevantly covered “the manufacture and supply of containers for pre-packaged food containing dairy products”, and the “Territory” covered Australia and New Zealand. Also as defined, the word “exploit” in the Agreement had the same meaning as in the Patents Act 1990 (Cth) and therefore included the manufacture, sale and supply of the patented product.

12    Clause 4.1 of the Patent Licence Agreement provided that:

The sublicence granted in clause 3.1 is an exclusive sublicence in the Field and the Patentee and Auslid must not together or separately undertake any commercial activity in the Field or grant any rights in favour of or to any third party in that Field.

13    Clause 7.1(c) of the Patent Licence Agreement further provided that:

Each of the Patentee and Auslid agrees and acknowledges that:

…

(c)    it shall not interfere with Cryovac’s enjoyment of the sublicence granted under the terms of this Agreement; …

14    In these proceedings, the applicant claimed that each of Aus-Lid Enterprises and Auslid Operations breached clauses 4.1 and 7.1(c) of the Patent Licence Agreement. As explained below, this claim is accepted, because, through Mr de Souza, these two companies granted Visy the right to manufacture and sell the patented spoon-in-lid product to Chobani and knowingly permitted and encouraged Visy to continue to manufacture and supply that product to Chobani.

Circumstances of the apprehended breach of the Patent Licence Agreement

15    Visy admitted, in its Further Amended Defence, that in about June 2014 it began to manufacture and sell a spoon-in-lid product that fell within the scope of Aus-Lid’s Patent to Chobani in Australia and continues to do so.

16    The evidence of Mr Stewart, who held senior sales positions with the applicant at the relevant time, was (and I accept) that, in about August/September 2012, the applicant began supplying the patented Combo-Lids and associated tubs to Chobani for Chobani’s “Gippsland Dairy” brand of yoghurt. The applicant remained the exclusive supplier of these products until about mid-2014. In about May 2014, the applicant became aware that Visy was supplying a virtually identical spoon-in-lid product to Chobani. Further, from about June-July 2014, there was a noticeable reduction in the number of Combo-Lids supplied by the applicant to Chobani and from March 2015 the supply ceased completely.

17    On 31 July 2014, the applicant’s lawyers, Spruson & Ferguson, wrote to Mr de Souza and Auslid Operations requiring them to undertake immediately to “revoke the rights granted to Visy to exploit the Patent in Australia, including any patent licence agreement entered into with Visy”. Mr de Souza responded by email, also dated 31 July 2014, stating that the applicant was the “first to breach the agreement, by working outside [the] agreed territory”. Mr de Souza indicated that Aus-Lid intended to continue with Visy on the basis that Visy was able to supply what Chobani required.

18    Spruson & Ferguson wrote to Visy on 4 September 2014, informing Visy that: (1) Aus-Lid had granted the applicant “an irrevocable, exclusive sub-licence” to exploit the Patent by the manufacture and supply of Combo-Lids for pre-packaged food containing dairy products in Australia; and (2) Aus-Lid had no right to grant Visy the right to manufacture and supply the patented spoon-in-lid product to Chobani. Visy responded by letter dated 12 September 2014 confirming that it manufactured the “Gippsland Container” referred to in Spruson’s 4 September letter (including the patented spoon-in-lid product). Visy stated that it had in place a licence agreement with Auslid enabling it to “utilise certain patent rights held by Auslid” and had been “assured that the rights of the Visy group to manufacture the Gippsland Container are not compromised”.

19    Further correspondence between Spruson & Ferguson and Visy ensued, in the course of which Visy was supplied with a copy of the Patent Licence Agreement. As Mr Stein’s evidence (see [108]-[138]) shows, Visy has continued to manufacture and supply its version of the patented spoon-in-lid product to Chobani.

20    Also in the period from September to December 2014, unknown to the applicant, Visy was engaged in negotiations with Aus-Lid regarding the terms of another licence to exploit Aus-Lid’s Patent. On 29 December 2014, Aus-Lid granted Visy a non-exclusive licence to exploit the Patent and provided Visy with an indemnity against loss or damage resulting from, among other things, any claim against Visy that its use of Aus-Lid’s Patent contravened the rights of any third party. This was also the subject of Mr Stein’s evidence.

21    On 6 January 2015, the applicant commenced this proceeding against Aus-Lid, Mr de Souza and Visy.

The applicant’s claims against the first to third respondents

22    The applicant’s claims against Aus-Lid Enterprises centred on the breaches of the Patent Licence Agreement, although there were also claims for misleading or deceptive conduct and unconscionable conduct. The Court addressed these claims in its orders of 21 May 2018 that there be default judgment against Aus-Lid Enterprises, with damages to be assessed and costs awarded at the trial of the matter. On that day too, the Court further ordered that the cross-claim filed by Aus-Lid Enterprises on 14 April 2015 be dismissed: see Sealed Air Australia Pty Limited v Aus-Lid Enterprises Pty Ltd [2018] FCA 716.

23    At the hearing of this matter, the applicant made written submissions (see below at [338]) regarding the assessment of damages against Aus-Lid Enterprises. The third respondent, Mr de Souza, had earlier applied for leave to represent Aus-Lid Enterprises under r 1.34 of the Federal Court Rules 2011 (Cth). That leave was refused: see Sealed Air Australia Pty Limited v Aus-Lid Enterprises Pty Ltd [2018] FCA 31. Aus-Lid Enterprises made no appearance at the subsequent hearing and filed no written submissions.

24    The applicant also claimed against Auslid Operations as the exclusive licensee of the Patent. As already indicated, however, Auslid Operations was wound up on 7 June 2017. On 30 August 2017, the Court gave the applicant leave to proceed against it up to and including 20 October 2017: see Cryovac Australia Pty Ltd v Aus-Lid Enterprises Pty Ltd [2017] FCA 1027. The applicant made no further application for leave to proceed against that company. The applicant’s claims against Auslid Operations do not therefore arise for consideration in these reasons.

25    When the hearing began on the morning of 4 June 2018, the applicant continued to press its claims against Mr de Souza, who appeared on that day without legal representation. Later the same morning, counsel for the applicant, Mr Drew, advised the Court that the applicant would discontinue the proceeding against Mr de Souza, with no order as to costs. The applicant subsequently filed a notice of discontinuance against Mr de Souza.

26    In these circumstances, only the applicant’s claims against Visy were the subject of the hearing over the five days from 4 to 7 June 2018 and on 30 October 2018.

The parties’ submissions

The applicant’s submissions

27    Aside from its written and oral opening submissions, the applicant relied on its written closing submissions dated 15 June 2018, its submissions in reply dated 21 June 2018, and written and oral submissions presented on 30 October 2018.

Aus-Lid’s breach of the Patent Licence Agreement

28    In its closing written submissions, the applicant submitted that Aus-Lid had breached clauses 4.1 and 7.1(c) of the Patent Licence Agreement by:

(a)    in or about August 2013, offering Visy the opportunity to tender to Chobani for the supply of the patented spoon-in-lid product for Chobani’s Gippsland Dairy product;

(b)    in or about late December 2013 or early January 2014, offering Visy the right to manufacture the patented spoon-in-lid product for Chobani and others in dairy in Australia;

(c)    in about January 2014, informing Visy that Aus-Lid was able to license Visy to supply the patented spoon-in-lid product to Chobani;

(d)    agreeing with Visy to receive royalty payments in relation to Visy's manufacture and supply of the patented spoon-in-lid product to Chobani;

(e)    thereafter, knowingly permitting Visy to manufacture and supply the patented spoon-in-lid product to Chobani;

(f)    in September 2014, informing Visy that Aus-Lid had the right to allow Visy to manufacture the patented spoon-in-lid product for Chobani;

(g)    on 29 December 2014, entering into the Intellectual Property Agreement with Visy with respect to the patented spoon-in-lid product; and

(h)    since 29 December 2014, permitting Visy to continue to manufacture and supply the patented spoon-in-lid product to Chobani.

Visy’s knowledge

29    Citing numerous authorities, the applicant contended that the central question was whether Visy had sufficient knowledge of the contract between it and Aus-Lid to ground an intention to interfere with the applicant’s contractual rights. It submitted that, as a result of Spruson’s 4 September 2014 letter and the communications between Visy’s in-house lawyer (Mr Stein) and Mr de Souza, Mr Stein (and therefore Visy):

(a)    had actual knowledge of the applicant’s sublicence (including that it was an exclusive licence) and that Aus-Lid was probably in breach of that licence by having granted another licence to Visy and permitting it to manufacture and supply the patented spoon-in-lid product to Chobani; and/or

(b)    exhibited wilful blindness in the nature of a conscious decision not to inquire into the existence of the facts in case Visy discovered that what Mr de Souza was telling Visy could not reasonably be relied upon to refute the substance of what was contained in Spruson’s letter; and/or

(c)    exhibited reckless indifference in so far as Visy, faced with knowledge of at least a substantial prospect of breach, proceeded not caring whether or not a breach would occur;

and, on all or any of those bases, Visy therefore had the necessary intention or knowledge to ground an intention to interfere with the applicant’s contractual rights.

30    The applicant submitted that, if Visy were to rely successfully on the statements made by Mr de Souza to the effect that Aus-Lid was not prevented by its previous exclusive sublicence agreement with the applicant from granting a sublicence to Visy, then Visy “must not only show that it honestly believed that the contract was not made or was invalid &c. [sic], as the case may be, but that such belief was reasonably held” (emphasis original).

31    The applicant submitted that, objectively, there was no basis upon which Mr Stein “could reasonably have relied upon the mere verbal assurances given by Mr de Souza and dismissed the warnings from [the applicant’s] solicitors”. The applicant added:

… Mr Stein was well aware (being admitted as a legal practitioner in Victoria) that Cryovac's solicitors were under a professional obligation to ensure that the 4 September letter did not contain any representations which they did not reasonably believe to be true (eg., Professional Conduct and Practice Rules, rule 28.1) … In contrast, not being a solicitor, Mr de Souza was not subject to any such professional obligation.

The applicant submitted that that the Court should infer that Mr Stein did not, in fact, believe Mr de Souza’s claims; and that he never actually formed or held any belief either way about these claims.

32    The applicant submitted, in the alternative, that if Mr Stein did have a bona fide belief that whatever rights Aus-Lid had granted the applicant had come to an end, then that belief was not reasonably based. In any case, Mr Stein’s alleged belief was “not a sufficient defence” to the applicant’s claim of “actual knowledge, wilful blindness or reckless indifference”. The applicant submitted that an experienced commercial lawyer in the position of Mr Stein could not have reasonably entertained such a belief, based upon what he knew, “but rather, contrived to do so because that aligned with Visy's obvious commercial interest in maintaining its supply of [the patented spoon-in-lids] to Chobani without disruption”.

33    In his closing oral submissions, Mr Drew, for the applicant, argued that Visy made “no serious efforts [to ascertain its position] … beyond accepting Mr de Souza’s statements”. He submitted that:

What they should have done is got some proper advice, and what they should have done is ceased what they are doing until it was sorted out. …

This was a serious commercial dispute which, in fact, Mr Stein said were serious allegations, and no external advice. They didn’t want to know. … And the reason they didn’t want to know is because it would have been against their commercial interests to disrupt their new relationship with Chobani which they placed great value on.

34    The applicant submitted, in substance, that Mr Stein’s rejection of the proposal in Spruson’s subsequent 15 October 2014 letter strengthened its case. It further submitted that Mr de Souza’s response to this letter (sent to him by Mr Stein) would have led a lawyer with Mr Stein’s experience to recognise that, amongst other things, there would have been no purpose in Aus-Lid providing Visy with the proffered “indemnity for the Gippsland Dairy production” unless there was a genuine and substantial underlying dispute with the applicant concerning Visy's purported rights to manufacture and supply the patented spoon-in-lid product.

35    The applicant submitted that Mr Stein’s responses in cross-examination were dissembling and evasive, and that they “smack[ed] of self-serving reconstruction and ought not to be accepted”. It submitted that these responses showed that Mr Stein did not, in truth, hold a genuine and reasonable belief about any of these things. The applicant also submitted that Mr Stein’s conduct after receipt of the 15 October 2014 letter showed such a lack of diligence that it was “explicable only on the footing that Mr Stein did not want to ascertain the true facts in case they proved to be inconsistent with Visy’s commercial interests in ensuring that its supply to Chobani was not disturbed”.

36    The applicant contended, in substance, that Mr Stein’s conduct after Spruson’s 27 November 2014 letter was indicative of the fact that Visy “had determined unequivocally that it would continue to manufacture and supply” the patented spoon-in-lid products for Chobani, in spite of the information contained in the formal correspondence from the applicant’s solicitors and the fact that Mr de Souza’s communications were clearly premised on the existence of an agreement with the applicant (although one that Mr de Souza alleged the applicant had breached).

37    The applicant argued that, after its lawyers had given a redacted copy of the Patent Licence Agreement to Mr Stein and having regard to Mr Stein’s contemporary correspondence with Mr de Souza, Mr Stein was fixed unequivocally with the knowledge that Aus-Lid regarded the sublicence with the applicant as valid and effective, albeit subject to the purported amendment as to exclusivity. In the circumstances disclosed by the evidence, Mr Stein’s email to the applicant’s solicitors the following morning was, so the applicant said, deliberately non-responsive and evasive, and manifestly contrived. The applicant submitted that Mr Stein’s “persistent equivocation and evasion” under cross-examination substantially undermined the credibility of his evidence on these matters, and the Court should not accept it.

38    To the extent that Visy claimed that it thought the applicant’s sublicence with Aus-Lid was invalid, had been terminated, or that it did not contain the term allegedly breached, the applicant contended that the Court should be satisfied that Visy did not, in fact, hold any such belief, and even if it did, that that belief was not reasonably held. Citing Swiss Bank Corporation v Lloyds Bank Ltd [1979] Ch 548 and Fightvision Pty Ltd v Onisforou [1999] NSWCA 323; 47 NSWLR 473, the applicant maintained that a qualified and experienced solicitor in Mr Stein’s position, and armed with the knowledge he had, could be expected to have obtained proper advice so as to resolve any doubts about the legal position, and not to restrict himself to what Mr de Souza told him as the alleged contract breaker.

39    In so far as Visy relied on the rule in Browne v Dunn (1893) 6 R 67 in support of the proposition that the Court should not entertain the applicant’s submission that Mr Stein did not believe Mr de Souza, and like submissions, Mr Drew submitted that the rule:

… rests upon notions of fairness and it’s designed to give the witness, that is, Mr Stein and the party calling that witness, Visy, an opportunity to meet the evidence or submissions that form part of the case of the opposing party, Cryovac, and thus facilitate the court’s assessment of the reliability and accuracy of the witness. …

In many cases, and we would say such as the present, the witness must know that … it will be contended that his or her evidence ought not to be accepted by the manner of the pleadings, by the matters in issue and by the conduct of cross-examination. It is not a correct application of the rule to say that counsel cannot argue or the court find that the evidence of a witness warrants such characterisation unless the witness has been asked some such question as, “I put it to you that your evidence is not true”.

40    Mr Drew submitted that it would have been clear to Mr Stein and Visy from the pleadings, the applicant’s opening address, and the contradicting evidence put to Mr Stein in cross-examination that his evidence was being challenged, and that it was open to the Court to characterise his evidence in the way the applicant invited the Court to do. Mr Drew emphasised that the applicant was not alleging that Mr de Souza was dishonest in his communications to Mr Stein, but was focussing on Mr Stein’s state of mind on receiving Mr de Souza’s communications. In this regard, Mr Drew maintained that:

We don’t need to determine or quiz anybody on whether or not what Mr de Souza said was true or whether he believed it. This is all about Mr Stein’s evidence.

…

We’re not testing the truth of the representations by Mr de Souza. What we’re saying is, “What did you believe, Mr Stein”, and he didn’t give any evidence much on that at all. He just said, “Well, that’s what Mr de Souza believed. I read it and I thought that’s what Mr – that was Mr – Ashlyn’s view”, as he sometimes described it. What he never did and what he was pressed on was, “What did you believe?” “I never formed a view”, he said.

Visy’s interference with the applicant’s contractual rights

41    The applicant accepted that Visy was already manufacturing and supplying Chobani with the patented spoon-in-lids before its applicant’s lawyers sent their 4 September 2014 letter. It maintained that its claim against Visy arose from the fact that Visy continued to manufacture and supply Chobani with the lids, despite knowing, or there being a reasonable basis to believe, that Aus-Lid was in breach of the applicant’s sublicence with Aus-Lid in so doing. The applicant further submitted that:

Even more egregiously, after obtaining that knowledge, Visy further compounded its interference with [the applicant’s] rights by actively engaging in subversive negotiations with the Auslid parties that culminated, on 29 December 2014, with Visy entering into several written agreements, including a patent licence agreement by which Auslid purported to grant to Visy a non-exclusive licence to exploit the Patent.

42    The applicant submitted that the Court should be satisfied that the Intellectual Property Licence executed by Visy and Aus-Lid on 29 December 2014 was, in both fact and law, an “entirely fresh agreement, albeit with an effective date purportedly backdated to 1 September 2012”. The applicant contended that, having regard to what Visy knew by 29 December 2014, the only available inference was that Visy did so with deliberate or reckless disregard that this fresh agreement was inherently inconsistent with the applicant’s exclusive contractual rights. The applicant asserted that:

The motivation for this was to protect its own position, as Visy was concerned that changing the design of the lid for the 160g product “would have involved considerable technical work, significant cost and also customer interruption”.

…

Visy's intransigence despite multiple further warnings from Cryovac's solicitors, its receipt of a copy of the [applicant’s] sublicence, and the commencement and prosecution of legal proceedings makes it clear that, in truth, there was little more, if anything, that [the applicant] could have done to persuade Visy to cease its supply of the Combo-lid to Chobani. Visy's primary concern was always to protect its commercial interests with total disregard for and at the expense of [the applicant’s] contractual rights.

(Emphasis original)

Visy’s alleged misleading and deceptive conduct

43    The applicant also claimed that, from at least about January 2014 (and on the evidence, from about August 2013):

(a)    Visy engaged in misleading or deceptive conduct by representing to Chobani that it had a valid licence or sublicence to exploit Aus-Lid’s Patent and the right to produce, distribute and supply the patented spoon-in-lid to Chobani; and

(b)    Chobani relied upon such representations in requesting, accepting and paying for supply of the patented spoon-in-lid from Visy instead of the applicant.

44    Mr Drew, for the applicant, submitted that these representations did not merely convey Visy’s untutored opinion; rather, they were a representation of fact. After noting that the patented spoon-in-lid supplied to Chobani was patent stamped with “AUSLID”, he submitted that in holding out to Chobani that Visy was able to supply the lids, Visy represented that it had the intellectual property rights that permitted it to do so.

45    The applicant submitted that the evidence for the representations was the Supply Contract Proposal given by Visy to Chobani on 16 September 2013, the evidence given by Visy’s Mr Smithells about his conversation with Chobani’s Mr Joris Dorsman in or about January 2014, Mr Smithells’ evidence as to the provision of technical drawings to Mr Dorsman, the evidence of Mr Smithells and Chobani’s Mr Meek that the final spoon-in-lid design was settled on the basis of those drawings in January 2014 and, finally, Mr Meek’s evidence about Visy’s representations to Chobani during the design process and his evidence that Visy was providing Chobani with around 6,000 prototype Combo-Lids for testing on the filling lines between September and December 2013. The applicant also relied on the “Extension of IML Lids Packaging Supply Agreement” made on 18 July 2017 (July 2017 Extension), and a notation within it that read:

Note: Visy has licensed the rights to manufacture the product from a third party patent holder who has continued to confirm Visy’s licence is valid.

46    The applicant contended that the representations were not true, because Visy did not have a valid licence from Aus-Lid (or any other right) to manufacture and supply the patented spoon-in-lid. The applicant submitted that the previous grant of exclusive rights by Aus-Lid to it under its sublicence had the effect of incapacitating Aus-Lid from making a valid grant to Visy of another licence. Citing Yorke v Lucas [1985] HCA 65; 158 CLR 661 and Google Inc v Australian Competition and Consumer Commission [2013] HCA 1; 249 CLR 435, the applicant submitted that it was immaterial whether Visy knew that the representations were false when made or that it had every reason to believe that its representations were true.

47    In so far as Visy relied on the fact that the applicant notified Chobani of its claim, Mr Drew said in reply on 30 October 2018 that the notice was not given at the relevant time. In so far as Visy said it may have had a valid licence, Mr Drew said:

They may have a valid agreement with de Souza, but to say that they have a valid licence referable to – and in support of their rights to use that intellectual property, that just simply cannot be the case. They would have a licence without content, and certainly couldn’t use it in the manner that they did.

Applicant’s loss and damage

48    The applicant submitted that Visy was liable to compensate the applicant for loss and damage insofar as it was suffered:

(a)    after about June 2014 as a result of Visy’s misleading or deceptive conduct; and

(b)    after about 8 September 2014, when Visy was informed about Aus-Lid’s breach of contract but nevertheless continued to manufacture and supply the patented spoon-in-lids to Chobani.

49    The applicant contended that, by reason of Visy’s misleading and deceptive conduct, it lost the profits that it would otherwise have made by supplying the Combo-Lids to Chobani from at least June 2014 for the duration of the Patent Licence Agreement and for a period of time after the expiration of that Agreement (until at least 2021). Relying on the evidence of Mr Morris, the applicant claimed compensation under s 236 of the ACL for loss and damage in the sum of $1,923,150 for the period of loss from June 2014 to 18 September 2018; and $1,966,253 for the period of loss from 18 September 2018 to August 2021 (being three years at 1% growth).

50    The applicant contended that, in respect of the claim in tort, a finding of inducing breach of contract carried with it a finding that Visy’s actions caused the breach of contract and the consequential loss. Referring to Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; 250 CLR 640, the applicant contended, in respect of the claim for misleading and deceptive conduct, that it was to be inferred by Chobani’s acceptance of the Visy September Proposal, approval of the final design for the patented spoon-in-lid (which included the “AUSLID” patented imprint) and by agreement to the July 2017 Extension that Chobani relied upon the relevant misrepresentations to obtain supplies of the patented spoon-in-lids from Visy, by reason of which the applicant suffered lost sales and the loss of opportunity to retain and/or recapture Chobani as a customer.

51    The applicant contended that, notwithstanding Mr Meek’s evidence that Chobani did not require that the spoon-in-lid product be supplied in accordance with Aus-Lid’s design, the only spoon-in-lid product presented to Chobani under either of the two proposals that Chobani received was Aus-Lid’s patented spoon-in-lid. According to the applicant, Mr Meek accepted that, if Visy had been unable to provide the lids to Chobani, Chobani would have maintained the supply of the existing lids from the applicant for the foreseeable future, until such time as it could obtain a matte black in-mould labelling (IML) spoon-in-lid. The applicant submitted that Mr Meek accepted that the contention that Chobani could have gone back to market and found an appropriate solution was speculative. In his closing address, Mr Drew said:

We say [Chobani is] not going to disrupt their product lines when they don’t have an alternative. They’re going to stay with what they’ve got. They might want to change. … But there is no evidence that, even if they had gone back to market – accepting that they would have done – that there was any other – alternative proposal, because – the only two proposal[s] that came out when they last went to the market was Cryovac and Visy. There was no one else.

…

[T]here’s no evidence that Chobani would have contracted Visy, even if Visy had offered a differen[t] spoon in lid or even if an alternative spoon in lid had been identified, which – it was not – on the evidence – that it would have met Chobani’s requirements … Mr Meek gives evidence that he would have gone out to the market. He wouldn’t have known what was out there until he saw the proposals.

…

Visy did not present what might have been the alternative. It’s really out there in – as a cloud of smoke somewhere. It has no dimensions and no substance. Indeed, the only available inference on the evidence is that Chobani accepted the Visy offering because it included the patented functionality of the combo lid, albeit – with the enhancements that it was looking for.

52    The applicant contended that, upon becoming aware by no later than 8 September 2014 of the applicant’s contractual rights and Aus-Lid’s contravening conduct, Visy should have forthwith (or as soon as practically possible) ceased to manufacture and supply Aus-Lid’s patented spoon-in-lids and that Visy wrongfully refused to do so. The applicant argued that the Court should be satisfied that, had Visy ceased to manufacture and supply the patented products on or about 8 September 2014, then Chobani would have re-established its supply of Combo-Lids from the applicant, initially in the existing non-IML format and, by at least January 2016, if not even earlier, in a matte-black IML format.

53    Relying on the evidence of Mr Morris, the applicant claimed damages in the sum of $1,871,712 for the period of loss from September 2014 to 18 September 2018; and in the sum of $1,966,253 for the period of loss from 18 September 2018 to August 2021 (being three years at 1% growth). This was on the basis that:

(a)     Visy had actual knowledge that supplying the patented lids to Chobani would interfere with the applicant’s contractual rights under its sublicence with Aus-Lid;

(b)    had Visy ceased supply on or around 8 September 2014, the applicant would have been restored as the supplier to Chobani of the Combo-Lid and would have continued as such until the expiry of its sublicence (being 18 September 2018); and

(c)    this did not occur because Visy refused to cease manufacturing and supplying the lids to Chobani and, as a result, the applicant lost the profits that it would otherwise have made by supplying the Combo-Lid to Chobani: from about 8 September 2014 for the duration of the Patent Licence Agreement, and for a period of time after the expiration of that Agreement (until at least 2021).

Visy’s submissions

Procuring a breach of contract

54    As aside from its written and oral opening submissions, Visy relied on its written closing submissions dated 15 June 2018, its closing submissions in answer dated 3 July 2018, and its oral submissions on 30 October 2018.

55    In closing written submissions, Visy did not dispute that there was a contract between the applicant and Aus-Lid, nor that it knew that such a contract existed. Rather, it disputed that:

a.    Visy knew that if the Aus-Lid Parties authorised Visy to make the Combo-Lid, that conduct would be a breach of the contract;

b.    Visy intended to induce or procure the Aus-Lid Parties to breach the contract by authorising Visy; and

c.    In any event, Visy’s actions in offering the Combo-Lid caused loss or damage to Cryovac.

56    Visy submitted that, in order to establish that it intended the Aus-Lid parties to breach their contract with the applicant, the applicant had to establish facts showing “affirmatively that … Visy, faced with knowledge of at least a substantial prospect of a breach, proceeded not caring whether or not a breach, would occur”. It further submitted that the authorities, including Short v City Bank of Sydney [1912] HCA 54; 15 CLR 148, established that an honest (or bona fide) belief that there would be no breach, even if a credulous one, was a good defence.

57    In closing address, Ms Cunliffe, for Visy, accepted that the bona fides of a belief may be evaluated by reference to the status of the person alleged to hold the belief, the person’s knowledge and experience, and whether given their expertise, the person might be expected to know better. Ms Cunliffe submitted that:

Mr Stein’s evidence on this point … was that Mr de Souza was not a lawyer, but from the facts that Mr de Souza gave him it said to him that it may well have been the case that the contract was repudiated, and he was not in a position to tell one way or another. …

We say that if … the facts which were evident to Mr Stein were enough to give rise to an honest [doubt] as to whether there had been a breach of contract or whether the contract was repudiated, the relevant state of mind cannot be made out. And that’s not a question of it being a defence; it is whether the elements of the tort are made out. …

We say that Mr Stein’s evidence is to the effect that he had an honest [doubt] as to what the situation was. …

58    Visy submitted, first, that it did nothing after September 2014 that could have given rise to the tort of inducing a breach of contract. Secondly, it submitted that, even by December 2014, it did not have the requisite knowledge because Aus-Lid had repeatedly said that the applicant had breached its agreement, that Visy had the right to supply Chobani, and that Visy should stay out of the dispute with the applicant. Visy said further that, as a consequence of its enquiries, it believed that there were good grounds to think that the contract between the applicant and Aus-Lid had been repudiated.

59    Visy submitted that the effect of the authorities was that “mere passivity is not enough to constitute inconsistent dealing”. Visy argued that:

[F]ollowing the reliance by the Full Court in [LED Technologies Pty Ltd v Roadvision Pty Ltd [2012] FCAFC 3; 199 FCR 204] on [OBG Ltd v Allan [2007] UKHL 21; [2008] 1 AC 1], this Court should treat OBG as a correct articulation of the law in relation to inducing breach of contract. The tort requires that the actions of the respondent cause the breach of contract – that is, that the breach is procured or induced by the respondent.

60    Visy contended that this was fatal to the claims against it “since Visy did not cause the relevant breaches”. Visy submitted that “it is clear on the evidence that the Auslid entities encouraged Visy to continue dealings with them, and not the other way around”; that most of the dealings allegedly inconsistent with the applicant’s sublicence were with Chobani, not Aus-Lid; and that the authorities indicated that the relevant inducement must consist of inconsistent dealings between the contract breaker and the alleged tortfeasor.

No inducement

61    Visy submitted that, from September 2014 to December 2014, it was not in a position to induce a breach of contract, because the only breach that could have caused the applicant loss (Aus-Lid’s giving permission to Visy in January 2014 to manufacture the patented lids for Chobani) had already occurred. It submitted that the sale of products by Visy to Chobani did not directly involve Aus-Lid.

62    Visy argued that the licence agreement it entered into with Aus-Lid on 29 December 2014 merely formalised the rights of Visy to utilise Aus-Lid’s Patent in Australia, including in respect of the supply to Chobani. Visy submitted that “[t]he licence granted orally … in January 2014 did not have an expiry date, nor was there any threat of it ceasing if the December 2014 documents were not signed”.

No knowledge

63    Relying on the evidence of Mr Shale and Mr Stein ([152]-[171] and [108]-[138]), Visy denied that it acted either “with an intention to cause a breach [or] with wilful blindness or reckless indifference as to whether or not there was a breach”. Visy submitted that it did not consider that it was “in a position to be the ‘umpire’ in the dispute between Aus-Lid and [the applicant]” and that “[i]t accepted Aus-Lid’s assurances, and did not alter its existing course of conduct of supplying Chobani”.

64    Visy’s explanation was in substance as follows:

… Visy had one version of the relevant facts which was firmly and consistently put ([that the applicant] had breached its agreement by working outside the territory and by failing to invest (and thereby, Visy inferred, repudiated the agreement) and the Visy licence was valid) and another version of the relevant facts from [the applicant’s] lawyers. Each party’s position was clear, and it was clear that there was a bona fide dispute between them (which was reflected by the litigation between the parties between 2015 and May 2018). There was no way for Visy to verify either version of events.

… [T]here also appeared to be certain issues with the execution of the sub-licence … Visy was also concerned that the documents may be incomplete.

…

Mr Stein rejected the assertion that he made a conscious decision not to enquire into the validity of the execution in case he was confronted with a disagreeable truth.

But in any event, Mr Stein explained that the question of whether the agreement was validly executed would not have resolved the question of whether AusLid was in breach of a valid enforceable agreement [.]

(Citations omitted)

65    In substance, Visy asserted that at no time was it able to answer the threshold question, namely, whether or not the applicant had an exclusive sublicence, and that it could not therefore assess whether or not Aus-Lid was in breach of contract. Visy relied on Mr Stein’s correspondence with Mr de Souza in support of the proposition that it had no intention of facilitating Aus-Lid in breaching its agreement with the applicant.

66    Visy submitted that its discussions with Aus-Lid and its engagement with the applicant were “sufficient to discharge any allegation that it acted with wilful blindness or reckless indifference, or that it had actual knowledge”. It affirmed that:

Visy made enquiries of the Auslid Parties, and … it was assured that the Auslid Parties had power to grant the licence. It is undisputed that the Aus-Lid entities assured Visy that [the applicant] was in breach, that Visy was licensed, and that the Aus-Lid entities would negotiate with Cryovac on multiple occasions.

In making enquiries of the Aus-Lid entities, Visy acted quickly, and with diligence. It was caught in the invidious position of being in the middle of a dispute between the Aus-Lid [Entities] and [the applicant], and it was called upon, effectively, to adjudicate that dispute, which appeared to turn on complex factual allegations as to whether [the applicant] had complied with the terms of its licence. Given the level of Visy’s investment in the Combo-Lids, and its commitment to Chobani to provide a spoon-in-lid product, it is understandable that Visy was cautious to accept [the applicant’s] advice that the Aus-Lid entities were in breach, when the Aus-Lid entities repeatedly provided contrary advice. It certainly cannot be said to have been wilfully blind, or recklessly indifferent, to [the applicant’s] interests, simply because it did not accept [the applicant’s] position uncritically.

(Citations omitted)

Evidence as to Mr Stein’s state of mind

67    In closing submissions in answer to the applicant, Visy submitted that it was not open to the applicant to contend that Mr Stein did not believe Mr de Souza because the applicant had not complied with the rule in Browne v Dunn. Further, and for the same reason, Visy submitted it was not open to the applicant to assert that Mr Stein was dissembling and evasive; or that his evidence was a self-serving reconstruction; or that Mr Stein had no real interest in finding the facts; or that he (and therefore Visy) did not believe that the sublicence had been terminated.

68    Visy submitted that Mr Stein’s evidence was that he did not have reason to believe Mr de Souza would lie and that Visy was interested in the true facts but was getting two versions, one from a competitor who was interested in Visy stopping supply and one from the licensor of the relevant patent. Mr Stein’s evidence was, so Visy said, consistent with the contemporaneous documents and should be accepted. Referring to Hunt J’s description of the rule in Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 at 16 and MWJ v The Queen [2005] HCA 74; 80 ALJR 329, Visy submitted that the applicant did not put to Mr Stein that he did not believe Mr de Souza and that the Court should therefore abstain from making adverse findings about Mr Stein and Visy. Visy added that some of the circumstances cited by the applicant to support the proposition that Mr Stein should not have believed Mr de Souza ignored the evidence.

No loss and damage

69    Referring to statements in Fightvision at [281], Visy submitted that the applicant was unable to prove that Visy’s actions after September 2014 or after December 2014 caused its loss, and that on this account the applicant was not entitled to an award of damages. Visy submitted that the applicant’s refusal to invest in IML technology on the basis of its cost was fatal to its damages case. Visy submitted that:

Chobani required a matte black, IML product which Cryovac was unwilling to provide. It is apparent from those facts alone that Cryovac had no prospect of winning a long term supply contract from Chobani for the Gippsland Dairy lids. The only possible relationship which it could have had with Chobani was as a short term, stop gap, supplier.

…

Chobani accepted Visy’s proposal because Visy offered a product which was matte black, IML, and cheaper. Chobani accepted the proposal before the design for the lid (including the spoon) was finalised.

(Citations omitted)

70    Visy emphasised Mr Meek’s evidence that he would not have accepted the applicant’s proposal even if Visy had been unable to supply under its proposal. Visy also submitted that, having regard to Mr Meek’s evidence, it was “apparent that Chobani gave Visy its business before Visy had the right to [the patented spoon-in-lid product], and Chobani would have contracted with Visy even if Visy had offered a different spoon-in-lid, because Visy met Chobani’s requirements, and Cryovac did not”. Visy maintained that the applicant’s case on loss and damage mistakenly assumed that Chobani would only have accepted the patented spoon-in-lid. In closing address, Ms Cunliffe submitted that:

… Visy could have provided another spoon in lid. My friend said there was no evidence. I infer from that he means that there were no drawings put before your Honour. There was, certainly, evidence that other designs were shown to Chobani.

71    In the alternative, Visy submitted that:

Even if, against the evidence, it could be said that Chobani gave its business to Visy on the basis that Visy was offering the Combo-lid, to the extent that any loss was suffered by reason of any purported breach of Cryovac’s sub-licence, it was Auslid’s acts before September 2014 which caused loss to Cryovac. By September 2014, Chobani’s business was lost to Visy, and Visy was producing the ComboLid product.

72    Visy went on to say that, even if Visy caused the applicant loss after September or December 2014 because it did not cease its supply of the patented spoon-in-lid product to Chobani, the loss would have been very confined, since Chobani would have only taken the existing (cheaper gloss black unlabelled) Combo-Lid from the applicant for a very limited period while it went to market to find another supplier. Visy submitted that “at its highest”, on Mr Meek’s evidence, the applicant lost six months of sales from either September 2014 or December 2014 because Visy did not cease supply upon receiving the applicant’s lawyers’ correspondence. Visy submitted that Mr Meek’s evidence (that he would have gone with another supplier (or another Visy design) in matte black IML as soon as he could) should be given significant weight.

73    Also in closing submissions in answer, Visy submitted that:

Based on actual volumes, the loss to [the applicant] would amount to no more than 2,800,440 units at [the applicant’s] gross margin of $31.62 per thousand units (Sales price of 78.20 less cost price of 46.58, which applied from June 2014 to January 2015). This amount ($88,549,91) is very significantly smaller than any estimate of loss that has been put forward by the Applicant.

For that reason, the court cannot be satisfied of the proposition that if Visy had ceased to manufacture the Combo Lid, Chobani would have re-established supply. [The applicant] would have needed to invest in IML equipment, something it was unwilling to do given the expense … .

(Citations omitted)

74    Visy submitted too that the applicant had made no provision in its proposed damages assessment for the cost to it of new IML moulds, which would have affected the applicant’s profits (although Visy said it was unclear “how they would be affected, or by how much”). Visy also submitted that “the costs of producing a product for Chobani that would have been acceptable to Chobani (because it was matte black and not gloss) would be higher than the costs of providing the existing product, although it is not clear by how much”. Furthermore, so Visy submitted, after Aus-Lid’s Patent ceased for non-payment of fees in September 2017, Visy “could supply to Chobani without requiring any licence from Aus-Lid”. There was, so Visy affirmed, no basis in the evidence to support the claim for profit for two, three, five or ten years after the period of exclusivity.

75    Referring to Carey v Freehills [2013] FCA 954; 303 ALR 445 on the issue of misleading and deceptive conduct, Visy submitted that, to the extent that Visy expressed a view to Chobani in relation to Visy’s right to supply, that view was clearly an opinion; and that up to September 2014 and thereafter, there was no reason for Visy to consider this opinion was wrong. Further, Visy submitted that, in the circumstances (and particularly given that the applicant had explained its legal position to Chobani) it was unlikely that Chobani accepted Visy’s expression of opinion as fact. Rather, so Ms Cunliffe submitted, it was apparent from Mr Meek’s evidence that he appreciated that there was a dispute about the right to supply the patented lids. Visy drew attention to the fact that the applicant’s Mr Stewart and Mr Taylor separately contacted Chobani to explain their concerns about the Visy lids, and the applicant also sent correspondence to Chobani about the matter. Referring to the July 2017 Extension, Visy further submitted that it had informed Chobani that there was a dispute on foot that might affect its right to supply.

76    Finally, referring to Uprising Dragon Ltd v Benedict Trading & Shipping Pty Ltd (1987) 16 FCR 93 at 104-105 and Rutherford v Poole [1953] VLR 130 (mentioned in the applicant’s written closing submissions), Ms Cunliffe submitted in closing on 30 October 2018 that it was not beyond doubt that Visy did in fact acquire a valid licence, albeit that that licence may have been a breach by Aus-Lid of its contract.

An overview of the evidence

77    The applicant relied on the five affidavits of Michael John Stewart (which were sworn on 13 September 2016, 16 December 2016, 17 July 2017, 25 September 2017 and 30 April 2018); and the affidavit sworn by Aaron James Taylor on 7 May 2018. These deponents were subject to cross-examination at the hearing.

78    The applicant also relied on the expert evidence of Brian Morris, a forensic accountant. He too was subject to cross-examination. His report dated 20 July 2017 and two supplementary reports dated 11 August 2017 and 26 September 2017 were in evidence, together with memoranda dated 31 May 2018 and 13 June 2018. In closing, however, the applicant chiefly relied on the memorandum of 13 June 2018.

79    The applicant also relied on the affidavit of Martin Hin Kong Yii affirmed on 30 May 2018 and the affidavit of Sarah Amelia McKeith affirmed on 9 September 2016. Neither of these deponents was required for cross-examination.

80    Visy relied on the affidavit of Matthew Robert Stein sworn on 24 October 2016; the affidavit of Peter John Meek affirmed on 15 February 2018; the affidavit of Brett Smithells sworn on 20 October 2016; and the affidavit of Simon Shale sworn on 20 October 2016. All four deponents were subject to cross-examination. Mr de Souza, who was called by Visy, also gave evidence at the hearing and was subject to cross-examination.

The applicant’s witnesses

81    The following is an overview of the evidence given by the applicant’s witnesses.

The evidence of Mr Yii

82    Mr Yii gave the evidence concerning the execution of the Patent Licence Agreement, which has already been mentioned.

The evidence of Ms McKeith

83    Ms McKeith, a solicitor with Spruson & Ferguson, deposed to sending and receiving numerous items of correspondence to and from the respondents. None of her evidence was in contest. Some of the more significant items of correspondence are referred to elsewhere in these reasons.

The evidence of Mr Stewart

84    By the time of the hearing, Mr Stewart had been with the applicant for over a decade. He had been the applicant’s Portfolio Director since March 2016. He had also been its Sales Director for dairy and rigids from about 2012 to March 2016 and its National Sales & Marketing Manager for dairy and rigids from 2007 to 2012. Mr Stewart was a knowledgeable and honest witness, although it seemed to me that his recollection of some details had (understandably) diminished over time. Generally speaking, I accept his evidence, subject to the qualification I have just mentioned.

85    Mr Stewart deposed that, in about August/September 2012, the applicant began supplying a spoon-in-lid product “made pursuant to the [Aus-Lid] Patent” and a corresponding tub product. According to Mr Stewart, up until June-July 2014, the number of these spoon-in-lid products supplied by the applicant to Chobani was roughly equivalent to the number of corresponding tub products supplied by it to Chobani. From this time on, however, the supplies to Chobani of the spoon-in-lid products were noticeably less that the supplies of the tub products (and less in absolute terms). His evidence was that, from March 2015, the applicant completely ceased to supply the spoon-in-lid products to Chobani.

86    Mr Stewart deposed that, around May 2014, Mr Aaron Taylor (the applicant’s Account Manager for the Chobani account) had told him that, during a recent visit to Chobani, Mr Taylor had observed packaging with “Visy” markings. Mr Taylor had shown him one of Chobani’s Gippsland Dairy brand yoghurt products incorporating a spoon-in-lid (relevantly the same as the Combo-Lid) marked as made by “Visy”, and had told him that he had seen these products on display for sale in a supermarket he had visited.

87    Mr Stewart said that he took these matters up within the applicant immediately and, on 3 September 2014, he sent a letter (subsequently also sent by email) to Chobani’s Managing Director, Mr Peter Meek, advising that the applicant believed that Visy had no right to manufacture or supply the patented spoon-in-lid marked “Visy” on Chobani’s 160g Gippsland Dairy brand yoghurt product, as it fell within the scope of an exclusive patent licence agreement between the applicant and Aus-Lid, pursuant to which only the applicant held the relevant rights to manufacture and supply Aus-Lid’s patented spoon-in-lid as Visy was seeking to do.

88    On 8 September 2014, Mr Stewart received an email from Mr Meek, in which Mr Meek stated that he was “investigating the current position”. The two men spoke by telephone on 16 September 2014, when Mr Meek stated that Chobani could obtain the spoon-in-lids from Visy with IML at a better price than the applicant was offering and that Chobani had been told by Visy that Visy could supply them.

89    Mr Stewart’s evidence was that, in early 2013, prior to Chobani’s request for pricing information from the applicant and Visy (see [145] below), the applicant had invested in tooling to increase its capacity, but that this tooling produced gloss Combo-Lids rather than a matte product and did not include an IML capability. As will be seen, Mr Meek’s evidence was that Chobani’s preference was for an IML matte black product (see [141] below).

90    The evidence was that in response to Chobani’s request for pricing information, the applicant’s Account Manager, Mr Taylor, provided the following quotation (which was dated 4 September 2013 and addressed to Chobani’s Senior Procurement Manager, Mr John Xenidis).

Re:         Plain & Labelled Matte Black Spoon in Lid

Dear John

Thank you for your interest in the above and I apologise for the delay in responding.

In Mould Labelled:

Theoretically, an In Mould Labelled Spoon in Lid is possible.

However, due to the complexity of the mould and label insertion robotics; and the size of the equipment that is necessary, the cost is prohibitive …

Adhesive Labelled:

An adhesive labelled Gloss Spoon in Lid is within our current offer.

Matte Black Appearance:

We are investigating the availability of a master batch that will achieve the required matte black effect.

In the absence of a suitable matte master batch, it is possible that a new part mould will be required.

Please consider the below pricing:

…

Lead-time is 10 weeks from receipt of signed artwork, proofs and thereafter, 8 weeks from receipt of purchase order.

…

All standard terms & conditions of sale will remain effective as per the standard Sealed Air – Cryovac Terms & Conditions.

This quotation is valid for 30 days from the date of issue and prices remain indicative until official volumes and timelines are confirmed.

91    Mr Stewart deposed that:

When Chobani requested a quote for matt[e] black Combo-Lids with IML, it was my recommendation that [the applicant] not provide Chobani with a quote for matt[e] black Combo-Lids with IML because:

(a)    the investment cost was prohibitive because of the need for additional robotics and automation;

(b)    [the applicant] had six months prior invested in tooling that would be rendered obsolete if it were to invest in tooling with IML capacity; and

(c)    [the applicant] had the exclusive sublicence to exploit the Combo-Lid in Australia.

He also deposed that to his knowledge the only alternative product at that time was a spoon and lid product made in two separate pieces where the spoon was either inserted into the lid or glued to the lid through a secondary process that was inconvenient and more costly.

92    In cross-examination Mr Stewart said that the decision to provide a quotation for a product which was neither matte black nor IML was taken on the basis of the applicant’s costs in investing in the relevant technology and what he believed was Chobani’s preference for the Combo-Lid. Although he accepted that there were other ways of putting a spoon in a lid, he believed that Chobani “was wedded to the spoon-in-lid concept, it gave more security, that the spoon is actually in the lid when the retailer gets it”. Mr Stewart believed that Chobani preferred Aus-Lid’s patented spoon-in-lid “because of the advantages it gave on [Chobani’s] filling line and to customers”.

93    Mr Stewart accepted that Chobani was seeking a matte black product, rather than the gloss black product that the applicant was at that time capable of supplying; that a non-IML product required a third party to attach the labels to the lid at an additional cost; and that the cost of producing a matte black product through a new part mould might reduce the applicant’s profit, depending on the applicant’s commercial arrangements with its customer. His evidence was, however, that the cost of producing a matte black product through the use of a black matte masterbatch would have been minimal. Mr Stewart said that the applicant continued to supply gloss black Combo-Lids to Chobani at least until June 2014 (some nine months after the applicant provided its 4 September 2013 quotation), with the applicant absorbing the cost of attaching self-adhesive labels. Further, his evidence was that if Visy had ceased to supply Chobani with Aus-Lid’s patented spoon-in-lids in September 2014, then “there would have been little if any customer interruption … as [the applicant] would have supplied them”.

94    Mr Stewart gave evidence that the applicant acquired a mould capable of operating with IML technology in about January 2016, with a gross capacity of 13.3 million lids per year. His evidence was that the equipment would have been suitable for the manufacture of a quantity of IML Combo-Lids for Chobani, although only some of this capacity would have been available for this purpose. While accepting that there would have been additional costs associated with the investment in tooling if Chobani’s requirements had been greater than the existing capacity, he was of the view that, in general, because of the higher operating costs associated with self-adhesive labels, the costs of IML products and non-IML products were equivalent. This was consistent with his earlier statement that the applicant would set the sell price of Combo-Lids with IML at a similar level to that of the Combo-Lids with labels. (In this context, however, Mr Stewart properly drew attention to the fact that he was not an accountant and disclaimed any accounting expertise.)

The evidence of Mr Taylor

95    Mr Taylor was the applicant’s Account Manager from July 2007 to 22 January 2016 and he managed its account with Chobani in 2013-2015. He was clearly an honest and thoughtful witness, whose evidence I accept. He indicated, quite properly given the passage of time, when he was unable to recollect specific details. He also indicated where a matter lay outside his area of knowledge, given his position with the applicant.

96    Mr Taylor deposed that, in or around May 2014, he was performing a 160g tub validation trial in the Chobani packing facility in Dandenong South, Victoria. During that trial he noticed a matte black IML product in the same design as the applicant’s Combo-Lid and with a “Visy” marking on the underside of the lid. Mr Taylor said that he first raised the applicant’s exclusive sublicence with Mr Xenidis when he left Chobani’s site that day in May 2014. Mr Taylor said that Mr Xenidis “accepted it” and did not then speak further about it. Shortly afterwards, Mr Taylor said that he found a 160g Gippsland Dairy yoghurt tub with Aus-Lid’s patented spoon-in-lid in a Berwick supermarket, also in matte black IML, with “Visy” engraved on the underside of the lid. On both occasions, he told Mr Stewart of what he had seen.

97    Although he could not recall precisely when and what he had said, Mr Taylor’s evidence was that, in the course of his regular visits to Chobani’s Dandenong site, he had subsequently told Mr Xenidis and Mr Gourav Neogy (Chobani’s Procurement Manager) that Visy had no right to use Aus-Lid’s patented spoon-in-lid because the applicant had an exclusive sublicence with Aus-Lid. He also told them that the matter was in the hands of the applicant’s senior people and the legal team. Mr Taylor’s evidence was that, after that time, Mr Xenidis and Mr Neogy asked him for updates on the applicant’s discussion with Visy; and that Mr Xenidis told him that if Chobani could not source lids from Visy, then Chobani would need to get lids from the applicant so as not to disrupt its supply.

98    In cross-examination, Mr Taylor was directed to the quotation that he put together on 4 September 2013: see [90]. His evidence was that the applicant was then looking to provide lids with labels attached, “whereas previously we were supplying plain, gloss black … lids … and they were being labelled by … a contract label applicator”. He said that he did not receive a response to this quotation from Chobani. Amongst other things, Mr Taylor accepted that the work of attaching the labels before the lids were provided would be at an additional cost but stated that he did not know whether or not the use of a masterbatch or a new part mould to achieve a matte black finish would affect the cost of the lids.

99    Mr Taylor said that the applicant had continued to supply Chobani with lids for some time after May 2014, although it had only ever provided Chobani with plain lids (without labels attached). His evidence was that he received an email from Mr Xenidis on 25 July 2014 asking about the lead time on an order of black Combo-Lids and that he understood this request to mean that Mr Xenidis wanted to ensure continuity of supply of the product. Mr Taylor sent an email that same day to ascertain how soon a quantity of the lids could be sent by airfreight and a container quantity by seafreight. His evidence was that the applicant would have been able to ensure the continuous supply of such lids to Chobani.

The evidence of Mr Morris

100    Mr Morris is the principal of Morris Forensic, a firm that provides expert accounting and valuation services in connection with litigation and dispute resolution. He holds degrees in accounting and law. He is a Fellow of the Institute of Chartered Accountants in Australia and New Zealand, a Fellow of CPA Australia, and has maintained a forensic accounting practice since 1991. He has expertise in providing expert accounting evidence in connection with litigation, including with respect to loss and damage calculations. It was common ground that Mr Morris’s expertise was relevant to the assessment of loss and damage.

101    The calculations and statements of expert opinion that Mr Morris presented to the Court were, naturally enough, based on his instructions, which included that: (1) Aus-Lid had offered Visy the right to manufacture and supply Aus-Lid’s patented spoon-in-lids in January 2014; (2) Visy began to manufacture and supply these products from at least June 2014; (3) the last invoice issued by the applicant to Chobani for the supply of Aus-Lid’s patented spoon-in-lids was on 28 February 2015; and (4) Cryovac had the capability to supply these products using IML from March 2016. Mr Morris also made the following (counter-factual) assumptions: (1) Chobani would have accepted the applicant’s quotation and the applicant would have supplied Chobani with Aus-Lid’s patented spoon-in-lid product with labels attached between 4 September 2013 and March 2016; and (2) the applicant would have begun supply to Chobani, at the quoted price of $97.10 per 1000 units, from approximately March 2016.

102    Mr Morris determined that the applicant supplied Chobani with 15.103 million of Aus-Lid’s patented spoon-in-lid products from 16 August 2012 to 28 February 2015, with an aggregate sales value of $1,045,994.12. He further determined that Visy supplied Chobani with 25.5 million of the patented spoon-in-lids from June 2014 to April 2017, with an aggregate sales value of $1.606 million. He calculated that the number of patented lids that Chobani would have required from May 2017 to September 2018 was between 19.902 million (at an estimated rate of growth in demand of 17%) and 26.289 million (at an estimated rate of growth in demand of 44%) Combo-Lids. Based on his instructions and these figures, Mr Morris estimated the applicant’s economic loss from 5 September 2014, in respect of the period from 5 September 2014 to 18 September 2018, was between $2,067,962 (at 17% growth) and $2,401,300 (at 44% growth). In cross-examination, Mr Morris said that if the growth were to be determined on the basis of actual sales data for the period after April 2017, rather than estimated sales, and on the basis that the period of exclusivity granted by the patent ceased in 18 September 2017, then the economic loss (or gross profit lost) would be between $1,281,282 and $1,644,352.

103    Based on his instructions and these figures, Mr Morris also estimated the applicant’s economic loss from 24 December 2014, in respect of the period from 24 December 2014 to 18 September 2018, was between $2,013,096 (at 17% growth) and $2,346,434 (at 44% growth). In cross-examination, with reference to the period commencing 24 December 2014, Mr Morris said that if the growth were to be determined on the basis of actual sales data for the period after April 2017, rather than estimated sales, and on the basis that the period of exclusivity granted by the patent ceased in 18 September 2017, then the economic loss would be between $1,226,416 and $1,589,486.

104    As Mr Morris made clear in re-examination, the actual sales numbers that he was given in the course of giving evidence would have affected all his calculations, including growth figures. A memorandum prepared by Mr Morris and dated 13 June 2018 was admitted into evidence without objection on 30 October 2018, subsequent to the hearing at which he gave evidence. In this memorandum Mr Morris addressed these issues, with the result that he provided further and more reliable estimates (relying on actual sales numbers) upon which to calculate the applicant’s economic loss for the periods June 2014 to 18 September 2018, 5 September 2014 to 18 September 2018, 24 December 2014 to 18 September 2018, 5 September 2014 to 18 September 2017, and 24 December 2014 to 18 September 2017.

105    In cross-examination, Mr Morris accepted that his calculations were made on the basis of gross profit, rather than net profit. His evidence was that a new part mould would be accounted for as capital expenditure in respect of depreciating assets, with the depreciation rate affecting net profit in a given year. If supply to Chobani required the applicant to make an investment which could only be used to produce for Chobani, then that would become relevant to the profit calculation.

106    Also in cross-examination, Mr Morris acknowledged that if the applicant had needed to invest in additional equipment to produce IML products for Chobani after March 2016, then that would have had an impact on his assessment of the applicant’s loss.

107    Finally, also in his 13 June 2018 memorandum, Mr Morris provided calculations of the applicant’s losses for two, three, five and ten year periods after September 2018.

Visy’s witnesses

The evidence of Mr Stein

108    At the time of the hearing, Mr Stein held the position of General Counsel - Visy Packaging and Visy International. At that time, he had been an in-house counsel with Visy for nine years and he was an experienced solicitor.

109    Mr Stein deposed (and I accept) that his involvement in the dispute between the applicant and Aus-Lid began around 8 September 2014 when he received a letter from the applicant’s lawyers. This letter, which was dated 4 September 2014, stated that the applicant had entered into a Patent Licence Agreement and had thereby acquired “an irrevocable, exclusive sub-licence to exploit Australian Patent No. 754978 (‘Patent’) and New Zealand Patent No. 503331 for the purpose of the manufacture and supply of, relevantly, containers for pre-packaged food containing dairy products (‘Field’) in Australia and New Zealand (‘Territory’)”. Omitting formal parts, the letter continued:

Relevantly, the Agreement provides that the sub-licence granted to our client is an exclusive sub-licence in the Field and Auslid must not undertake any commercial activity in the Field or grant any rights in favour of or to any third party in the Field in the Territory.

Our client has recently become aware of a dairy product being sold in Australia by Chobani Australia Pty Ltd (“Chobani”) under its brand Gippsland Dairy, in a container that incorporates a spoon under the lid (“Gippsland Container”). The Gippsland Container is marked with “VISY” and we assume is manufactured by or on behalf of your company or one of its related entities.

We also note that the Gippsland Container is marked “PATENTED-AUSLID.COM”. In the circumstances, our client assumes that your company, or one of its related entities, has manufactured the Gippsland Container and supplied it to Chobani with the purported licence or authority of Auslid (“Gippsland Container Licence”).

It is our client’s position that the Gippsland Container falls within the scope of one or more of the claims of the Patent.

As set out above, our client has been granted an irrevocable, exclusive sub-licence to exploit the Patent with respect to the Field in the Territory. The Gippsland Container is not manufactured and supplied to Chobani Australia by our client or with its licence or approval.

Further, Auslid is excluded by the Agreement from exploiting or granting any licence to exploit the Patent with regard to the Field in the Territory and, as such, has no basis to grant the Gippsland Container Licence, which licence our client regards to be in breach of the Agreement.

In the circumstances, and in light of the matters set out above, we ask that you set out in writing, within 7 days of this letter, the basis on which your company (or one of its related entities) purports to have the right to manufacture and supply the Gippsland Container.

110    Mr Stein deposed that, following receipt of this letter, he spoke by telephone to Mr Simon Shale, who was then General Manager of Visy’s Food Plastics Division and based in Thailand. Mr Stein said that Mr Shale told him then that Visy had been “granted a verbal licence by Ashlyn de Souza around January [2014]”. I accept Mr Stein’s evidence in this regard, which was consistent with the evidence given by Mr Shale. Mr Stein said at the hearing (and I accept) he had not been aware of this verbal licence until he had this conversation with Mr Shale.

111    In cross-examination, Mr Stein said in substance that he considered the allegations in Spruson’s letter to be serious and to require investigation. He accepted that, when he received Spruson’s letter, he would have appreciated that if the applicant’s agreement with Aus-Lid was valid and on foot, then Aus-Lid’s granting any rights to a third party in the field would mean that Aus-Lid was in breach of that agreement. When asked by counsel for the applicant, “[h]ow can Visy have a licence if someone else has the exclusive licence?”, Mr Stein answered:

Well, if that exclusive licence has been amended, or if, you know, Visy’s licence may have … come earlier than that.

I discuss below Mr Stein’s responses in cross-examination to questions of this kind.

112    Mr Stein deposed that, before receiving Spruson’s letter, a Mr Hogan from Visy’s plastics business in the innovation department in Melbourne had informed him by email that “he had held discussions with Mr Shale regarding formalising a Visy/Aus-Lid licensing agreement, and also the licensing to Aus-Lid of some automation that Visy had developed to fold the manufactured spoon in the lid”. Mr Stein added that the next day Mr Hogan had sent him “some further high level background in relation to these arrangements and on 4 September … provided [him] with a copy of the existing MOU between Aus-Lid and Visy”. (The reference to “the existing MOU” was a reference to a Memorandum of Understanding dated 19 July 2012 between Aus-Lid and Visy Packaging (Thailand) Limited (Visy Thailand) (19 July 2012 MOU)). Mr Stein said in cross-examination that he understood that this information was “referring to some form [of] agreement being in place with Aus-Lid that’s not entirely satisfactory”; and that he understood the sentence “Cryovac also manufacturing locally. Ashlyn to clarify scenario” in this information to be referring to the applicant’s manufacture of the product in Australia. Mr Stein’s evidence at this point is discussed below.

113    On 9 September 2014, after his receipt of Spruson’s letter, Mr Stein received an email from Mr de Souza informing him that Aus-Lid was in dispute with the applicant and could provide Visy with an indemnity and a “hold harmless” letter. This email was as follows:

Hi Matt,

I spoke with Simon [Shale] last night regarding the Sealed Air Cryovac letter to Chobani and Visy.

We have been in correspondence with them and their Patent attorney for about 6-8 weeks. Our position is as follows:

1.    They breached our Licence Agreement by working outside their territory on multiple occasions without consulting us.

There is no written request and no written approval from Auslid. We have a documented email string to support our claim.

2.    The new technology that Visy have developed with In Mould Labelling and automation is subject to a new patent application by Visy.

This provides a high end decorative solution with local supply.

We are comfortable to provide you with an indemnity and a hold harmless letter or agreement.

SAC will have to direct their action against Auslid. Where a claim for breach off [sic] agreement will be defended by pointing out the various breaches they caused.

Please let me know if there is a suitable time to call and discuss.

114    Mr Stein said that he had a conversation with Mr de Souza on the day this email was sent, in which Mr de Souza told Mr Stein that the applicant’s claims were “without any substance”, that the agreement referred to between Aus-Lid and the applicant “no longer applies”, and that Aus-Lid had the right to license Visy to manufacture and sell the patented spoon-in-lid product. (I discuss below Mr Stein’s evidence about this conversation and his evidence as to what Mr de Souza’s communications to Visy led him to believe.)

115    Mr Stein received a further email from Mr de Souza on 12 September 2014, in which Mr de Souza stated:

We have lodged a complaint with the ACCC and will work through them through mediation and try and resolve the situation by declaring the agreement void.

116    In cross-examination, Mr Stein accepted that the email correspondence from Mr de Souza and his telephone conversation with him on 9 September 2014 indicated to him at the time that Mr de Souza and Aus-Lid were in dispute with the applicant over an earlier licence agreement regarding the use of Aus-Lid’s patented spoon-in-lid product, and that Visy had some exposure as a result. Mr Stein also said that he thought that the indemnity was “significant to show [Mr de Souza’s] confidence”, although he “didn’t know at the time” whether the indemnity was “worth anything”. Mr Stein accepted that Mr de Souza’s 12 September 2014 email “reflect[ed] Ashlyn’s view” that the agreement with the applicant was on foot, notwithstanding Mr de Souza had previously told him “he thought the agreement had sort of faded away”. Mr Stein denied, however, that this raised doubts in his mind about Mr de Souza’s veracity.

117    On 12 September 2014, Mr Stein replied by letter to Spruson & Ferguson. The reply was brief. It confirmed that Visy manufactured the Gippsland Container to which Spruson’s letter referred. It also stated that Visy “has in place a licence agreement with Auslid enabling [Visy] to utilise certain patent rights held by Auslid”. This letter concluded:

We have … contacted Auslid … and have been assured that the rights of the Visy group to manufacture the Gippsland Container are not compromised. In the circumstances we suggest that your client takes up its concerns directly with Auslid.

Mr Stein’s responses to the applicant’s lawyers’ letters and more generally are discussed below.

118    In cross-examination, Mr Stein confirmed that in approaching the matter he had ascertained the nature of Visy’s investment and legal exposure, and that at the time he understood Visy to have invested approximately $2 million (being a “significant amount”) in tooling and machinery in order to meet Visy’s commitment to Chobani to supply it with an IML spoon-in-lid product. He agreed that this factor and Visy’s loss of revenue if Visy had to stop making the patented spoon-in-lid product went “into the whole matrix of considerations at the time”. In addition, he said that: “it was clearly in our commercial interest to keep [supplying Chobani]. Otherwise, potentially, you know, we may open ourselves up to … a lawsuit from Chobani”; and “we weren’t going to just stop supply to Chobani on a whim, put it that way”.

119    With respect to the applicant’s claim to have an exclusive licence, Mr Stein said, in substance, that he relied on Mr de Souza’s account, including that the applicant had breached its agreement with Aus-Lid. He also said in cross-examination that he understood Mr de Souza’s statements to him at the time showed that Aus-Lid believed it was no longer bound by the licence agreement with the applicant, either because that agreement was no longer on foot or because, if on foot, it was liable to be declared void. Mr Stein said that he thought then that the information Mr de Souza had given to him indicated that there were good grounds for believing that the applicant was in breach of its agreement with Aus-Lid, and that this might have resulted in a repudiation of the licence agreement. When challenged about this in cross-examination, Mr Stein said that he recognised that there was “potential … for some overlap” between Visy’s and Aus-Lid’s rights; that “there was an issue that needed to be resolved”; that the exclusivity of the applicant’s licence depended on the terms of that licence; that there were “a whole number of reasons why that licence may no longer be on foot”; and that “we didn’t have the full picture”. I return to Mr Stein’s evidence below.

120    Mr Stein did not recall asking Mr de Souza to explain his understanding of Aus-Lid’s position. Mr Stein did not ask him for any further information (for example, for the email chain said to support Aus-Lid’s position) that might have shed light on the reliability of Mr de Souza’s stated understanding. Mr Stein said in cross-examination that he did not inquire as to whether Aus-Lid had taken any independent legal advice. Mr Stein also said that he did not form a view about whether Mr de Souza’s understanding was correct, including as to whether or not the licence agreement between Aus-Lid and the applicant was still on foot. As already indicated, the effect of this evidence is discussed below.

121    On 15 October 2014, Mr Stein received a second letter from Spruson & Ferguson. This letter stated that “we are concerned that the basis on which you have been led to believe that the Visy group has the rights to manufacture the Gippsland Container is not correct”. Specifically, the letter offered to provide a copy of the licence agreement between the applicant and Aus-Lid to Visy’s independent legal advisors, on a confidential basis, “for the purpose of providing to you legal advice with respect to the Visy group’s position” and “in consideration for [Visy] providing to [the applicant’s lawyers] … a copy of the Visy Agreement”.

122    Mr Stein said in cross-examination that he subsequently spoke to Mr Kortian, a solicitor with carriage of the matter at Spruson & Ferguson, to discuss why he did not propose to accept Spruson’s proposal. Mr Stein said that he told Mr Kortian that “we didn’t have independent legal advisers engaged in this” and that he did not think that “just sighting a copy of the licence agreement would necessarily resolve the issue”.

123    Mr Stein also provided a copy of Spruson’s letter to Mr de Souza. Mr de Souza responded by email on 17 October 2014, stating that “[y]ou may handle this matter in any way you think fit”, and reiterating that he had provided Visy with an indemnity for the Gippsland Dairy product. The email added that:

We are considering our position in terms of a license with Visy, which right now is not acceptable, and we are quite happy to continue to operate under our current M.O.U.

I have also received a letter asking to meet, in order for us to come up with a commercial arrangement that suits all. We may consider that proposal and meet with them or resolve the matter through the ACCC.

124    In cross-examination, Mr Stein said that, when he spoke with Mr Kortian in October 2014, he was aware that the documentation of Visy’s licensing agreement with Aus-Lid was less than ideal; that the arrangement “wasn’t heavily documented”; and he acknowledged the legal risk “wasn’t going away”. Yet he said that he did not see the need to engage external lawyers at that stage. Mr Stein said that he believed that the 20 July 2012 MOU (to which Mr de Souza’s 17 October 2014 email referred) was “part of [the] evidence of the licensing arrangement” between Visy and Aus-Lid and outlined the royalty rate applicable for exploiting Aus-Lid’s monopoly rights as agreed between Mr de Souza and Mr Shale in January 2014. While he accepted that the MOU was with Visy Thailand (not the fourth respondent) and that it specifically excluded from its reach “Dairy in Australia”, he maintained that the exclusion had been overtaken by the agreement reached between Mr Shale and Mr de Souza in January 2014. I return to the effect of Mr Stein’s evidence below.

125    On 27 November 2014 Mr Stein received a third letter from Spruson & Ferguson. The substance of this letter was as follows:

As you are aware, our client’s wholly owned subsidiary [Cryovac] entered into a Patent Licence Agreement (“Cryovac Agreement”) with [Aus-Lid] on 29 January 2011, whereby [Auslid Operations], as the exclusive licensee of [Aus-Lid Enterprises] granted to our client an irrevocable, exclusive sublicence to exploit Australian patent No. 754978 (“the Patent”) and New Zealand Patent No. 503331 for the purpose of the manufacture and supply of, relevantly, containers for pre-packaged food containing dairy products (“Field”) in Australia and New Zealand (“Territory”).

By your letter dated 12 September 2014, you confirmed that your company manufactures the container sold by Chobani Australia Pty Ltd under its Gippsland Dairy brand that incorporates a spoon under the lid (“Gippsland Container”). As you are aware, it is our client’s position that the Gippsland Container falls within the scope of one or more claims of the Patent. Furthermore, it is clear that the Gippsland Container is being offered for sale in the Field in the Territory.

On 23 October 2014, by telephone call to the writer, you confirmed that Auslid has granted to your company a licence to exploit the Patent in Australia (“Visy Licence”) This was also confirmed by email from Robert Kaye to John Mitton on that same date.

As you are aware, it is our client’s position that each of [Aus-Lid Enterprises] and [Auslid Operations] has breached the terms of the Cryovac Agreement by, inter alia, granting, or permitting to be granted to your company, the Visy Licence. Accordingly, in circumstances where Auslid have granted to our client an irrevocable, exclusive sub-licence to exploit the Patent with respect to the Field in the Territory, which licence excludes Auslid from exploiting or granting any licence to exploit the patent with regard to the Field in the Territory, it is our client’s position that:

(a)    Auslid has no basis to grant the Visy Licence;

(b)    the Visy Licence is invalid; and

(c)    your company has been manufacturing and selling the Gippsland Container in the absence of a valid and effective licence.

…

(Emphasis original)

The letter demanded that Visy provide an undertaking to cease manufacture, distribution and sale of the patented spoon-in-lid product.

126    Once again, Mr Stein forwarded Spruson’s letter to Mr de Souza. Mr de Souza replied on the same day (3 December 2014). His email relevantly stated:

… We have met with them on two occasions, and they have clearly breached our agreement and have provided them with proof.

The last meeting I had with them it was clear they would not take any action against us and I communicated this to Simon [Shale].

…

I have stated that we have an indemnity agreement in place. I did not discuss anything other than it is now a non exclusive agreement.

Not sure why you have advised them that you have a license agreement with us as yet covering dairy. This is the leverage they are trying to use on us. … We will handle that side of it as we believe that we can negotiate a deal with them.

Our position is the following:

1.    They breached the agreement by working outside their territory on several occasions.

2.    They refused to invest in IML when the market wanted the same Visy did.

3.    Visy and Auslid have a larger agreement now after the investment.

4.    The IML lid locally produced is subject to a new patent application and is an Improvement.

…

127    Mr de Souza sent Mr Stein a further email on 5 December 2014, reiterating that he had advised the applicant that it was in breach of the exclusive licence agreement with Aus-Lid “by working outside the territory on a number of occasions” and that “[t]he non exclusive arrangement that we have in place with Visy will stand … we have not restricted [the applicant] from acting in the territory; they have a non exclusive arrangement as well”. As already indicated, I return to Mr de Souza’s communications with Mr Stein below.

128    On 17 December 2014, Mr Stein replied to Spruson & Ferguson in the following terms:

We note that:

1.    We have not sighted a copy of the document you term ‘the Cryovac Agreement’, and are not in a position to comment on its existence, contents or validity.

2.    We have again contacted Auslid in light of your letter of 27 November 2014, and again have been assured that any rights that your client has to exploit the Patent (as defined in your letter) are non-exclusive, and the rights of the Visy group to manufacture the Gippsland Container are valid and effective.

As already indicated, I discuss below Mr Stein’s correspondence with the applicant’s solicitors.

129    In cross-examination, Mr Stein was taken to an email dated 18 December 2014 from Mr John Mitton, one of the applicant’s senior executives, to Mr Robert Kaye, Visy’s General Counsel (neither of whom gave evidence). This email indicated that the applicant might well bring legal proceedings against Visy. Mr Stein’s evidence was that he forwarded Mr Mitton’s email to Mr de Souza, with a note that in his view it was “in everyone’s best interests” for the matter to reach “a sensible commercial resolution”. Mr Stein acknowledged in effect that at this point he did not make further inquiries of Mr de Souza regarding Aus-Lid’s claimed proofs of the applicant’s breaches.

130    On 23 December 2014 Mr Stein received an email from Mr Kortian of Spruson & Ferguson attaching redacted copies of the Patent Licence Agreement of 9 January 2011 and a Deed of Amendment of 31 May 2012. Mr Stein deposed that he noted at the time that the applicant did not appear to have validly executed the documents. This was because the signature of only one of Cryovac’s directors appeared on the Patent Licence Agreement without the company’s corporate seal and the Deed of Amendment did not appear to have been executed at all. In cross-examination, however, Mr Stein accepted that s 127 of the Corporations Act did not limit the ways in which a corporation could validly execute an agreement. Further, when he was asked why he did not take up his concerns with Spruson & Ferguson, he said that he did not consider that further inquiries would be “conclusive” of the question of whether the applicant’s licence remained on foot.

131    In addition, Mr Stein said in cross-examination that because the documents had been redacted, he had no confidence that they represented the entirety of the arrangements between Aus-Lid and the applicant. Having regard to Mr de Souza’s assertions, the redacted copy of the Patent Licence Agreement did not, he said, lead him to conclude that Aus-Lid could not validly grant Visy a licence to supply the patented spoon-in-lid to Chobani. In this context, he also said that he had not sought further information from Aus-Lid. He had not, moreover, put what information he had to the applicant, because he did not think that this would resolve the dispute. The applicant was, he said, already aware of Aus-Lid’s position. Mr Stein affirmed that “there was a dispute clearly going on around whether or not that licence had been repudiated, amended, changed and that was part of the context at the time”.

132    On 23 December 2014, Mr Stein sent Mr de Souza an email in the following terms:

We note Auslid’s position … is that subsequent events have resulted in an amendment of the licence such that it is now non-exclusive, so Visy’s right to utilise is not compromised – but in any event Ashlyn note that neither the licence agreement nor the amendment provided to us by [Spruson & Ferguson] appear to have been properly executed by [the applicant], so there may also be a validity question resulting from that (I’m not sure whether any fully executed documents exist).

We intend to respond to Sprusons stating that nothing in the attached changes our position, and again suggest that [the applicant] seek to sort the matter out direct with Auslid. It does appear likely though that they will issue proceedings, so Ashlyn I suggest you prepare for that and/or seek to resolve with them promptly to avoid the costs associated [with] that.

133    This email led to the following exchange between Mr Drew, counsel for the applicant, and Mr Stein:

Mr Drew:    So you were proceeding on the footing that there was a licence in the Cryovac sublicense but it was now non-exclusive?

Mr Stein:    Well, they may well have had some right to use.

Mr Drew:    Right?

Mr Stein:    Because if they were supplying to other customers, for example, or if they were supplying to Chobani at the time then they would have had a right to use – to exploit the patent. So I really, like I said, didn’t have the full circumstances. I’m reciting back to them what Ashlyn had told us.

Mr Drew:    Now, as an experienced and qualified solicitor, how would a breach of contract by Cryovac of the sublicense that you had in your hands have amended it from being exclusive to non-exclusive?

Mr Stein:    Well, it may well have repudiated. The repudiation might have been accepted and instead a non-exclusive licence forms into its place.

Mr Drew:     A non-exclusive by implication?

Mr Stein:    Well, by implication I mean if Aus-Lid was still allowing Cryovac to continue to supply this to some customers, then there would by implication be a non-exclusive licence. I don’t know. I didn’t have those, you know, factual circumstances with me.

Mr Drew:    You’re making this up as you go along, aren’t you?

Mr Stein:    No. I’m not making this up.

134    Ultimately, Mr Stein was driven to repeat in substance his earlier explanation. He said:

There was clearly a dispute going on between Aus-Lid and Cryovac. It was not clear … whether the licence was still on foot, whether it had been amended. There was a matrix of circumstances there. And we weren’t in a position to assess who had what rights. We were getting advice from Sprusons on the one side representing our competitors. Who, of course, have got a certain self-interest. And we were getting other advice from the licensor.

… So it was a difficult position to be in.

135    It appeared that, so far as Mr Stein was concerned, apart from a court order, Visy would not have stopped supplying the patented spoon-in-lid product to Chobani unless Aus-Lid had said that it considered the Patent Licence Agreement to be valid but intended to breach it. (Mr Stein’s evidence about his receipt of the applicant’s documents and their effect on his thinking is discussed below.)

136    In cross-examination, Mr Stein accepted that, in the period he was corresponding with Spruson & Ferguson, on instructions from Mr Shale and Mr Hogan, he was also drafting documents to formalise the licensing arrangements between Visy and Aus-Lid regarding Aus-Lid’s patented spoon-in-lid product. He said that he understood that the documents he was drafting built on the licence that Aus-Lid had verbally granted in January 2014, although he accepted that he was involved in a process that was not merely seeking to document the pre-existing position but also involved changes to that position, including with respect to the royalties that Visy would pay Aus-Lid in the future. Mr Stein accepted that, as part of that process, Visy sought to capture the indemnity that had been promised by Aus-Lid against any legal claims the applicant asserted under its sublicence. He also accepted that, in substance, one of the purposes of formalising the documentation was to diminish or remove any legal risk to which Visy might be exposed, including as a consequence of litigation involving the applicant. He agreed that, in an evidentiary sense, Visy was “in a better position” if the licence granted verbally in January 2014 was written down.

137    Although Mr Stein deposed that Aus-Lid and Visy believed that they had reached agreement on matters of material substance by the end of October 2014, negotiations in fact continued to the end of December 2014. On 29 December 2014, Visy and Aus-Lid executed an Intellectual Property Licence, a Distribution and Intellectual Property Access Deed and an Intellectual Property Indemnity Deed (December 2014 documents). Mr Stein deposed that when he eventually received a copy of the Patent Licence Agreement from the applicant’s solicitors, he “saw no reason why Visy and Aus-Lid could not proceed on 29 December 2014 with the execution of the three agreements”. (I discuss below Mr Stein’s evidence regarding the drafting of the December 2014 documents.)

138    On 18 July 2017, Visy agreed with Chobani to extend the agreement they had made in September 2013 for the supply of IML lids. Mr Stein accepted in cross-examination that the 18 July 2017 agreement included some recognition of the legal risk that Visy had accepted by continuing to supply the patented spoon-in-lid products. This recognition was expressed in the statement in the agreement that:

Visy has licensed the rights to manufacture this product from a third party patent holder who has continued to confirm Visy’s licence is valid. However, this use by Visy has been objected to by a third party. In the event that in the future Visy is unable to continue to supply this specific lid and spoon to Chobani then Visy shall provide alternate design(s) for Chobani review, and the parties shall then use their respective best endeavours to approve such alternate design and proceed to its commercial supply as soon as is practicable.

The evidence of Mr Meek

139    Chobani’s Managing Director, Mr Meek, gave evidence about Chobani’s decision to refresh the branding of its “Gippsland Dairy” yoghurt product and its need to identify a supplier for the re-packaging. Mr Meek gave evidence about matters he had not only known first-hand but had also been plainly very familiar with at the relevant time and still recalled well. He was, so it seemed to me, a reliable witness.

140    Mr Meek deposed that, in the first half of 2013, Chobani initiated a project known as “Project Reborn” in order to refresh the marketing and branding of Chobani’s “Gippsland Dairy” line of yoghurt products, and that he had oversight of the project. Mr Meek said that, as part of this project, the lids for the Gippsland Dairy line were to be converted to an IML format in a premier matte black, and that this necessitated Chobani going to market to seek a supplier. With respect to this supplier, Mr Meek, who also had oversight of the procurement and technical teams, said that:

Firstly, it was imperative that Chobani identify a supplier with a capability and willingness to supply the IML products (including the ‘spoon-in-lid’ product) in a matte black finish (“Aesthetic Requirements”). This was critical to Chobani because this was central to Project Reborn – Chobani wanted to maintain a premium appearance of its product so as to appeal to a broader professional market.

Secondly, Chobani required that the prospective supplier be able to supply the IML products (including the ‘spoon-in-lid’ product) at a competitive market price.

Finally, Chobani ideally wanted a supplier who was able to start supplying the IML products (including the ‘spoon-in-lid’ product) as soon as possible.

(Emphasis in original)

141    Mr Meek said in cross-examination that the IML was important because it allowed the lid of the Gippsland Dairy product to be labelled precisely and that precise labelling and the matte black finish contributed to the “premier look” of the product. He said that, apart from the aesthetics, for the single-serve yoghurt pot “the spoon-in-lid was important” for its functionality because it enabled customers to eat the product on the go, and he accepted that, so far as Project Reborn was concerned, “all of this had to include a spoon-in-lid product”.

142    Mr Meek also said that the functionality (or “articulation”) of Aus-Lid’s patented spoon-in-lid – the folding out of the spoon from a lid of which it formed the same moulded unit and the folding back and clipping of the underside of the spoon into the lid – was substantially the same in the patented spoon-in-lid products supplied by Visy and by the applicant; and that both company’s products were made from a single injection mould and indicated on their underside that Aus-Lid had the patent for them.

143    According to Mr Meek, Chobani had initially contracted with Visy in late June 2013 for the supply of various containers for its yoghurt products. His evidence was that from around August to September 2013 Chobani had sought information from both Visy and the applicant regarding the supply of various IML lids (including a spoon-in-lid for the 160g tubs) to meet the central aesthetic requirements for Project Reborn.

144    On 21 August 2013, Mr Meek and others at Chobani were emailed by Chobani’s General Manager, Mr Joris Dorsman. This email stated, amongst other things:

160g black lid

- Cryovac supplying in the interim in black and label applied

- Visy IML potentially as soon as Dec or Cryovac IML next year but we’d need to trial all that first

- John to confirm interim solution timing and IML pricing with Cryovac, not foreseeing any issues as it’s their current tool

(Emphasis in original)

145    Also on 21 August 2013, Mr Xenidis at Chobani (see [90] above) requested a quotation from Mr Taylor, the applicant’s Accounts Manager, for the supply of:

Black Lid with spoon (gloss) as per sample

Matt[e] Black Lid with spoon

Matt[e] Black Lid with Spoon and label applied and

Matt[e] Black In mould

146    Mr Taylor, replied by email on 22 August 2013, informing Chobani that:

These last three options will require totally new moulds or new components of moulds.

The business would prefer to defer this development until we are confident that the existing lids process satisfactorily on Chobani’s filling lines.

The applicant’s position was confirmed in Mr Taylor’s letter of 4 September 2013: see [90] above.

147    Visy provided a proposal on around 16 September 2013. This included the supply of an IML spoon-in-lid product for the 160g product in matte black at a price of $60.42 per 1000 units, on an exclusive basis in Australia for the term of the contract. According to Mr Meek, Chobani accepted Visy’s proposal on the basis that:

Visy was able to provide the lids in accordance with Chobani’s Aesthetic Requirements, at a price that was significantly cheaper than the non-IML, shiny black lids that [the applicant] proposed to supply and within a shorter timeframe than that offered by [the applicant] (for the IML products) …

148    Although Mr Meek was aware that Aus-Lid had previously designed one form of spoon-in-lid product and that, prior to Project Reborn, that product had been made by the applicant for Chobani in a non-IML and non-matte black format, he was not aware of the arrangements between Aus-Lid and the applicant. He said that, at that time of accepting Visy’s proposal, Chobani did not require Visy to supply a spoon-in-lid product in accordance with Aus-Lid’s patented spoon-in-lid. The final specifications for the spoon-in-lid to be supplied by Visy were not attached to the proposal that Chobani accepted.

149    Mr Meek’s evidence was that, after the Chobani had accepted Visy’s proposal, he was responsible for overseeing the design process, although he was not directly involved in it. He said that, between September and December 2013, Visy was providing Chobani with 5-6,000 prototype spoon-in-lids for testing on the filling lines; that “the final spoon in lid design option … was not settled until approximately January 2014”; and that commercial supply commenced in June 2014. Mr Meek further deposed that:

At all times during the design process, Visy represented to Chobani that it was able and willing to supply the specified matte black ‘spoon in lid’ design. By reason of this, Chobani made the reasonable assumption that it was able to do so.

150    On 18 July 2017 Visy entered into a further agreement with Chobani purporting to “extend and amend” the earlier agreement between it and Chobani for Visy to supply, on an exclusive basis in Australia, a 160g IML matte black lid and another product. The July 2017 agreement included the specifications for the 160g IML matte black lid.

151    In cross-examination, Mr Meek said that, even if Visy had not made its proposal, Chobani would not have accepted the applicant’s proposal because it did not meet Chobani’s brief. Rather, so Mr Meek said, Chobani “would have gone back to market”. He conceded, however, that Chobani would have maintained the supply of the Combo-lids from the applicant until Chobani could find a supplier for IML matte black lids with a spoon, which “probably would have been six months”. There were, so Mr Meek said, “plenty of spoon-in-lid solutions” available at that time.

The evidence of Mr Shale

152    At all times material to the events with which these proceedings are concerned, Mr Shale was Visy’s General Manager for its Food Plastics division. He ceased to hold this position in July 2016, when he left Visy’s employment. Up until the end of July 2016, he was also a director of Visy Thailand. He relocated from Melbourne to Bangkok in April 2009. When his evidence is considered as a whole, Mr Shale was, for the most part, a reliable witness. He stated clearly where his memory had faded with the passage of time. He gave a reliable account of the events that he did recall, which was mostly supported by contemporaneous documents and/or the evidence of other witnesses, in particular Mr Smithells and Mr de Souza.

153    Mr Shale deposed that, shortly after joining Visy in October 2003 as Technical Manager of Visy Food Plastics, Mr de Souza came to show him the Aus-Lid range of products, including the patented Combo-Lid. His evidence was in substance (and I accept) that after that time and following Visy’s negotiation of a contract for the supply of Aus-Lid’s patented spoon-in-lid product to the United Kingdom, Visy enjoyed a commercial relationship with Aus-Lid to their mutual benefit. As part of this relationship Mr Shale and Mr de Souza had regular meetings and discussions between 2005 and 2014, including about market opportunities and developing the relationship between Visy and Aus-Lid.

154    Mr Shale said that until 2012 there was no formal agreement regarding the patented product between Aus-Lid and Visy. He explained that, in 2012, Visy Thailand and Aus-Lid entered into the MOU of 19 July 2012, which was in evidence. Broadly speaking, under the MOU of 19 July 2012, Visy Thailand had the right to exploit the patent to supply the patented product in the processed fruit market for sale in Southeast Asia and for sale to Visy’s existing customers, “(excluding dairy)”, in Australia. In cross-examination, Mr Shale said that the MOU and discussions leading up to the MOU excluded dairy because Mr de Souza had said that he had a pre-existing agreement with the applicant (then Cryovac) in that sector. I accept Mr Shale’s evidence concerning the MOU of 19 July 2012.

155    Mr Shale said that in early 2013 Visy began to explore the use of IML technology in plastics including because of the advantages it offered for presentation, reduced labour costs and environmental benefit. At the same time, he said he sought to identify customers who would adopt the new technology “so that Visy could have certainty that the capital expenditure necessary to invest in the machinery could be recovered through product sales”. I accept Mr Shale’s evidence in this regard. In cross-examination, Mr Shale also said (and I accept) that the highly customised nature of this technology meant that it was more expensive than usual to reverse the investment.

156    Mr Shale said that he had a conversation with Mr de Souza regarding IML in about August 2013, in which Mr de Souza indicated that Aus-Lid wanted IML for their product and had so far been unable to find a supplier willing to invest in the technology, and Mr Shale indicated that Visy was keen to invest in the technology if it had customer support to develop IML capacity. Later that month, Mr Shale spoke to Mr Smithells, then responsible for the Chobani account, who said that Chobani had asked for a proposal for matte black IML lids. He said that there was no reference made to Aus-Lid’s spoon-in-lid patented product in this conversation. I accept Mr Shale’s evidence about his conversations in August 2013 with Mr de Souza and with Mr Smithells (who gave evidence to like effect): see [173] below.

157    Shortly afterwards, Mr Shale said that he had a conversation with Mr de Souza in which Mr de Souza said in substance that Chobani was currently being supplied with lids by the applicant (then Cryovac), but that Cryovac would not invest in IML technology, and that Visy could tender to Chobani for IML lids. Mr Shale told Mr de Souza that this tender, if successful, might justify the acquisition of IML tooling. Mr Shale was asked in cross-examination whether he was referring to Aus-Lid’s patented spoon-in-lid product, since he was talking with Mr de Souza in this conversation and he answered “not particularly”. When asked if he knew at the time that the applicant (Cryovac) had a relationship with Chobani, he said:

Not really. I wasn’t really – from my point of view, I was never interested in Cryovac.

158    I accept that Mr Shale was not at that stage focussed on Aus-Lid’s patented spoon-in-lid product. This is consistent with Visy’s subsequent proposal to Chobani. I do not, however, accept that Mr Shale was “never interested” in Cryovac. This appears to me doubtful in view of his earlier evidence about the dairy exclusion in the MOU of 19 July 2012: see [154] above. At another point, Mr Shale accepted in cross-examination that he had been interested in Aus-Lid’s patented spoon-in-lid product since about September 2012, although this included its use in other markets (including outside Australia) besides the market for Chobani’s dairy products in Australia. His evidence in this respect is corroborated by the MOU of 19 July 2012. Be this as it may, nothing apparently turns on this point. At most Mr Shale’s overly-emphatic answer is indicative of his venturesome, perhaps sometimes incautious, personality.

159    Mr Shale’s evidence was (and I accept) that he (and others at Visy) would have approved the proposal made by Visy to Chobani for the supply of matte black lids, including a matte black IML spoon-in-lid product for the 160g tub. In his affidavit, Mr Shale said that at the time the proposal was made (on 16 September 2013) “Visy had various spoon plus lid possibilities that it could potentially provide to Chobani in IML format”, and that no specification for the spoon-in-lid product accompanied the proposal. Mr Shale went on to say in cross-examination that the customer (Chobani) was part of the discussion in subsequently identifying the design that would be used and that “they weren’t all Ashlyn [de Souza]’s proposals in the initial sketches”.

160    The proposal (which, as already noted, was approved by Mr Meek for Chobani on 17 September 2013) purported to provide Visy with exclusive rights to supply the products detailed in it for a term of 4 years or 120 million units, whichever was later. In cross-examination, Mr Shale said (and I accept) that the pricing of this proposal was based on the exclusive right to supply Chobani’s requirements. This was because Visy required a certain volume of supply in order to make the capital expenditures on IML.

161    Mr Shale deposed that he had a conversation with Mr de Souza in late December 2013 or early January 2014 in which Mr de Souza told him that Aus-Lid’s relationship with the applicant (then Cryovac) had broken down as Cryovac did not wish to invest in IML and also that it was trying to sell the Combo-Lid in the United States without the right to do so. According to Mr Shale, Mr de Souza then offered Visy the right to manufacture and supply Aus-Lid’s patented spoon-in-lid product for Chobani, as well as for others within the field of dairy in Australia. Mr Shale’s evidence in cross-examination was that this was the first time that Aus-Lid’s patented spoon-in-lid product was explicitly discussed as part of the portfolio of choices that Visy could offer to Chobani. I accept Mr Shale’s evidence since it is broadly consistent with Mr de Souza’s subsequently emailed communications with Mr Shale and Mr Stein. It is also consistent with Mr Smithells’ evidence that Mr Shale informed him of this conversation with Mr de Souza around this time. Further, it is also broadly consistent with Mr de Souza’s evidence. There was, moreover, no specification for the spoon-in-lid product in Visy’s proposal to Chobani.

162    Mr Shale told Mr de Souza, in January 2014, that Visy had decided to accept Aus-Lid’s offer to manufacture and supply the patented spoon-in-lids in IML to Chobani in Australia. There was no formal documentation at this time recording this oral agreement. As already indicated, however, Mr Shale appeared to be a somewhat venturesome business person and, bearing in mind his comparatively lengthy commercial relationship with Mr de Souza, I accept his evidence that he and Mr de Souza did in fact reach an agreement in January 2014 that Aus-Lid would licence Visy to manufacture and supply its patented spoon-in-lid product to Chobani in return for royalty payments, although at that time the agreement was not reduced to writing.

163    Visy subsequently obtained Chobani’s approval to use the patented product for the matte black IML 160g lid that Visy had agreed to supply and, in January 2014, Visy ordered the requisite tooling for its Clayton factory. Manufacture of Aus-Lid’s patented lids for Chobani commenced around June 2014.

164    Mr Shale deposed that at the time of the August 2013 discussions (see [156] above) he knew that Visy’s relationship with Aus-Lid under the MOU of 19 July 2012 was not an exclusive one, and that Aus-Lid had licensed the applicant (Cryovac) “at some stage” to manufacture and supply Combo-Lids. He was not, however, aware of the specific details of the arrangements between Aus-Lid and Cryovac and assumed that it would be of the same informal nature as the arrangements between Aus-Lid and Visy. He did not ask Mr de Souza about the details of Aus-Lid’s arrangements with Cryovac as he considered these details would be confidential. Bearing in mind Mr Shale had had a commercial relationship with Mr de Souza for over a decade, I accept Mr Shale’s evidence on these matters.

165    Mr Shale also deposed that, before ordering the IML tooling, he was concerned to ensure that no third party rights, including Cryovac’s rights, stood in the way of Visy supplying the patented product to Chobani. He said that he inquired of Mr de Souza as to whether the arrangement with Cryovac posed a problem and that Mr de Souza had said, in substance, that Cryovac had breached its agreement with Aus-Lid, that the relationship had broken down, that this was a matter between Aus-Lid and Cryovac, and that Aus-Lid was able to supply Visy with rights to Aus-Lid’s patented spoon-in-lid product for the purposes of supply to Chobani. At the same time, Mr de Souza offered to provide Visy with an indemnity. Mr Shale said that he was satisfied with Mr de Souza’s response, and that it was “none of [his] business” to ask for any further information regarding the dispute with Cryovac. I accept Mr Shale’s evidence in so far as it is consistent with the emails that Mr de Souza subsequently sent to Mr Shale and Mr Stein and with Mr de Souza’s evidence at the hearing. In accepting Mr Shale’s evidence, I have also borne in mind that Mr Shale had had a comparatively long commercial relationship with Mr de Souza, that he had been doing business with him on a comparatively informal basis for some time, and that, like Mr de Souza, Mr Shale was not a lawyer.

166    In around January or February 2014, Mr Shale spoke to Mr de Souza with a view to achieving greater clarity around the commercial arrangements with Aus-Lid. Mr Shale said that Mr de Souza proposed, and he agreed, that Aus-Lid and Visy extend the terms of the MOU of 19 July 2012 to cover the royalty arrangements in respect of Visy’s manufacture and supply of Aus-Lid’s patented spoon-in-lid product in Australia. I accept that the MOU of 19 July 2012 was the basis for the subsequent process of negotiating a new licence agreement. Consistently with this, it formed part of the documentation that Mr Stein subsequently received (see [112] above), although the agreement ultimately reached between the parties differed from the MOU of 19 July 2012 in some significant respects.

167    In cross-examination, Mr Shale said (and I accept) that he had no real recollection of a meeting with Mr de Souza, Craig Buckle, Michael Irwin and David McArdle on 25 August 2014. He did not, however, dispute that the meeting had occurred, that it would have been part of a negotiating process to discuss how the parties would work together moving forward, and that a topic of discussion would have been the calculation of royalties to be paid by Visy to Aus-Lid for the use of the patented spoon-in-lid product. Mr Shale also accepted that the discussions about the licence between Aus-Lid and Visy concerning the patented product, including royalty payments, were ongoing in September 2014 and continued until about the end of December 2014.

168    Mr Shale accepted that, ultimately, the terms of the 29 December 2014 licence agreement, including with respect to royalties, were different to the terms verbally agreed with Mr de Souza in 2013. Mr Shale expressed the view that by mid-December 2014 there were no major differences between the parties to the negotiations, although the written agreement was not formally made until 29 December 2014. I accept that this may have been his understanding. Such an understanding is reflected in Mr Shale’s contemporaneous email to Mr Stein dated 12 December 2014, stating that, following a conference with Mr de Souza that week:

In principle we got full agreement; but to be sure Dale [Hogan] has forwarded a summary of our conversation with Ashlyn [de Souza] to him for agreement.

Once this is recieved [sic] we will advise on the necessary minor modifications and we’ll be good to go !!

169    As Mr Shale acknowledged, however, a couple of days after this email, he was sent, or copied into, various other emails, including an email of 16 December 2014, which showed that issues relating to the calculation of royalties were not yet entirely agreed and that in-substance agreement on those issues was not reached until on or about 22 December 2014 (as recorded in an email from Mr Stein to Mr Hogan dated 22 December 2014 and copied to Mr Shale). Even then, this 22 December 2014 email recorded that “some [royalty] schedule details” remained to be completed.

170    Mr Shale’s evidence was that he first became aware of the applicant’s claim against Visy in September 2014 when Visy received the 4 September 2014 letter from the applicant’s lawyers. In cross-examination, Mr Shale said (and I accept) that following his receipt of the letter around 8 September 2014 he had a conversation with Mr Stein and he then informed Mr de Souza. According to Mr Shale, Mr de Souza said in substance that Aus-Lid had the right to allow Visy to manufacture Aus-Lid’s patented spoon-in-lid product for Chobani, and that the dispute was between the applicant (then Cryovac) and Aus-Lid. This is consistent with an email that Mr Shale received from Mr de Souza later that day when Mr de Souza emailed Mr Shale, attaching some email correspondence between Mr de Souza and Mr Glenn Drake of Cryovac dated 20 October 2011, with a covering note stating:

Hi Simon,

Please find my correspondence with SAC. This goes back to October 2011. I have not got Matt’s email address can you please forward this to him.

It is clearly evident that we made our position clear. This email will prove that they have breached the agreement as being outside the territory, the Trade practices act etc.

We will use this and a few more emails to have it thrown out of court.

171    Mr Shale said that while the applicant’s lawyers’ letter gave him cause for concern, following his conversation with Mr de Souza about the letter, he took Mr de Souza at his word and did not make further inquiries. He said he “trusted Ashlyn”, and that he thought his intentions were good. I accept Mr Shale’s evidence in this regard, bearing in mind that, as already noted, he already had a long-standing commercial relationship with Mr de Souza and had been doing business with him for some time on a relatively informal basis, and that, like Mr de Souza, Mr Shale was not a lawyer. Mr Shale also said (and it may be accepted) that, by September 2014, Visy had been in production for several months, and that changing the design of the lid for the 160g product “would have involved considerable technical work, significant cost and also customer interruption”.

The evidence of Mr Smithells

172    Mr Smithells was a Sales Manager in Visy’s Plastics division from October 2011 to 13 December 2014. He managed Visy’s commercial relationship with Chobani between 2013 and 2014. Mr Smithells was an honest and, it seems to me, reliable witness. His evidence concerning Visy’s proposal was corroborated by Mr Meek and Mr Shale.

173    Mr Smithells deposed (and I accept) that, following a conversation with Chobani’s General Manager (Mr Dorsman) in about August 2013, Mr Smithells spoke with Mr Shale about tendering for the supply of lids to Chobani. Mr Smithells stated (and, again, I accept) that Mr Shale instructed him to put together a proposal for the supply of the lids to Chobani in accordance with Chobani’s requirements, including an IML matte black spoon-in-lid product for a 160g tub. This resulted in Visy’s 16 September 2013 proposal (which was accepted by Chobani on 17 September 2013). Mr Smithells (and Mr Meek: see [148]) gave evidence (and I accept) that the proposal did not contain any specification for the spoon-in-lid design, which had not yet been finalised.

174    Mr Smithell’s evidence was that, in or about January 2014, he spoke with Mr Shale, who told him about his discussions with Mr de Souza, including that Aus-Lid had offered Visy the right to use Aus-Lid’s patented spoon-in-lid product for supply to Chobani in Australia. Shortly after this conversation, Mr Smithells told Mr Dorsman at Chobani that Aus-Lid had told Visy that Visy could use Aus-Lid’s patented spoon-in-lid design for the 160g IML tubs to be supplied by Visy to Chobani, and Mr Dorsman had asked him to prepare the technical drawings. Mr Smithells provided the technical drawings to Mr Dorsman in about January 2014, and Chobani approved them shortly afterwards, also in January 2014. Mr Smithells said (and I accept) that these technical drawings were the same technical drawings (dated 29 October 2013) that later accompanied the further agreement made between Visy and Chobani on 18 July 2017.

175    In cross-examination, Mr Smithells accepted: first, that these technical drawings had in fact been prepared on 29 October 2013 and approved by Visy no later than 1 November 2013; and, secondly, that based on those dates, the technical drawings had already been prepared and approved by Visy when he spoke with Mr Dorsman in January 2014. I accept that, as Mr Smithells said, in substance, the slight design modifications referred to in his affidavit did not substantially alter the technical drawings.

176    In other words, the effect of Mr Smithells’ evidence was (and I accept) that the final spoon-in-lid design for the lids to be manufactured and supplied by Visy for Chobani for the 160g tubs was chosen in January 2014, on the basis of technical drawings prepared on 29 October 2013, subject only to minor modifications. I would not infer from this, however, that the design had originally been prepared for manufacture and supply to Chobani. The evidence of Mr Shale, Mr Smithells and Mr Meek was clear that the design was not identified by Visy for this purpose until January 2014 and that it was approved by Chobani shortly thereafter. Mr Shale’s evidence in cross-examination was that Visy had had a licence to exploit Aus-Lid’s patented spoon-in-lid product in other markets outside Australia at least since the MOU of 19 July 2012. His evidence was that, under that MOU, Visy was manufacturing Aus-Lid’s patented spoon-in-lid product in Thailand. Mr Stein gave evidence to similar effect. Mr Shale’s evidence was that prior to December 2013 Visy was producing Aus-Lid’s patented spoon-in-lid product for fruit, and that he was by then very familiar with the product. I would therefore infer that the technical drawings prepared in October 2013 were first prepared for use in a market other than for dairy in Australia.

The evidence of Mr de Souza

177    I have not had regard to the affidavits of Mr de Souza, which though filed, were not read and were not therefore part of the proceedings: see Manson v Ponninghaus [1911] VLR 239. I have, however, had regard to Mr de Souza’s viva voce evidence, bearing in mind that Visy chose to call him as a witness in its case.

178    As noted already, Mr de Souza was the sole director of Auslid Operations prior to its liquidation, and a director of Aus-Lid Enterprises when the proceeding was instituted. At the time he gave his evidence, the applicant had discontinued the proceeding in so far as it was instituted against him personally.

179    Mr de Souza’s evidence was that he first offered approval for Visy to use the patented spoon-in-lid product to supply Chobani after a conversation with Mr Glenn Drake at Cryovac in early January 2014 in which Mr Drake confirmed that Cryovac was not willing to invest in IML technology. Following that conversation, Mr de Souza called Mr Craig Buckle at Visy and said that Visy could proceed with “our design with Chobani or Gippsland Dairy”.

180    Mr de Souza also gave evidence that in about January 2014 he had a conversation with Mr Shale in which Mr Shale said that Visy was going to make a significant investment in the tooling (inferentially, for making the Aus-Lid patented spoon-in-lid product) and Mr de Souza said he would provide Visy with an indemnity “in case there’s any issues”. In cross-examination, Mr de Souza accepted that he had offered the indemnity to Visy, rather than, as he had stated in a report lodged with ASIC on behalf of Aus-Lid Enterprises, at Visy’s request.

181    Mr de Souza also gave some evidence about the email he sent to Mr Shale on 8 September 2014 (set [170] above). Mr de Souza’s evidence was that Mr Shale had called him that day to say Visy had received correspondence from the applicant’s lawyers and that he had told Mr Shale that “we had spoken with Cryovac; we had had several meetings before” and that “[he] had advised [Cryovac] that they had breached the terms of the patent licence agreement; and that any correspondence [with Cryovac] should be with myself”.

182    I would interpolate here that Mr Souza did not impress me as a reliable witness. Generally speaking, his evidence was confused (although clear on some points). He had a seemingly limited recollection of the relevant past events and whatever recollection he may have had was apparently affected by subsequent events, including the present proceedings. I would, therefore, place little weight on Mr de Souza’s account, save to the extent that it was corroborated by another more reliable witness.

Consideration

Tortious inducement of breach of contract

Relevant principles concerning the tort

183    The effect of the authorities is that, in order to succeed in its claim for damages for tortious inducement of breach of contract, the applicant must establish that:

(1)    there was a subsisting contract between it and Aus-Lid;

(2)    if Aus-Lid did a particular act (here, if it granted rights to a third party to exploit Aus-Lid’s Patent in the field for pre-packaged food containing dairy products in Australia or interfered with the applicant’s enjoyment of its licence under the contract) then Aus-Lid’s conduct would breach the contract;

(3)    Visy knew of the contract between the applicant and Aus-Lid and knew that if Aus-Lid granted rights to it to exploit Aus-Lid’s Patent in the field for pre-packaged food containing dairy products in Australia, or interfered with the applicant’s enjoyment of its licence under the contract, then Aus-Lid would breach the contract;

(4)    Visy intended to (and in fact did) induce Aus-Lid to breach the contract by doing either of these things;

(5)    the breach of contract between the applicant and Aus-Lid caused the applicant loss or damage.    

See also Daebo Shipping Co Ltd v The Ship Go Star [2012] FCAFC 156; 207 FCR 220 at [88] (Keane CJ, Rares and Besanko JJ).

184    The authorities show that actual knowledge will ordinarily be sufficient to ground intention, but where knowledge rises to the level of “reckless indifference” or “wilful blindness”, the question of intention will be one to be determined in all the circumstances of a particular case.

185    The authorities also establish that Visy will have a good defence to the action if Visy can establish that it had “a bona fide belief reasonably entertained” that there was no such contract or breach because, for example, the contract had been rescinded or what it sought from Aus-Lid was not inconsistent with Aus-Lid’s contract with another: see [209] below.

Aus-Lid’s breach of contract

186    The first two matters referred to in [183] were not in serious contest at the hearing. Visy stated in closing submissions that it did not dispute that the applicant and Aus-Lid entered into a contract (namely, the Patent Licence Agreement). At least after Mr Yii’s evidence, it was not disputed that the Patent Licence Agreement was on foot at the time that the applicant alleged that there had been a tortious inducement of Aus-Lid’s contractual breach on Visy’s part: see [9] above.

187    As stated above, under the Patent Licence Agreement, Aus-Lid granted the applicant an “irrevocable, exclusive licence” to manufacture and supply Aus-Lid’s patented lids for pre-packaged food containing dairy products. Aus-Lid agreed that it would not grant any rights to a third party in that field (clause 4.1): see [12] above. Aus-Lid also agreed that it would not interfere with the applicant’s enjoyment of its licence (clause 7.1(c)): see [13] above.

188    As already indicated, in late December 2013 or early January 2014, Mr de Souza, for Aus-Lid, offered Mr Shale, for Visy, the right to manufacture the patented spoon-in-lid product and supply the product to Chobani and others within the field of pre-packaged dairy foods in Australia: see [161]. Mr Shale, for Visy, decided to take up Mr de Souza’s offer in January 2014 and Chobani subsequently approved the design for what was to be Chobani’s new 160g yoghurt container lid: see [162]-[163] above. Mr de Souza agreed with Visy that Aus-Lid would receive royalty payments in return for granting Visy the right to manufacture and supply the patented spoon-in-lids to Chobani: see [166] above. Although no party made any submissions about the proper construction of clauses 4.1 and 7.1(c) of the Patent Licence Agreement, the applicant maintained, and Visy did not contest, that by their actions in this regard Aus-Lid Enterprises and Auslid Operations breached these clauses of that agreement.

189    Aus-Lid compounded its position by advising Visy, in September 2014, that Aus-Lid had the right to allow Visy to manufacture and supply the patented spoon-in-lid product for Chobani (see [170] above) and by knowingly permitting and encouraging Visy to manufacture and supply the patented spoon-in-lid product to Chobani. Aus-Lid’s entry into the Intellectual Property Agreement with Visy on 29 December 2014 constituted a further breach, bearing in mind that I have accepted Mr Shale’s evidence that the terms of the 29 December 2014 licence agreement, including with respect to royalties, were different to the terms previously agreed with Mr de Souza: see [168] above. Aus-Lid continued to breach the terms of the Patent Licence Agreement until Aus-Lid’s Patent expired, which both the applicant and Visy accepted occurred in September 2017, for non-payment of fees. This was a year earlier than would have been the case had the fees been paid.

Inducement or procurement of breach

190    The law with respect to inducement is not entirely straightforward. What follows is an outline of the relevant principles.

191    In order to succeed on its claim against Visy for tortious inducement of breach of contract, the applicant must prove, on the balance of probabilities, that Visy intended to induce (or procure) the breach of contract by Aus-Lid and did in fact induce (or procure) that breach. As Beach J observed in Donaldson v Natural Springs Australia Limited [2015] FCA 498 at [208], “[t]o induce a breach is to create a reason for breaking” the contract.

192    Lindgren J’s scholarly analysis of the authorities with respect to this tort in Allstate Life Insurance Company v Australia and New Zealand Banking Group Ltd [1995] FCA 1368; 58 FCR 26 led his Honour (with whom Lockhart and Tamberlin JJ agreed) to conclude (at 42) that “the alleged tortfeasor must intend that what he is inducing will be a breach of contract” and (at 43) that “the gravamen of the tort is intention”. His Honour reached this conclusion, having regard to the observations in Northern Territory of Australia v Mengel [1995] HCA 65; 185 CLR 307 at 342 concerning the development of economic torts in the second half of the nineteenth century and having made a careful analysis of the High Court’s decision in Short v City Bank of Sydney. His Honour’s analysis was reiterated by the Full Court of this Court in Daebo Shipping at [89].

193    Lindgren J continued in Allstate (at 43):

Although the requirement of knowledge of the contract is sometimes discussed as if it was a separate ingredient of the tort, it is in fact an aspect of intention. The requirement that the alleged tortfeasor have “sufficient knowledge of the contract” is a requirement he have sufficient knowledge to ground an intention to interfere with contractual rights.

Both this intention to interfere with contractual rights and the necessary supporting knowledge of the contract refer to the “actual” or “subjective” state of mind of the alleged tortfeasor. ...

Although an alleged tortfeasor must have “a fairly good idea” that the contract benefits another in the relevant respect, knowledge of the contract may be sufficient for the purpose of grounding the necessary intention to interfere with contractual rights although the precise term breached is not known …

(Citations omitted; emphasis in original)

194    As Lindgren J observed (at 37) references to “knowledge” and “intention” with respect to this tort have been a source of confusion. His Honour there said (and it has been subsequently confirmed: see [195] below) that:

… a person’s “knowledge” that what he is inducing will constitute a breach of contract and his “intention” to induce a breach of contract by what he is doing refer to one and the same thing. After all, ex hypothesi, the alleged tortfeasor’s acts are intentional, a breach of contract occurs, and the acts induce the breach. Against that background, “knowledge” and “intention” that the breach will result from the acts do not signify any relevant distinction.

195    It is unnecessary to re-examine here the authorities to which his Honour referred. It suffices to say that Lindgren J’s analysis and conclusions about the elements of the tort have been referred to with approval by the Full Court of this Court in LED Technologies Pty Ltd v Roadvision Pty Ltd [2012] FCAFC 3; 199 FCR 204 at [42]-[43] and by the New South Wales Court of Appeal in Fightvision at [164]-[170], [251].

When will wilful blindness or reckless indifference ground a finding of intention?

196    There is, as the New South Wales Court of Appeal intimated in Fightvision (at [165]), “an important distinction between the essential elements of a cause of action and the evidence by which these elements may be proved”, quoting in support a passage in Allstate (at 37). In this passage, Lindgren J observed that:

Although “reckless indifference” and “wilful blindness” are not synonymous with “intention” or “knowledge” (cf Richardson & Wrench (Holdings) Pty Ltd v Ligon No 174 Pty Ltd per Burchett J at 693-694), they may, in the matrix of facts of a particular case, contribute to give rise to a finding of intention or knowledge … But this does not signify that such terminology may be substituted for that of “intention” if “intention” is a necessary element of the tort.

In Allstate, however, his Honour did not have to consider in any greater depth the circumstances in which “reckless indifference” or “wilful blindness” may contribute to a finding of intention.

197    In Polyaire Pty Ltd v K-Aire Pty Ltd [2003] SASC 41, Besanko J, then a judge of the Supreme Court of South Australia, discussed the question of whether reckless indifference was sufficient in the context of that case to give rise to a finding of intention. His Honour determined that he should follow the approach of Diplock LJ in Emerald Construction Co Ltd v Lowthian [1966] 1 WLR 691; 1 All ER 1013.

198    In Emerald Construction Diplock LJ held that the requisite intention might be shown by evidence of reckless indifference. He said (at 703-704; 1019):

There are three essential elements in the tort of unlawful procurement of a breach of contract: the act, the intent and the resulting damage. In a quia timet action such as this, it is sufficient to prove the act and the intent and the likelihood of damage resulting if the act is successful in procuring a breach of contract. The only issue on this part of the case is one of fact as to the defendants’ intent. At all relevant times they knew of the existence of a “labour only” sub-contract for brickwork between the main contractors and the plaintiffs, but until it was disclosed to them on the interlocutory application to the judge in chambers for an injunction, they did not know its precise terms. They say in somewhat equivocal language that they assumed that it could be lawfully terminated by the main contractors on short notice and that such lawful termination was all that they insisted on. But ignorance of the precise terms of the contract is not enough to show absence of intent to procure its breach. The element of intent needed to constitute the tort of unlawful procurement of a breach of contract is, in my view, sufficiently established if it be proved that the defendants intended the party procured to bring the contract to an end by breach of it if there were no way of bringing it to an end lawfully. A defendant who acts with such intent runs the risk that if the contract is broken as a result of the party acting in the manner in which he is procured to act by the defendant, the defendant will be liable in damages to the other party to the contract.

199    This conclusion is further supported by the reasoning of Lord Denning MR, who stated (at 700-701; 1017):

Even if they did not know of the actual terms of the contract, but had the means of knowledge — which they deliberately disregarded — that would be enough. Like the man who turns a blind eye. So here, if the officers deliberately sought to get this contract terminated, heedless of its terms, regardless whether it was terminated by breach or not, they would do wrong. For it is unlawful for a third person to procure a breach of contract knowingly, or recklessly, indifferent whether it is a breach or not.

200    In Polyaire Besanko J held (at [215]) that, on the assumption that there had been a breach of contract (contrary to his finding), then the relevant defendants had been recklessly indifferent, referring to the fact that there had been no attempt to obtain legal advice on the proper construction of the relevant term. His Honour held (at [209]) that:

The element of intention is made out not only in cases where a defendant is recklessly indifferent as to the terms of the contract, but also in cases where knowing the terms of the contract, the defendant is recklessly indifferent as to whether the relevant dealings constitute a breach of the contract. On the other hand, it is important to avoid confusing acts of negligence or a lack of reasonable care with acts of reckless indifference. Negligence or a lack of reasonable care is not sufficient to satisfy the requirement of intention.

201    This analysis accords with the later decision of the House of Lords in OBG Ltd v Allan [2007] UKHL 21; [2008] AC 1, in which Lord Hoffman said (at [41]) that:

It is in accordance with the general principle of law that a conscious decision not to inquire into the existence of a fact is in many cases treated as equivalent to knowledge of that fact: see Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd [2003] 1 AC 469. It is not the same as negligence or even gross negligence: in British Industrial Plastics Ltd v Ferguson [1940] 1 All ER 479, for example, Mr Ferguson did not deliberately abstain from inquiry into whether disclosure of the secret process would be a breach of contract. He negligently made the wrong inquiry, but that is an altogether different state of mind.

202    Shortly thereafter, Jessup J considered the issue of reckless indifference in World of Technologies (Aust) Pty Ltd v Tempo (Aust) Pty Ltd [2007] FCA 114; 71 IPR 307. Referring to what was said by Lindgren J in Allstate, and Lord Denning MR and Diplock LJ in Emerald Construction, Jessup J stated (at [109]):

As to “reckless indifference”, the authorities, in my view, go no further than to say that a third party who, with knowledge of a contract which is binding upon the other party with whom he or she does business, induces that other party to do an act which is known to be inconsistent with that contract (or knowingly interferes with the performance of the contract by that party), will have acted unlawfully if he or she intended that the contract be brought to an end by breach if it could not be brought to an end in accordance with its terms.

203    His Honour continued (at [110]-[111]):

In my view, crucial to the comments of both members of the Court of Appeal in Emerald Construction was the fact in that case that the defendants did not merely seek to induce the party to the contract to do an act without any thought as to whether that act would constitute a breach of contract: their primary purpose was to have the contract terminated. … I do not think the same line of reasoning inevitably applies to a situation where the focus of the defendant is not upon the contract as such, but where his or her dealings with the party to the contract have the effect, even the incidental effect, of bringing that party into breach of the contract. In that context, to equate indifference, even “reckless” indifference, with intention would, I consider, be to denude the latter concept of any meaningful connotation.

In the present case, on the assumed contract between the applicant and Suzhou Fak, there was a means by which the contract could lawfully be terminated in circumstances which would be no less efficacious commercially for the respondent than termination by breach. Suzhou Fak could have terminated the contract by notice, operating instanter. Although Mr Stergiotis did not know of such a means of termination, neither did he have any reason to assume a contrary contractual state of affairs. He may well have been indifferent – even “recklessly” so – about the means by which the contract could be terminated, but it seems to me to be unreal to impute on him – contrary to the fact – an intention that Suzhou Fak should breach its contract with the applicant on no basis other than that indifference when in fact Suzhou Fak did have at its disposal means by which it could do business with the respondent which did not involve a breach of contract.

(Emphasis in original)

204    Jessup J considered that his approach in World of Technologies was consistent with Sanders v Snell [1998] HCA 64; 196 CLR 329. As his Honour said (at [112]):

There, the Minister for Tourism of Norfolk Island had directed the Tourist Bureau to take steps to terminate the employment of its Executive Officer “at the earliest practicable date”. The Bureau did terminate the employment of the Executive Officer and did so in circumstances which amounted to a breach of contact. It was held, however, that the Minister had not induced the breach: the employment might well have been terminated lawfully (i.e. on proper notice), and the Minister should not have imputed to him an intention that his direction should be carried out by unlawful means. Gleeson CJ, Gaudron, Kirby and Hayne JJ said (at [26]):

Even accepting that, because of the history of the matter, the new members of the Bureau were well aware of the appellant’s desire for swift action, the decision to act in the particular way it did was the Bureau’s decision. Even in the light of the fate of the former members of the Bureau, the second direction given by the appellant could not be read or understood by its members as requiring or suggesting the breaking of the respondent’s contract. The appellant not having asked or suggested that it should act in that way, the Full Court was right to conclude that the appellant did not procure or induce the breach of contract that was committed when the Bureau terminated the contract summarily rather than by giving notice. It would, after all, have been open to the Bureau to give notice in accordance with the contract. The appellant did not procure or induce the summary termination. That was the Bureau’s choice.

205    Jessup J dismissed the claim in tort, holding (at [113] and [118]):

[T]he respondent (effectively Mr Stergiotis) did not intend that Suzhou Fak should break such contract as it may have had with the applicant. Mr Stergiotis regarded the arrangements as between Suzhou Fak and the applicant as their business, not his. He would have preferred that those arrangements did not prevent Suzhou Fak from dealing with the respondent. He told Mr Ding so. But he did not turn his mind to the legal nature – or the terms – of whatever existed between Suzhou Fak and the applicant. When Mr Ding, having had a change of heart, offered to do business with Mr Stergiotis, the latter readily embraced the idea, as Mr Ding knew he would. But he did not thereby intend a breach of contract on the part of Suzhou Fak. And, there being (under the assumed contract) a perfectly lawful way for Suzhou Fak to have brought the contract to an end summarily, Mr Stergiotis should not, merely by what might be described as his indifference, be fixed with such an intention.

…

As at January 2006, the respondent had been doing business with Suzhou Fak which it had no reason to suspect might involve Suzhou Fak in a breach of contract. Within the course of about a week in that month, it was presented with a volte face by Mr Ding, based upon assertions by the applicant which, while clear enough in their commercial purpose, were less than wholly unambiguous in their jurisprudential basis. Unsurprisingly, the respondent protested. It had an important customer whose order it had accepted. When, at the end of the week, it received the applicant’s letter of demand, it desisted from all further attempts to do business with Suzhou Fak. I cannot find, in these events, any intention on the part of the respondent to induce a breach of contract by Suzhou Fak. Moreover, since no business was (at that time) in fact done with Suzhou Fak, no breach of contract was in fact induced. No damage was done to the applicant. The tort of inducement was not committed at that time.

206     Relevantly here, Jessup J contrasted the situation in World of Technologies with that in Delphic Wholesalers Pty Ltd v Elco Food Co Pty Ltd (1987) 8 IPR 545, upon which the applicant relied in that case. As regard the latter case, his Honour said (at [119]):

In the case of a branded product, it is, I consider, more obvious that the distribution of the product into the Australian retail market should be handled by a single importer. However that may be, the fact was, in Delphic, that the manufacturer had a written agreement for the exclusive distribution of the olive oil by Delphic, which agreement could not be terminated at the whim of the manufacturer if, for example, the manufacturer were persuaded to change his distribution arrangements. The defendant Elco knew of that contract, and consciously set about persuading the manufacturer not only to supply olive oil to itself, but also to substitute itself for Delphic as “the” importer and distributor of the olive oil. With respect to almost every significant factual ingredient relevant to the tort, the findings which I have stated above place the present case apart from Delphic. Indeed, it might be said that Delphic is a clear demonstration of the kind of case which the present is not.

207    A few years afterwards, the Full Court in LED Technologies considered the circumstances in which wilful blindness or reckless indifference might ground a finding of intention. Besanko J (with whom Mansfield and Flick JJ agreed) referred to his own decision in Polyaire, as well as World of Technologies, Sanders v Snell, Emerald Construction, OBG, British Industrial Plastics Ltd v Ferguson [1940] 1 All ER 479; 58 RPC 1 and DC Thomson & Company Ltd v Deakin [1952] Ch 646 before holding (at [54]) that:

The evidence in this case would not support a finding that either Mr Wells or Mr Mitchell knew that Valens would or were using the moulds partly paid for by the appellant to manufacture the lights supplied to the respondents. The question is whether either of them turned a blind eye to the possibility. That means whether they made a conscious decision not to inquire into the existence of a fact in case they “discovered a disagreeable truth”. The third possible category of knowledge, namely reckless indifference, is more difficult to describe in terms of content. I think that there is such a category, but bearing in mind that the tort under consideration is an intentional tort and gross negligence is insufficient it seems to me that reckless indifference is something quite close to wilful blindness. It will be negated by an honest belief, even one exhibiting a high degree of credulity. It will be established only if the facts show affirmatively that the alleged tortfeasor, faced with knowledge of at least a substantial prospect of a breach, proceeded not caring whether or not a breach would occur.

208    I interpolate at this point that the authorities establish that in order to ground intention, the applicant need not show that the defendant had knowledge of the precise terms of the contract. Rather, the applicant must prove that Visy “knew of the existence of the contract, provided that he can prove also that [Visy] intended to procure a breach of it”: see Greig v Insole [1978] 1 WLR 302 at 336; 3 All ER 449 at 488; also Carlton & United Breweries Ltd v Tooth & Co Ltd (1986) 7 IPR 581 at 625, and Sidameneo (No 456) Pty Ltd v Alexander [2011] NSWCA 418. In Carlton & United Breweries Young J held (at 625) that the defendant cannot, by claiming ignorance of the actual terms of the contract, escape a conclusion that he intended to induce a breach of that contract “unless he has reasonable grounds for believing that the contract did not contain the term relied on”, and did so believe: Sidameneo at [139] (Young JA, with whom Beazley and Basten JJA agreed). This is “a fortiori the position where (a) the term is a very common one in contracts of that type; or (b) [the defendant] deliberately closes his eyes and refrains from enquiring whether the term existed or not”: see Carlton & United Breweries at 625-6 and Sidameneo at [139].

A bona fide belief reasonably entertained?

209    In Short v City Bank of Sydney Isaacs J held that to constitute a good defence to the tort there must be a relevant belief on reasonable grounds, for example, that the contract no longer exists. His Honour said (at 160):

A bonâ fide belief reasonably entertained that it was not a breach of contract would be fatal to the claim. If the defendant did not know of the existence of the contract, he could not induce its breach; if he reasonably believed it did not require a certain act to be performed, his inducing a party to the contract to do something inconsistent with it could not be regarded as an inducement or procurement knowingly to break the contract; if he believed on reasonable grounds that the contract had been rescinded, or performance waived, when in fact it had not, he could not be said to knowingly procure its breach.

See also Sidameneo at [141] (Young JA, Beazley and Basten JJA agreeing) and Donaldson at [207] (Beach J).

210    The applicant submitted that the reasonableness of such a belief was to be assessed by reference to a person in the position of the defendant. Relevantly, this included reference to what course of action a qualified and experienced solicitor in the position of Mr Stein could have been expected to take, when faced with the information that he was given. For this proposition, the applicant relied on Swiss Bank Corporation at 580, which was discussed (though not applied) in Fightvision at [214]-[220].

211    Swiss Bank Corporation concerned a loan by Swiss Bank Corporation to Israel Financial Trust Ltd (IFT) in order to purchase shares in an Israeli bank, on terms providing Swiss Bank with a charge over the shares. IFT subsequently granted an equitable charge over the shares to the defendant, Lloyds Bank, without exchange control consent and, in violation of the terms of the agreement, in circumstances where Lloyds was not on notice of the terms of the loan agreement with Swiss Bank Corporation. Lloyds Bank sold the securities and, after obtaining actual notice of the terms of the agreement, proceeded to convert the proceeds of sale from United States dollars into sterling without the knowledge or consent of the plaintiff.

212    Regarding Lloyds Bank’s state of mind, Browne-Wilkinson J said (at 580):

In the present case Lloyds chose not to lead any evidence as to the state of mind or beliefs of its officers when they converted the dollars into sterling. On the face of the matter, anyone seeking to decide in January 1975 whether the rights of the plaintiff or the rights of Lloyds would prevail, would have doubts as to the legal position. But in my judgment in order to escape liability for the tort it is not enough to show that there is room for honest doubt whether the defendants’ or the plaintiff’s rights have priority: if when such doubt exists a defendant chooses to adopt a course which to his knowledge will undoubtedly interfere with the plaintiff’s contract on one view of the law, in my judgment he must at least show that he was advised and honestly believed that he was legally entitled to take that course. This case is not the same as either Smith v Morrison [1974] 1 WLR 659 or Pritchard v Briggs [1978] 2 WLR 217 in both of which the defendants led evidence showing at least an honest doubt whether their actions would in fact interfere with the plaintiff's contractual rights. Here, for all I know, Lloyds were advised that their actions probably would interfere with the plaintiff's rights but that they should take the risk. In my judgment Lloyds have not shown that they had an honest doubt.

213    I interpolate here that the Court in Fightvision found (at [220]) that it was unnecessary to consider whether or not it agreed with Browne-Wilkinson J because it held that “the foundation and written record of the contract the breach of which was induced, was not with Fightvision”, as the plaintiff alleged. The above passage indicates, however, that the question of whether a belief is reasonably held that an action will not constitute a breach of contract is closely related to the defendant’s knowledge of the contract, to which reference has already been made. Whether such a belief is reasonably held is to be assessed by reference to a reasonable person in the position of the defendant.

214    The applicant submitted, and it was not disputed, that where the tortfeasor is a corporation, the knowledge and intention that can be imputed to it includes the knowledge of its officers and employees and, where their knowledge at the time is relevant, former employees: see Fightvision at [242]-[244]:

In Tesco Supermarkets Ltd v Nattrass [1972] AC 153 at 170 and following, Lord Reid discussed “the nature of the personality which by a fiction the law attributes to a corporation”. His Lordship said:

“A living person has a mind which can have knowledge or intention or be negligent and he has hands to carry out his intentions. A corporation has none of these: it must act through living persons, though not always one or the same person. Then the person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company.”

In authorising Mr Onisforou to sign up Mr Tszyu, Mr North was acting as Sky Channel and the mind that directed his action was the mind of Sky Channel. The question is whether the knowledge of his predecessor, Mr Dodds, or of the former employee, Mr Lyons, was, when the decision to sign up Mr Tszyu was made, the knowledge of Sky Channel, even though at that time Mr North's knowledge was limited to what Mr Onisforou had told him.

We can see the force of the observation by von Doussa J in Beach Petroleum NL v Johnson (1993) 43 FCR 1 at 32 that knowledge imputed to a company should not be treated as capable of being simply forgotten or lost at the death of the director whose knowledge was imputed. In El Ajou v Dollar Land Holdings Plc [1993] 2 All ER 685 at 706 Hoffman LJ, as his Lordship then was, said that once knowledge was treated as being the knowledge of a company in relation to a given transaction, the company continued to be affected with that knowledge for any subsequent stages of the same transaction, whether or not it was imputed from the knowledge of a director who had in the interval ceased to be a director. We do not think this was in contest, and there are sound practical reasons for corporate knowledge including the knowledge of former officers and employees. …

215    Finally, I note at this point that Visy submitted in closing that “[a]n honest belief, even a credulous one, will suffice as a defence” to the tort of inducing or procuring a breach of contract. In closing oral submissions, Ms Cunliffe sought to develop this proposition by reference to LED Technologies, Swiss Bank Corporation, and Smith v Morrison [1974] 1 WLR 659. The relevant passage from Besanko J’s reasons in LED Technologies at [54], in which Besanko J said a finding of reckless indifference will be negated “by an honest belief, even one exhibiting a high degree of credulity”, is set out in [207] above. The relevant passage from the reasons of Browne-Wilkinson J in Swiss Bank Corporation is set out at [212]. It will be observed that there his Honour noted that, in both Smith v Morrison and Pritchard v Briggs [1978] 2 WLR 217, “the defendants led evidence showing at least an honest doubt whether their actions would, in fact, interfere with the plaintiff’s contractual rights”.

216    There is no previous reference in these reasons to Smith v Morrison. The case concerned a breach of contract for the sale of land, where the land had already been contracted to be sold. The solicitor for the alleged tortfeasor was aware of the claim of a prior purchaser to have bought the land and made inquiries of the contract breaker as to whether the second sale was in breach of contract and received assurances, which he believed, that no contract had been entered into and that the deposit received for the sale was to be returned. On that basis, Plowman J held (at 677-678) that the solicitor’s state of mind was “one of honest doubt” and did not suffice to render him liable for the tort.

217    Having regard to these authorities, it may be accepted that, where the relevant knowledge does not rise to the level of actual knowledge or wilful blindness, an honest (or genuine) belief that the contract breaker will not be in breach of contract will suffice to negate the necessary intention for a finding of liability under the tort: see LED Technologies at [54] and Smith v Morrison at 677-678. Whether the claimed belief is an honest one is to be determined on the evidence, by reference to the circumstances of the case, including the facts known or notified to the alleged tortfeasor. It may further be accepted that, in some circumstances, there may be a finding of honest belief, notwithstanding that the belief exhibited a high degree of credulity. The present case does not, however, give rise to such a circumstance. Where, as here, the relevant knowledge grounding the intention is that of a qualified and experienced solicitor, a finding that the claimed belief could not reasonably be entertained in the circumstances known to the solicitor will, in general, be sufficient to establish that no such belief was genuinely held.

An issue of sufficiency of causation

218    Visy relied on Allstate at 37 and 40 (referring to Short v City Bank (1912) 12 SR (NSW) 186 at 202-203), World of Technologies at [104]-[107], British Motor Trade Association v Salvadori [1949] Ch 556, DC Thomson, LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74 at [100]-[101] and OBG in support of the proposition that the inducement must precede the breach of contract. None of these authorities appeared to me to support Visy’s argument in this regard.

219    Visy also advanced a second proposition, in reliance on the above authorities, that “mere passivity” would not be sufficient to constitute tortious interference and, instead, the defendant “must positively have associated itself with the breach of contract”. This may be accepted. In Short v City Bank at 202-203 (in a passage cited by Lindgren J with approval in Allstate) Street J said:

The words 'induce' and 'procure' in their ordinary significance, I think, convey the idea of persuasion or contrivance, and I think that a person complaining of a breach of contractual relations brought about by these means must show that the person whose actions are complained of did something in the nature of effectually persuading or prevailing upon the other party to the contract to violate his obligations under it. The persuasion may take the form of advice or friendly solicitation, or it may take the form of intimidation or molestation, but in every case I think that it must be shown that the defendant deliberately intervened between the contracting parties, either with the express design of depriving the plaintiff of the benefit of his contract, or under such circumstances that he must have known that the effect of his intervention would be to deprive the plaintiff of that benefit.

220    In Salvadori, Roxburgh J stated (at 565):

… But, Lord Macnaghten preferred the word “interference” for his statement of the doctrine, and this seems to me to predicate active association of some kind with the breach. But, in my judgment, any active step taken by a defendant having knowledge of the covenant by which he facilitates a breach of that covenant is enough.

Young CJ in Eq referred with approval to this statement in LMI Australasia at [101].

221    Jessup J’s analysis in World of Technologies is against Visy. In that case, Jessup J held (at [104]) that the respondent had been no more than a willing participant in a transaction “which, of itself, caused the [contract breaker] to be in breach of its assumed contract with the applicant”. His Honour held that the statements of Jenkins LJ in DC Thomson at 694 supported this conclusion. Jenkins LJ relevantly said:

… there seems to be no doubt that if a third party, with knowledge of a contract between the contract breaker and another, has dealings with the contract breaker which the third party knows to be inconsistent with the contract, he has committed an actionable interference.

This passage was referred to with approval by Lindgren J in Allstate at 44 and by Besanko J (Mansfield & Flick JJ agreeing) in LED Technologies at [46].

222    Jessup J’s analysis is an accurate statement of the current law. As his Honour indicates, the earlier case of De Francesco v Barnum (1890) 63 LT 514 is also consistent with this. Visy’s reliance on the United Kingdom case of OBG in this connection is misplaced even assuming that OBG stands for the proposition advanced by Visy (which may be doubted). The issue is not whether, as Visy posits, there must be a causal relation between the actions of the defendant and the asserted breach. So much must be accepted. The issue is rather what must be shown to establish the relevant causal connection.

223    Visy also relied on the decision of Le Miere J in Jaddcal Pty Ltd v Minson [No 3] [2011] WASC 362 at [193]-[199]. This does not lead me to reach a contrary conclusion. His Honour’s analysis has insufficient regard to the authorities in Australia commencing with Short v City Bank of Sydney. In any event, I am bound to apply the decisions of the Full Court of this Court in Allstate and LED Technologies, and to the extent relevant, Daebo Shipping.

Visy’s knowledge of the contract and of the relevant terms

224    Turning to the facts of this case, Visy stated in closing submissions that it did not dispute that Visy knew that there was a contract between the applicant and Aus-Lid. Visy said, however, that it was not confident that it knew the terms of contract, and that it had reason to believe in September and December 2014 that the contract had been repudiated.

225    Having regard to the matters I am about to mention, I find that on the balance of probabilities in September 2014 Visy knew of the contract between the applicant and Aus-Lid and that it contained terms to the effect of clauses 4.1 and 7.1(c) of the Patent Licence Agreement. This knowledge was sufficient to ground an intention on Visy’s part to procure Aus-Lid’s breach of that contract.

226    Although Mr Stein gave a good deal of evidence about his knowledge of the contractual relationship between the applicant and Aus-Lid, he did not say that, after receiving Spruson’s 4 September 2014 letter and Mr de Souza’s communications, he did not know that the applicant and Aus-Lid had entered into an agreement, pursuant to which the applicant had acquired an exclusive licence to manufacture and sell Aus-Lid’s patented spoon-in-lid product. He did not say that he did not know that such an agreement would contain terms of the kind in clauses 4.1 and 7.1(c) of the Patent Licence Agreement, which were after all the usual terms in a contract of that type. Had it been open to him to have denied this knowledge, it seems to me that Mr Stein would have done so. This is but one slight factor, however.

227    Spruson’s letter of 4 September 2014 informed Mr Stein of the contract between the applicant and Aus-Lid. The letter expressly informed him that, under that contract, Aus-Lid had granted the applicant an “irrevocable, exclusive sub-licence” to exploit Aus-Lid’s Patent “in the Field in the Territory”. It further informed him that the “Field” covered “the manufacture and supply of containers for pre-packaged food containing dairy products” and that the “Territory” covered Australia and New Zealand. The contract evidently covered the manufacture and supply of Aus-Lid’s patented spoon-in-lid. Spruson’s letter also informed Mr Stein that, under the contract, Aus-Lid “must not together or separately undertake any commercial activity in the Field or grant any rights in favour of or to any third party in that Field in the Territory”. Plainly enough, this was a reference to clause 4.1. The letter also informed Mr Stein that, under the contract, Aus-Lid was “excluded … from exploiting or granting any licence to exploit the Patent with regard to the Field in the Territory”. Further, if it matters, bearing in mind the ordinary commercial practice and understanding with respect to patent licensing agreements of the kind Spruson’s letter described, the letter should also be taken to have informed Mr Stein that the contract included a term to the effect of clause 7.1(c), pursuant to which Aus-Lid agreed that “it shall not interfere with” the applicant’s enjoyment of the sublicence that it had granted to the applicant.

228    Mr Stein acknowledged that, having regard to their professional obligations as solicitors, Spruson & Ferguson would not have made the statements set out in their 4 September 2014 letter without a reasonable belief that they were true. As already indicated, Mr Stein appreciated at the time he received this letter that if the applicant’s agreement with Aus-Lid was on foot, then Aus-Lid’s granting rights to manufacture and supply its patented product to Visy meant that Aus-Lid was in breach of that agreement

229    Mr Stein accepted that the allegations in Spruson’s 4 September 2014 letter were serious and required investigation, and to this end he telephoned Mr Shale. Mr Shale in turn contacted Mr de Souza. Mr Stein’s evidence was that, with respect to Aus-Lid’s contractual obligations to the applicant, he subsequently relied entirely on what he was told by Mr de Souza. The effect of Mr de Souza’s subsequent communications was to lead Mr Stein to understand that Aus-Lid had in fact made an agreement with the applicant of the kind described in Spruson’s 4 September 2014 letter, although Mr de Souza claimed, for the reasons he gave Visy, that Aus-Lid was not constrained from granting Visy the right to manufacture and supply its patented product to Chobani and others in the Field and Territory covered by its agreement with the applicant.

230    As noted above, Mr Stein received an emailed response from Mr de Souza to Spruson’s letter of 4 September 2014, by way of the inquiries made by Mr Shale: see [113] above. Mr Stein also copied each of Spruson’s subsequent letters to Mr de Souza, seeking his response. This included Spruson’s letters of 15 October 2014 and 27 November 2014, which also repeated the substance of the applicant’s claims. None of Mr de Souza’s emailed responses and none of the statements he was said to have made to Mr Stein or anyone else at Visy denied that a contract of the kind described in Spruson’s 4 September 2014 letter (and subsequent letters) had been made between the applicant and Aus-Lid. Rather, Mr de Souza’s responses were to the effect that the applicant’s breaches of that contract meant that Aus-Lid was no longer constrained from granting Visy rights to manufacture and sell its patented product in the Field and Territory covered by the contract between the applicant and Aus-Lid. I return to Mr de Souza’s responses shortly. I would, however, infer from these communications to Mr Stein (and upon which Mr Stein said he relied) that Mr Stein (and therefore Visy) knew that the contract between Aus-Lid and the applicant was for an exclusive licence to manufacture and sell Aus-Lid’s patented spoon-in-lid product for packaging for dairy foods in Australia and that Aus-Lid’s grant of rights to Visy to supply Chobani meant that Aus-Lid would breach its contract with the applicant, assuming that its contract with the applicant was on foot.

231    Visy’s knowledge in this regard was augmented by the fact that, in discussions prior to the MOU of 19 July 2012, Mr Shale had been made aware by Mr de Souza that Aus-Lid had a pre-existing agreement with the applicant (then Cryovac) in the dairy sector, with the result that the MOU of 19 July 2012 excluded dairy. Consistently with this, as Mr Stein’s evidence in cross-examination indicated, it would have been apparent to him when he read the MOU of 19 July 2012 (a copy of which had been sent to him by Mr Hogan shortly before he received Spruson’s 4 September 2014 letter) that there was a dairy exclusion in that MOU. While this did not mean that the arrangement with the applicant (Cryovac) remained on foot, it would have indicated to Visy that there had been a relevant arrangement between Aus-Lid and a third party that Mr Shale, and thus, Visy, knew to be the applicant.

What was the inducement?

232    The evidence before the Court shows that in January 2014 Mr de Souza, for Aus-Lid, offered Visy the right to manufacture and supply Aus-Lid’s patented spoon-in-lid to Chobani. Later the same month, Visy accepted the offer upon the basis that it would pay royalties for the right it thus acquired. Visy commenced manufacturing Aus-Lid’s patented spoon-in-lid product in June 2014: see [15], [149] and [163] above. It is not said, however, that Visy had sufficient knowledge in either January 2014 or June 2014 to ground a finding of intention to induce or procure Aus-Lid’s breach of its contract with the applicant.

233    Mr Stein’s evidence was, and I accept, that following the verbal agreement in January 2014, Visy paid royalties “through 2014” under that agreement at the agreed rate and while Visy and Aus-Lid were negotiating the position going forward. As already noted, the 29 December 2014 licence agreement also made provision for the payment of royalties, although on a different basis to that which had been earlier agreed.

234    It may be accepted that the dealings between Visy and Aus-Lid began without Visy knowing that Aus-Lid’s grant of a licence to it breached a contract with the applicant, so that Visy could not then be liable in tort. When, however, Visy gained this knowledge in September 2014, Visy continued to induce or procure Aus-Lid to breach this contract by the continued payment of royalties for its continued manufacture and supply of its patented spoon-in-lid. In this circumstance, there was an actionable interference on Visy’s part with Aus-Lid’s contractual obligations to the applicant: see DC Thomson at 694; LED Technologies at [46]; and Sai Teys McMahon Real Estate Pty Ltd v Queen Street Apartments Pty Ltd and Anor [2007] QSC 264 at [92]-[103] and the cases there cited.

235    Visy’s royalty payments to Aus-Lid were a clear reason why Aus-Lid would break its contract with the applicant. Visy continued to make these payments in the knowledge that it was in this way procuring or inducing Aus-Lid to continue to breach its contract with the applicant. Visy was therefore in the position of a third party, who with knowledge of the contract between the applicant and Aus-Lid, had dealings with Aus-Lid that it knew to be inconsistent with that contract. Unless Visy’s defence that it had a bona fide belief, reasonably held, that the contract with the applicant had been repudiated is accepted, then Visy committed an actionable interference with the applicant’s contract with Aus-Lid in September 2014.

236    I interpolate here that if (contrary to the above) Visy’s submission were accepted that it could not have induced a breach of contract, because the only breach that could have caused the applicant loss had occurred in January 2014 (when Aus-Lid granted Visy a licence to manufacture the patented lids for Chobani), this submission would not prevent a finding that Visy’s execution of the December 2014 documents constituted an actionable interference with Aus-Lid’s contractual obligations to the applicant. The evidence established that the December 2014 documents recorded a new agreement pursuant to which Aus-Lid granted Visy rights to manufacture and supply its patented product in consideration for royalty payments calculated on a different basis to that agreed in January 2014. While Aus-Lid and Visy had agreed in January 2014 to adopt the provision for royalties in the MOU of 19 July 2012 as part of their licensing agreement, the execution of the December 2014 documents made new provision for the payment of royalties expressly for Aus-Lid’s grant of a licence to Visy to manufacture and supply the patented product in Australia. Further, there can be little doubt that by 29 December 2014, Visy had more than sufficient knowledge to ground an intention to induce or procure breach of the applicant’s contract with Aus-Lid: see [263] below.

A bona fide belief reasonably entertained?

237    In order to assess whether Mr Stein (and therefore Visy) had a genuine belief, held on reasonable grounds, that the contract between the applicant and Aus-Lid had been repudiated, it is necessary to examine the information given to Mr Stein about the contract between September and December 2014. Visy relied on his evidence to make good its defence.

238    Mr Stein had two primary sources of information about Aus-Lid’s contract with the applicant: Spruson & Ferguson and Mr de Souza. Mr Stein received three letters from Spruson & Ferguson, respectively dated 4 September 2014, 15 October 2014 and 27 November 2014. These letters informed him that Spruson & Ferguson believed that: (1) there was a contract on foot between the applicant and Aus-Lid; (2) under the contract, Aus-Lid granted the applicant an “an irrevocable, exclusive sub-licence” to manufacture and supply Aus-Lid’s patented spoon-in-lid for containers for pre-packaged dairy food (defined as the “Field”) in the Territory (as defined); (3) under the contract, Aus-Lid agreed that it would not grant any rights to a third party in the Field in the Territory (and that it would not interfere with the applicant’s enjoyment of its licence); (4) Aus-Lid was in breach of this contract when it granted Visy the right to manufacture and supply the patented spoon-in-lid to Chobani; and (5) (per its 27 November 2014 letter) Visy did not have a valid and effective licence. As already noted, Mr Stein acknowledged that, having regard to their professional obligations as solicitors, Spruson & Ferguson would not have made statements conveying this information without a reasonable belief that they were true.

239    Secondly, Mr Stein received numerous emailed communications from Mr de Souza, including emails dated 9 September 2014, 12 September 2014, 17 October 2014, 3 December 2014 and 5 December 2014. These emails did not provide a reasonable basis for Mr Stein to believe that the agreement between the applicant and Aus-Lid had ended. Mr de Souza’s email of 9 September 2014 informed Mr Stein that: (1) Mr de Souza contemplated that the applicant would sue Aus-Lid for breach of contract; (2) Mr de Souza would provide Visy with an indemnity against any claim the applicant might make against Visy; and (3) Mr de Souza believed that the applicant had breached its contract with Aus-Lid (by working outside their territory). In his email of 3 December 2014, Mr de Souza repeated his assertion that, for this reason, Aus-Lid believed that the applicant had breached its contract and, in his email of 5 December 2014, Mr de Souza informed Mr Stein that he had advised the applicant of Aus-Lid’s position in this regard.

240    As Mr Stein conceded, these emails would have led him to believe that there was in truth a patent licence agreement between Aus-Lid and the applicant capable of being breached and that Mr de Souza’s offer of an indemnity indicated that Mr de Souza contemplated that the applicant might sue Visy as well as Aus-Lid. In the circumstances known to Mr Stein at the time, this could only have been because of Aus-Lid granting Visy the right to manufacture and supply its patented spoon-in-lid to Chobani and Visy exercising (or purporting to exercise) that right.

241    Mr de Souza’s email of 12 September 2014 informed Mr Stein that Aus-Lid had lodged a complaint with Australian Competition and Consumer Commission (ACCC), and aimed to have the contract with the applicant declared void. His subsequent email of 17 October 2014 again referred to approaching the ACCC and also mentioned that he was considering whether he should seek to resolve the matter by meeting with the applicant’s representatives.

242    None of these emails could have led Mr Stein to the genuine belief on reasonable grounds that the contract between the applicant and Aus-Lid had been terminated by the acceptance of a repudiation. As Mr Stein conceded in cross-examination, the emails of 12 September and 17 October 2014 clearly assumed that there was in existence a contract between the applicant and Aus-Lid capable of being declared void. Even if the applicant was in breach as Mr de Souza asserted, none of these emails disclosed an act amounting to an acceptance of the supposed repudiation.

243    Furthermore, far from stating that the agreement between the applicant and Aus-Lid had terminated, Mr de Souza’s emails of 3 and 5 December 2014 in substance asserted that the agreement between the applicant and Aus-Lid remained but had become a non-exclusive agreement with the result, as stated in the latter email, that both Visy and the applicant had a non-exclusive arrangement with respect to the manufacture and supply of the patented product. There was nothing before Mr Stein to indicate how this might have happened; and there were therefore no reasonable grounds to indicate that it had.

244    The emails sent by Mr de Souza to Mr Stein gave every indication that Mr de Souza had little, if any, understanding of Aus-Lid’s legal position and that Mr de Souza was out of his depth. Mr de Souza’s characterisation of Aus-Lid’s position with respect to its agreement with the applicant varied markedly. There were assertions of breach (in his 9 September and 3 and 5 December 2014 emails), statements of intention to have the existing agreement declared void (in his 12 September and 17 October 2014 emails), and assertions that an exclusive (licence) agreement had transformed into a non-exclusive (licence) agreement. Apart from an assertion the applicant had worked outside the relevant territory in connection with the alleged breach, Mr de Souza provided no indication that Aus-Lid had any basis for its claims.

245    I am not persuaded that an experienced commercial solicitor, such as Mr Stein, would have believed on the basis of what Mr de Souza had communicated to him that there were reasonable grounds to believe that the contract between the applicant and Aus-Lid had been repudiated. For the reasons set out below, it does not seem to me that the conversation that Mr Stein said he had with Mr de Souza on 9 September 2014 improves Visy’s position.

246    As stated earlier, Mr Stein’s evidence was that he thought that there were good grounds for believing that the applicant was in breach of its agreement with Aus-Lid, and that this might have resulted in a repudiation of the licence agreement. It seems to me that his evidence was, in this regard, a reconstruction of what had happened several years before to justify his conduct at the time. I have formed the same view of Mr Stein’s description of the conversation that he said he had with Mr de Souza on 9 September 2014.

247    In this conversation, as narrated by Mr Stein, Mr Stein was informed that Mr de Souza was of the view that: (1) the applicant’s claims were without substance; (2) the contract between the applicant and Aus-Lid “no longer applies”; and (3) Aus-Lid had the right to licence Visy to manufacture and supply Aus-Lid’s patented spoon-in-lid for Chobani. For the reasons already indicated, Mr de Souza’s emails indicate that he accepted that there was a contract on foot between the applicant and Aus-Lid, although he considered that it had been breached or should be declared void. Mr de Souza’s emails in September 2014, which were comparatively detailed, contained no statement to the effect that the applicant’s contract “no longer applies”. The 3 and 5 December 2014 emails asserted that there was an agreement on foot although this had, for some unstated reason, become non-exclusive.

248    It may be accepted that on 9 September 2014 Mr de Souza asserted to Mr Stein that Aus-Lid had a right to licence Visy, since he made the same claim to Mr Shale. Unlike Mr Stein, Mr Shale was not, however, an experienced commercial lawyer. Armed with the information discussed above, I am not persuaded that an experienced commercial solicitor, such as Mr Stein, would have believed at any point that the contract between the applicant and Aus-Lid had been repudiated, or that there were reasonable grounds for believing that it had been, on the basis of what Mr de Souza had communicated to him. In any event, Mr Stein did not claim to have a reasonable basis to believe that the contract between the applicant and Aus-Lid had been repudiated by September 2014 or even by some later date. His fall-back position when challenged about his evidence that the contract may have ended through repudiation was that “we didn’t have the full picture”. For a person in the position of Mr Stein, this cannot provide a sufficient basis to find that Visy had a genuine belief, on reasonable grounds or otherwise, that the agreement with the applicant and Aus-Lid had been repudiated or otherwise legally brought to an end.

Wilful blindness or reckless indifference

249    If I am wrong, and Visy did not have actual knowledge of Aus-Lid’s contract with the applicant and of its relevant terms, then, for the reasons I am about to state, Visy was wilfully blind (or recklessly indifferent) to the fact that Aus-Lid’s grant to Visy of the right to manufacture and supply Chobani with Aus-Lid’s patented spoon-in-lid meant that Aus-Lid was in breach of its contract with the applicant. I would infer from this that Visy intended to procure Aus-Lid to breach its contract with the applicant.

250    First, there were Spruson’s letters of 4 September 2014, 15 October 2014 and 27 November 2014, which set out or reiterated the substance of the applicant’s claims to the effect that, by an agreement between the parties, Aus-Lid had granted the applicant an “irrevocable, exclusive sub-licence” to manufacture and supply Aus-Lid’s patented product and that this agreement included terms to the effect of clause 4.1 and, it should be inferred, clause 7.1(c) of the Patent Licence Agreement. As already noted, Mr Stein acknowledged that Spruson & Ferguson would not have made these statements without a reasonable belief that they were true. Mr Stein also acknowledged that he appreciated at the time he received the 4 September 2014 letter that if the agreement was valid and enforceable, then Aus-Lid would probably breach the agreement if it granted rights to a third party such as Visy to manufacture and supply Aus-Lid’s patented product for pre-packaged dairy food in Australia.

251    Second, Mr de Souza supplied Mr Stein with a response to each of Spruson’s letters, including by way of emailed responses from Mr de Souza on 9 and 12 September 2014, 17 October 2014 and 3 and 5 December 2014: see [113], [115], [123], [126] and [127] above. As already noted, Mr de Souza did not deny that Aus-Lid had entered into an agreement of the kind that Spruson & Ferguson’s letters described, pursuant to which Aus-Lid had granted the applicant an “irrevocable, exclusive licence” to manufacture and supply Aus-Lid’s patented spoon-in-lids for pre-packaged dairy food in Australia, with terms to the effect that Aus-Lid would not grant any rights to a third party in that field or interfere with the applicant’s enjoyment of the licence that it had granted. Instead, Mr de Souza responded that: (1) the applicant had breached the agreement by working outside its territory; alternatively, (2) Mr de Souza intended to apply to have the agreement declared void. I find that, in either case, as an experienced commercial lawyer, Mr Stein would have inferred that an agreement as alleged by Spruson & Ferguson had in fact been made. This impression would have been fortified by Mr de Souza’s intimation (as early as 9 September 2014) that he contemplated the applicant would sue Aus-Lid and Visy in consequence of Aus-Lid’s agreement with Visy. For the reasons already explained, there was nothing in Mr de Souza’s communications with Mr Stein to show that there had been any act amounting to an acceptance of any repudiation (or anything to indicate that Aus-Lid had any basis to support an application to have the agreement declared void).

252    Third, for the reasons already stated, the emails sent by Mr de Souza to Mr Stein gave every indication that Mr de Souza had little, if any, understanding of Aus-Lid’s legal position and that Mr de Souza was out of his depth. Mr de Souza’s lack of legal acumen, which was evident in these emails (and in these proceedings), would have been plain enough to Mr Stein as an experienced commercial lawyer. No such lawyer could, in the circumstances as Mr Stein knew them to be, have reasonably relied on Mr de Souza’s statements about Aus-Lid’s legal relations with the applicant. Although Mr Stein said in cross-examination that he could not see why Visy needed to treat the “facts” provided by Mr de Souza “with any more caution than anyone else”, I doubt that he genuinely believed this. This statement was, so it seems to me, a self-serving and tendentious attempt to justify his conduct at the time.

253    Fourth, I am satisfied that Mr Stein never inquired of Mr de Souza whether Aus-Lid had taken any independent legal advice, let alone recommended to him that it should do so. Bearing in mind that Mr Stein’s primary justification for his (and Visy’s) conduct at the time was that “we didn’t have the full picture”, in the circumstances of this case this was not the conduct of a reasonable in-house lawyer who wished to ascertain his employer’s true legal position. Mr Stein did not, moreover, ask Mr de Souza to explain his understanding of Aus-Lid’s position, and nor did he ask him for any further information.

254    Fifth, Mr Stein said in cross-examination that he did not form a view about whether Mr de Souza’s understanding of Aus-Lid’s position was correct, including whether the licence agreement between Aus-Lid and the applicant was still on foot. I find Mr Stein’s statement disingenuous, bearing in mind that it would have been clear to Mr Stein as early as 9 September 2014 that Mr de Souza was out of his depth. For the reasons stated earlier, I would infer that Mr Stein did not believe that what Mr de Souza said was correct. Rather, he contrived to rely on Mr de Souza because what he was saying aligned with Visy’s commercial interests. Visy had evidently invested a significant amount in tooling and machinery to meet Visy’s commitment to Chobani, and it had an admitted interest in maintaining its supply of Aus-Lid’s patented spoon-in-lid products to Chobani without disruption. Mr Stein did not deny this when it was put to him in cross-examination, although he gave a less than direct answer, merely repeating that “we didn’t have the full picture”.

255    Sixth, Mr Stein’s explanation for his decision not to take up Spruson’s offer (in its 15 October 2014 letter) to provide a copy of the applicant’s Patent Licence Agreement to Visy’s independent legal advisers in order that Visy might take independent legal advice was not credible. It may be recalled that Mr Stein’s evidence was he “didn’t see the value in it” and that it would have “cost us more money”. It would have been tolerably clear to him, however, that even “just sighting” the document, as he put it, would have confirmed if and when the applicant had entered into an exclusive licence agreement with Aus-Lid, and on what terms. It should also have been clear to him that Visy might well have saved itself from further expensive risk exposure if it received legal advice independent of the issues that might cloud an in-house lawyer’s judgment.

256    I accept the applicant’s submission that Mr Stein’s failure to take up Spruson’s October 2014 offer or to make any meaningful inquiries of the applicant’s solicitors (other than calling Mr Kortian on 23 October 2014 to confirm that Aus-Lid had granted Visy a licence) and his uncritical acceptance of Mr de Souza’s responses strongly indicate that Mr Stein did not want to ascertain the true facts in case they proved inconsistent with Visy’s commercial interests. Mr Stein’s motivation for adopting this approach is evidenced by his contention that there needed to be “very, very compelling circumstances” for Visy to take the step of stopping supply, having regard to its investment in tooling and its contractual commitments to Chobani and the “extremely dramatic consequences” of doing so.

257    Seventh, that Mr Stein sought to avoid the inconvenient truth is confirmed by his subsequent conduct. He did not respond promptly to Spruson’s letter of 27 November 2014. When he did so on 17 December 2014, he indicated in effect that he had no intention of complying with Spruson’s demands, whether or not they were justified. He noted that Visy “ha[d] not sighted” a copy of Aus-Lid’s agreement with the applicant, in self-serving disregard of Spruson’s previous offer to provide a copy. He reaffirmed Visy’s reliance on Mr de Souza’s assurances that the applicant’s rights were non-exclusive, when he must have been aware that he had no reasonable basis for this reliance (aside from Mr de Souza’s evidently ill-conceived claims).

258    Mr Stein’s response to receiving redacted copies of the Patent Licence Agreement and a Deed of Amendment, as attachments to Spruson’s email on 23 December 2014, was also indicative of his desire to avoid ascertaining the truth. Mr Stein seized upon the fact that the signature of only one of Cryovac’s directors appeared on the Patent Licence Agreement without the company’s corporate seal, and emailed Mr de Souza that “in any event Ashlyn note that neither the licence agreement nor the amendment … appear to have been properly executed … so there may also be a validity question resulting from that”. As regards the Patent Licence Agreement, Mr Stein – as an experienced commercial lawyer – would have known that an agreement may be validly executed other than in accordance with s 127 of the Corporations Act. He acknowledged as much in cross-examination. Further, although Mr de Souza responded to Mr Stein that “the agreement is not the issue” and “[t]he breach of agreement … is our defence”, Mr Stein nonetheless told the applicant’s lawyers by email that “we are not in a position to comment on [the] validity” of the documents that they had sent him and emphasised “that the most useful way for [them] to proceed would be to engage directly with Auslid regarding a solution”. I accept, as the applicant submitted, that Mr Stein’s email was deliberately non-responsive and contrived.

259    Mr Stein’s explanation in cross-examination about his failure to make inquiries of Spruson & Ferguson to allay his doubts about execution of the applicant’s Patent Licence Agreement was unconvincing to the point that it tended to show that Mr Stein had, in fact, no real interest in ascertaining the facts in case they upset Visy’s commercial interest in maintaining the supply of Aus-Lid’s patented lids to Chobani. Mr Stein read and understood the Patent Licence Agreement when the document was emailed to him. He continued to maintain, however, that Mr de Souza’s communications with him cast “considerable doubt” over the written agreement. This was implausible in the circumstances known to him and having regard to his legal qualifications and experience. It was not enough to say, as Mr Stein did in substance on a number of occasions, that Visy just did not know “whose view of the world [was] right” and that Visy “didn’t have the full circumstances”.

260    Finally, Mr Stein was sometimes less than forthcoming in evidence. For example, he was clearly unwilling to concede that Aus-Lid’s verbal grant of rights in January 2014 to Visy might interfere with the applicant’s rights under its exclusive licence agreement with Aus-Lid. He was also less than forthcoming when cross-examined about his response to Mr de Souza’s 17 October 2014 email, eventually conceding that the legal risk “wasn’t going away”, then positing that the applicant’s agreement with Aus-Lid “may well have been” repudiated such that “instead a non-exclusive licence forms into its place”. Although Mr Stein denied that he was “making this up”, he must have known, as an experienced commercial lawyer, that these statements had no evident factual or legal basis. Mr Stein’s persistent equivocation about the inquiries he failed to make and about what he knew, which was evident in certain repeated responses such as Visy “didn’t have the full circumstances” tended, in the end, to undermine his credibility significantly.

261    Ultimately, I accept that, as the applicant submitted, Mr Stein chose at the time to put what he saw as Visy’s commercial interests ahead of everything else. When it was put to Mr Stein in cross-examination that Visy was motivated to protect its commercial interests because it was going to be too expensive and too difficult to discontinue supply to Chobani, he responded by saying that Visy “would need to be very convinced there were very good reasons to do so” and “we weren’t convinced at that stage”. When pressed further about whether Visy chose to accept the risk that the applicant might be right, Mr Stein eventually admitted “[w]e chose to accept a position where we don’t pull supply on our customer … because we’re potentially exposed – (1) we’ve got an unhappy customer, (2) we’re exposed to a claim for breach of contract”.

262    Having regard to the matters to which I have referred, to have ignored or dismissed Spruson’s warnings on the pretext that Visy had “not sighted” a copy of the agreement between the applicant and Aus-Lid or that it did not know “the full picture” and to have relied instead upon Mr de Souza's unsubstantiated, sometimes contradictory or misplaced assertions, was to exhibit “wilful blindness” of the kind referred to in Fightvision and LED Technologies (see [196] and [207] above).

263    Visy compounded its position in this respect by engaging in the negotiations that led to the execution of the fresh suite of agreements on 29 December 2014: see [236] above. The Intellectual Property Licence executed at that time granted Visy a non-exclusive right to exploit Aus-Lid’s Patent in consideration for the payment of royalties (on a freshly agreed basis). Given the knowledge that Mr Stein (and therefore Visy) had accumulated by the time Visy executed the Intellectual Property Licence, I infer that Visy did so wilfully closing its eyes (or recklessly indifferent) as to whether this agreement was inherently inconsistent with the applicant’s exclusive rights under its earlier-in-time licence agreement with Aus-Lid. The motivation for this was to protect its commercial position. Aside from the evidence to which I have already referred, Mr Shale said (and I have accepted) that changing the design of the lid for the 160g Gippsland Dairy yoghurt product “would have involved considerable technical work, significant cost and also customer interruption” and that a purpose in executing these documents on 29 December 2014 was to remove any legal risk to which Visy might be exposed.

The rule in Browne v Dunn

264    As the previous discussion shows, I reject Visy’s submission that as the applicant had not complied with the rule in Browne v Dunn the Court should abstain from making adverse findings about Visy and witnesses such as Mr Stein. Broadly speaking, I accept Mr Drew’s submissions in this regard. In particular, I accept that it would have been clear to Mr Stein and Visy from the pleadings, the applicant’s opening address, and the contradicting evidence put to Mr Stein in cross-examination that his evidence was being challenged. In the circumstances, there is no relevant unfairness in assessing Mr Stein’s evidence as I have done.

Damages for tortious inducement of contract

265    The principles relevant to the award of damages for the tort of inducement of breach of contract were set out by the Court of Appeal in Fightvision (at [277]-[281]):

It was then submitted that damages for inducing breach of contract can not be recovered if the contract breaker would in any event, and without the inducement, not have performed the contract. Jones Bros (Hunstanton) Ltd v Stevens [[1954] 1 QB 275 at 283] was cited.

In that case the defendant had employed a waiter formerly employed by the plaintiff. It had not induced him to leave his original employment, but continued to employ him after notice that he had broken his contract with the plaintiff. It was held that, where the servant would not in any case have returned to the plaintiff, no loss had been suffered for which the defendant was liable.

It does not follow, however, that there is no recoverable loss when the defendant induced the breach of contract. …

There is a loss, and where the defendant induced the breach of contract the finding of inducement means that it was caused by the defendant inducing the breach of contract. The loss flowing from the breach of contract was caused by the inducing even if a contributing cause of the loss was the contract breaker's disinclination to perform the contract.

In our view, any question is one of causation. A finding of inducing breach of contract carries with it a finding that the defendant's actions caused the breach of contract and the loss which flowed. It does not matter that the contract breaker yields readily or before the inducement was willing to break the contract: Woolley v Dunford (1972) 3 SASR 243 at 290-291; Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Air Pilots [1991] 1 VR 637 at 659. But it may be possible for the defendant to establish, according to the commonsense notion of causation in March v E & M H Stramare Pty Ltd (1991) 171 CLR 506, that inducing the breach of contract was not the cause of the loss because the loss would have been suffered in any event.

Any award of damages must, therefore, seek to put the applicant in the position that it would have been in were it not for the breach of its agreement with Aus-Lid brought about by Visy and the corresponding loss.

266    The applicant’s and Visy’s submissions on damages have been set out in detail at [48]-[53] and [69]-[76] above. To recap, the applicant submitted that:

(1)    it was entitled to recover the loss flowing from the breach of contract that Visy had induced;

(1)    this loss comprised the lost profit on sales that the applicant would otherwise have made in supplying the spoon-in-lids to Chobani and corresponded to the quantity of lids that Visy supplied to Chobani;

(2)    if Visy had ceased to manufacture and supply the Aus-Lid patented spoon-in-lid on or about 8 September 2014, as it should have done, then Chobani would have re-established its supply of the lids from the applicant, initially in the existing non-IML format and by January 2016 and probably sooner, in a matte black IML format;

(3)    Chobani would not have disrupted its supply lines when it had no alternative supplier and the spoon-in-lid feature offered a significant advantage in the production line and in terms of consumer convenience;

(4)    there was no evidence that an alternative product would have been found even if Mr Meek had gone back to the market; and

(5)    the applicant was entitled to recover the profits that it would otherwise have made by supplying the Combo-Lid to Chobani dating from the time at which Visy had actual knowledge that its supply interfered with the applicant’s contractual rights (that is, 8 September 2014) until the expiry of the applicant’s sublicence on 18 September 2018, and for three years thereafter.

267    Visy submitted that:

(1)    the applicant was required to prove that Visy’s actions after September 2014 (or December 2014) caused the loss and it could not do so;

(2)    because of the applicant’s refusal to invest in IML technology, the applicant had no prospect of winning a long-term supply contract from Chobani and could only ever have been a short-term, stop-gap supplier to Chobani;

(3)    had Visy ceased supply in September or December 2014, then Chobani would only have taken the applicant’s supplies while it went back to market where Chobani would have found another supplier or potentially re-engaged Visy to provide an IML product with another spoon design;

(4)    at most, the applicant lost six months of sales from September (or December) 2014 because Visy did not cease supply upon receiving the applicant’s correspondence;

(5)    since the term of Aus-Lid’s Patent ceased for non-payment in September 2017, Visy could have supplied the lids to Chobani after that date without requiring any licence from Aus-Lid; and

(6)    there was no basis in the evidence for the applicant’s assertion of loss of profits for two, three, five or ten years after the period of exclusivity.

268    Visy also challenged the applicant’s evidence about its capacity to meet Chobani’s IML requirements in January 2016, arguing that the applicant had made no provision for the cost of the new moulds that would likely be required and the effect of this on the applicant’s profits. There were also, so Visy submitted, other factors that would have affected the applicant’s profits, although the precise effect was unclear.

269    In this case, as we have seen, the relevant breaches were Aus-Lid’s offering and granting to Visy of the right to manufacture and supply Aus-Lid’s patented spoon-in-lid to Chobani, and subsequently knowingly permitting and encouraging Visy to manufacture and supply the patented product to Chobani. These breaches are discussed at [186]-[189] above. It may be accepted that when Visy came to know that Aus-Lid’s actions were in breach of its contract with the applicant in September 2014 after Mr Stein had received Spruson’s letter of 4 September 2014 and Mr de Souza’s emails ([109], [113], [115] above), it should have ceased to manufacture and supply Aus-Lid’s patented spoon-in-lids for Chobani and discontinued the negotiations with Aus-Lid that led to the further agreement on 29 December 2014. It may also be accepted that, a fortiori, it should not have entered into that agreement at all.

270    To the extent that Visy submitted that its actions after September 2014 (or December 2014) cannot have caused the applicant’s loss, this is contrary to the statement in DC Thomson, cited with approval in LED Technologies (see above at [221]) that if a defendant continues a course of conduct after being fixed with notice his interference will be actionable. There was no evidence to suggest that Mr de Souza was set on breaking the contract regardless of the agreement with Visy. This argument should not be accepted. Nevertheless, any assessment of the amount of the applicant’s loss caused by the contractual breaches that Visy induced necessitates an examination of what would have happened if Aus-Lid had not so breached its contract with the applicant by permitting Visy to manufacture and supply the patented spoon-in-lids to Chobani. This in turn necessitates an understanding of Chobani’s requirements for the supply of the lids for its line of dairy products.

271    The evidence of Mr Meek and Mr Stewart established that, from 2012 until early 2014, the applicant, with its licence to manufacture and supply, was the sole supplier of Aus-Lid’s patented spoon-in-lids to Chobani. Visy contracted to supply Chobani with various containers for its yoghurt products (but not Aus-Lid’s patented product) in late June 2013. In August and September 2013, Chobani sought to identify a supplier who would supply containers meeting its requirements for Project Reborn (designed to refresh the branding for Chobani’s Gippsland Dairy yoghurt product). As part of Project Reborn, the lids for this product were to be converted to an IML format in a premier matte black. To this end, Chobani sought proposals from the applicant and Visy, including for the supply of an IML lid in a matte black finish with a spoon. The applicant’s proposal of 4 September 2013 was for a clear or gloss black non-IML spoon-in-lid, which did not meet the requirements for Project Reborn: see [90]. Chobani also wanted the lids supplied at a competitive market price and as soon as possible. Chobani ultimately accepted Visy’s 16 September 2013 proposal. This proposal was less expensive and offered IML lids in a black matte finish that met Chobani’s requirements.

272    When Chobani sought proposals from the applicant and Visy in August-September 2013, Chobani did not include a requirement for Aus-Lid’s patented spoon-in-lids. This was consistent with the fact that, at the relevant time, aside from Aus-Lid’s patented spoon-in-lid, there were various other spoon-in-lid possibilities that might have met Chobani’s Project Reborn requirements. This was the evidence of Mr Shale and Mr Meek. Mr Shale said that there were various spoon-in-lid possibilities at the time that could have been made in an IML matte black to meet Chobani’s requirements and that, before ordering the tooling for Aus-Lid’s patented product in January 2014, he had endeavoured to clarify with Mr de Souza that there were no competing third party rights with respect to the product. Mr Meek also said that at the time Chobani was “aware of plenty of spoon-in-lid solutions”. There was also Mr Smithells’ unchallenged evidence that “Visy had several spoon and lid options available at that time”.

273    It is true that Mr Taylor said that in September 2013 he was not aware of other spoon-in-lid products besides Aus-Lid’s patented product, and Mr Stewart said that to his knowledge the only alternative product at that time was a spoon and lid product made in two separate pieces where the spoon was either inserted into the lid or glued to the lid through a secondary process. Nonetheless the evidence of Mr Shale, Mr Meek, Mr Smithells and Mr Stewart (to the extent that he acknowledged that there was an alternative product) leads me to conclude that on the balance of probabilities at the relevant time there were other products available to the market that could have met Chobani’s requirements. Chobani’s selection would depend on numerous factors, including cost and functionality. This is consistent with Chobani’s acceptance of Visy’s proposal without the specification of a spoon-in-lid design. At that time of accepting Visy’s proposal on 17 September 2013, there were no agreed specifications for a spoon-in-lid product that Visy was to supply to Chobani. It will be recalled that the identification of this design was to await further discussion and agreement. It was not until after Mr de Souza offered Visy the right to manufacture and supply Aus-Lid’s patented spoon-in-lid to Chobani in January 2014 that Visy proposed that lid to Chobani for its approval as the lid to be supplied for the 160g Gippsland Dairy brand yoghurt tubs.

274    The applicant relied on the fact that the technical drawings for Aus-Lid’s patented spoon-in-lid were prepared in October 2013 to undermine Visy’s case. As already indicated, however, I would infer that the technical drawings prepared in October 2013 were first prepared for use in a market other than for dairy in Australia: see [176] above. The October 2013 date does not therefore affect Visy’s case.

275    From June 2014 to March 2015, the volumes of Visy’s Aus-Lid patented lids supplied to Chobani increased to 25.2 million in April 2017, and aggregate sales to the value of $1.606 million. The making of the extension agreement on 17 July 2017 indicated that Visy and Chobani were looking to continue this arrangement into the future. From about June 2014, when Visy began to supply Aus-Lid’s patented spoon-in-lid to Chobani, the volumes of the applicant’s relevantly identical Combo-Lids supplied to Chobani diminished until they completely ceased from March 2015. As at October 2018, Chobani was continuing to use Aus-Lid’s patented spoon-in-lid supplied by Visy on its dairy products.

276    Between June 2014 and March 2015, the applicant continued to supply its Combo-Lids to Chobani. The unchallenged evidence of Mr Taylor and of Mr Stewart established that, in September 2014, the applicant would have been able to ensure the continuous supply to Chobani of Aus-Lid’s patented spoon-in-lids had Visy ceased its supply to Chobani in September 2014.

277    Further, fifteen months later, by January 2016, it is clear enough that the applicant would have been able to supply the patented spoon-in-lids for Chobani’s 160g tubs in IML matte black. It may be recalled that Mr Stewart’s evidence was that, by January 2016, the applicant had invested in IML technology and had the capacity to manufacture about 39,900,000 Combo-Lids per year, including 13,300,000 in IML format. I have already indicated that I accept Mr Stewart’s evidence. Furthermore, Mr Stewart’s unchallenged evidence in cross-examination was that the applicant had in fact invested in IML technology much earlier than January 2016. It may be inferred from this that the applicant could have utilised IML technology at an earlier date, and given the high volumes of the Combo-Lids that Chobani subsequently required, would have been motivated to do so sometime after September 2014 had Visy ceased its manufacture and supply as it should have done.

278    Of course, much of this analysis assumes that Chobani would have turned to the applicant to continue its supply of Aus-Lid’s patented spoon-in-lids. The applicant emphasised that Mr Meek conceded that he could not have been sure that, if Chobani had gone back to market at this point, Chobani would have found what it wanted. I would not, however, read Mr Meek’s evidence in this way. To be properly understood, Mr Meek’s evidence at this point must be read in context.

279    The transcript records the following exchange between counsel for the applicant, Mr Drew, and Mr Meek:

Mr Drew:    So the situation is this: If Visy had not been in a position to offer you what it    offered you under this proposal, you would have continued with the existing supply    of Combo-Lids from Cryovac for the foreseeable future, until such time as you could come up with some other solution?

Mr Meek:    We would have probably gone back to market but that is correct. …

Mr Drew:    But you don’t know what the market would have produced, do you? Till you get the proposal, how would you know?

Mr Meek:    No. But we had, you know, we obviously were aware of plenty of spoon-in-lid solutions. We would have gone back and found an appropriate solution for the business.

Mr Drew:     It’s speculative until you see those proposals, though, isn’t it?

Mr Meek:     Of course.

Mr Drew:    … You tested the market by going out there and saying “Matte black IML lids with a spoon-in-lid.” Why didn’t you flush anyone else out? There are only two. Visy and Cryovac?

Mr Meek:    Well, we were obviously moving quite quickly, because we didn’t want to compr[om]ise the design. So - - -

Mr Drew:    It’s equally plausible there wasn’t anybody out there that could give you what you want?

Mr Meek:    There were plenty of manufacturers that can do … matte black lids with IML with spoons, I believe, but - - -

Mr Drew:    You believe. That’s – Don’t worry. Thank you. It can go no higher than a belief until you test the market, can it, is that right?

Mr Meek:    That’s – yes.

280    Mr Meek was clearly reasonably confident that Chobani would have found an alternative solution if it had gone back to market, although he could not be absolutely sure of what he would have found until he had done so. At the same time, his evidence confirmed that had Visy ceased supplying Aus-Lid’s patented spoon-in-lids in September 2014, Chobani would have continued to source these lids from the applicant until it had identified a better solution.

281    This led to another exchange:

Mr Drew:    So you would have continued your existing supply of Cryovac lids for so long as it took. But you don’t know how long that would take, do you?

Mr Meek:    We redesign packaging all the time. It probably would have been six months. Up to six months potentially.

282    Although not free from doubt, I would infer from Mr Meek’s evidence that he meant from this that it probably would have taken six months to find another supplier. If the course of events with Visy are a guide, however, a number of months (perhaps the best part of another year) would have passed before that new supplier would commence supply. While Chobani accepted Visy’s proposal in September 2013, the manufacture and supply of the spoon-in-lids to Chobani did not commence until around June 2014, even though Visy was already supplying Chobani with other products at the time. If Chobani had found a new supplier by March 2015, production may well not have begun until around December 2015-January 2016. By January 2016 the applicant was in fact capable of producing Aus-Lid’s patented spoon-in-lids in IML matte black, and it is likely that it could have achieved that capacity earlier had it been motivated by supply arrangements with Chobani to do so.

283    Furthermore, although Chobani’s Project Reborn emphasised the need for an IML matte black finish for the rebranding of its Gippsland Dairy yoghurt product, the evidence clearly established that Chobani valued the advantages presented by Aus-Lid’s patented spoon-in-lid for its 160g yoghurt tubs. Mr Shale’s evidence was that Visy’s interest in the patented product lay in the fact that it could be manufactured as a single unit (which technically was not easy) with the consequence that it was easier to assemble and the spoon could not be lost during assembly or distribution. As already indicated, I accept his evidence. This was consistent with Mr Stewart’s evidence that Aus-Lid’s patented spoon-in-lid had an advantage over other similar products, in that it was made in one piece and did not require further assembly, which was inconvenient and more costly. Mr Shale also said that this kind of spoon-in-lid product offered ‘on-the-run’ convenience to the end user. It may be recalled that Mr Meek gave evidence to like effect, saying that a spoon-in-lid was important for the functionality of Chobani’s single-serve yoghurt pot because it enabled customers to eat the product on the go and that, with respect to Project Reborn, “all of this had to include a spoon-in-lid product”.

284    There are a number of factors that lead me to conclude at this point that the applicant should be awarded compensation for its loss from on or around 9 September 2014 and, as explained below, until about April 2018. Had Visy ceased supplying Aus-Lid’s patented spoon-in-lids in September 2014 as it ought to have done, then Chobani would have turned to the applicant to supply those lids in order to avoid disruption. This was the evidence of Chobani’s managing director, Mr Meek. It reflected the fact that Chobani valued the advantages of Aus-Lid’s patented spoon-in-lid and would have sought to avoid disruption to its supply. For these reasons, I reject the suggestion that Chobani would have sought a different version of a spoon-in-lid from Visy at this time.

285    For the reasons already outlined, I have found, on the balance of probabilities, that the applicant was capable of producing Aus-Lid’s patented spoon-in-lids in IML matte black by January 2016 and would have achieved that capacity earlier had it been motivated to do so because of the volume of spoon-in-lid products that Chobani required (since this would have supported the applicant’s investment). On the balance of probabilities, I accept that the applicant would have made a proposal to Chobani in the six-month stop-gap period that would have arisen while Chobani was looking for another longer-term supplier. Had the applicant made an offer to supply matte black IML Aus-Lid patented spoon-in-lids within that period, then the applicant, rather than Visy, would have been manufacturing and supplying these spoon-in-lid products to Chobani at least to the expiry of Aus-Lid’s Patent on 18 September 2017.

286    I reject the proposition that Visy, not the applicant, would have been more likely than not to have retained Chobani’s business at this time. By this point, it would have been more probable than not that the applicant would have retained Chobani’s business because: first, the applicant would have regained its position as Chobani’s sole supplier of Aus-Lid’s patented spoon-in-lids; second, so far as Chobani was concerned, these lids were important for its 160g tubs for its Gippsland Dairy brand yoghurt; and, third, the applicant’s capacity to produce its products in IML format was at hand. Furthermore, whilst I accept that there were other spoon-in-lid possibilities in the market at the time, Visy did not adduce any evidence at the hearing of any particular product that was available to it at that time which could have been accepted by Chobani as a suitable substitute for the spoon-in-lids that it had ceased to supply.

287    I interpolate here that I reject Mr Drew’s submission that I should disregard the fact that the Patent expired for non-payment of fees on 18 September 2017 and should treat it as on foot until 18 September 2018, when it would have expired in the ordinary course. There was no evidence to support Mr Drew’s submission that Aus-Lid’s failure to pay was due to the distractions caused by the dispute with which this proceeding is concerned.

288    I do not accept, however, that the expiry of Aus-Lid’s Patent and therefore the applicant’s status as the exclusive supplier of the patented spoon-in-lids would have brought its supply arrangements with Chobani to an immediate end. Had Chobani entered into a contract with the applicant for the supply of Aus-Lid’s patented spoon-in-lids sometime between 9 September 2014 and March 2015, then that contract would, on the balance of probabilities, have had a term of at least three years and possibly up to four.