Federal Court of Australia
Australian Competition and Consumer Commission v Lactalis Australia Pty Ltd [2022] FCA 1087
ORDERS
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant | ||
AND: | LACTALIS AUSTRALIA PTY LTD ACN 072 928 879 Respondent | |
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. It is declared pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act) that Lactalis Australia Pty Ltd breached s 12(2) of the Competition and Consumer (Industry Codes–Dairy) Regulations 2019 (Cth) (Dairy Code) by failing to publish standard form Milk Supply Agreements on its website at or before the publication deadline of 2.00pm on 1 June 2020.
2. It is declared pursuant to s 21 of the Federal Court Act that from at least 17 June 2020 Lactalis Australia Pty Ltd breached s 13 of the Dairy Code by publishing on its website Milk Supply Agreements that did not comply with the requirements of s 34(2) and (3) of the Dairy Code in that such agreements as were published provided that Lactalis Australia Pty Ltd may unilaterally terminate them in circumstances which did not involve a material breach by a farmer.
3. It is declared pursuant to s 21 of the Federal Court Act that between 1 January 2020 and 14 January 2021, Lactalis Australia Pty Ltd breached s 17 of the Dairy Code by entering into Milk Supply Agreements that did not comply with the requirements of s 34(2) and (3) of the Dairy Code in that they provided that Lactalis Australia Pty Ltd may unilaterally terminate them in circumstances which did not involve a material breach by a farmer.
4. It is declared pursuant to s 21 of the Federal Court Act that Lactalis Australia Pty Ltd, in trade and commerce, breached s 51ACB of the Competition and Consumer Act 2010 (Cth) by its conduct in contravention of the Dairy Code identified in Orders 1 to 3 hereof.
5. The parties are to be heard as to the nature of any further relief to which the applicant may be entitled.
6. The parties are to be heard on the question of costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
DERRINGTON J:
Introduction
1 In this action the Australian Competition and Consumer Commission (ACCC) has asserted that, in the period from 2020 to early 2021, Lactalis Australia Pty Ltd (Lactalis) contravened certain provisions of the Competition and Consumer (Industry Codes—Dairy) Regulations 2019 (Cth) (Dairy Code) in relation to its entry into certain Milk Supply Agreements between it and its supplier farmers. It has brought these proceedings against Lactalis seeking declaratory relief and the imposition of civil penalties in relation to those alleged contraventions. These are the first proceedings brought under the Dairy Code and there exists not a little uncertainty as to the scope of some of its provisions.
2 The essence of the ACCC’s allegations are that:
(a) Lactalis failed to publish its standard form Milk Supply Agreements for the 2020 / 2021 year on its website by the prescribed date of 1 June 2020, which omissions contravened s 12(2) of the Dairy Code;
(b) in contravention of s 12 of the Dairy Code, Lactalis failed to publish on its website a non-exclusive Milk Supply Agreement, being one in respect of which it was prepared to enter for the 2020 / 2021 year;
(c) the agreements into which Lactalis entered with its supplier farmers in the 2020 / 2021 year did not, for the most part, “consist of a single document”, which amounted to a contravention of ss 17 and 22 of the Dairy Code; and
(d) the agreements into which Lactalis entered contained clauses which contravened s 34 of the Dairy Code in that they purported to permit Lactalis to terminate them other than for a material breach.
3 These reasons concern only whether the ACCC has established the occurrence of the alleged breaches and the declarations which might be made consequent upon any findings. Whether additional relief should be granted, including by the imposition of penalties or the making of injunctions, is to be determined following a further hearing.
Background
The agreed facts
4 Prior to the hearing the parties reached agreement as to the factual basis on which the ACCC’s claims arise. That agreement was reduced to writing in the Amended Statement of Agreed Facts, the Supplementary Statement of Agreed Facts and the Further Supplementary Statement of Agreed Facts. The following recitation of facts is derived mostly from those documents.
5 There is no dispute as to the corporate status of Lactalis or the ACCC’s entitlement to bring these proceedings under the Competition and Consumer Act 2010 (Cth) (Competition and Consumer Act) and the Dairy Code.
6 Since at least 1 January 2020 Lactalis has been a “processor” of milk within the meaning of that term as defined in s 5 of the Dairy Code in that it has conducted a business, in trade or commerce, in the course of which it purchases milk from farmers, including for the purpose of processing that milk for sale as milk or other dairy products such as butter, cheese, milk powder, yoghurt and custard.
7 The Dairy Code commenced operation on 1 January 2020. It is delegated legislation made under the Competition and Consumer Act and prescribes a mandatory industry code in relation to processors purchasing milk from farmers.
8 The Australian dairy industry consists of around 5,700 dairy farm businesses of which about 98% are family owned and operated.
9 Lactalis is one of the largest processors in Australia which purchases milk from dairy farmers, largely for drinking milk sold to grocery retailers. In 2020, it purchased around 950 million litres of milk (approximately 11% of Australia’s raw milk production) and contracted with over 400 dairy farmers across all of Australia’s major dairying regions. It directly employs over 2,500 people across Australia.
10 Approximately 90% of drinking milk supplied in Australia is supplied as conventionally pasteurised (as opposed to UHT) milk with a shelf life of less than approximately 20 days from the date of milking. Drinking milk in Australia is sold and consumed relatively consistently across the year.
11 Processors of conventionally pasteurised drinking milk generally prefer supplies of fresh milk from farm to factory with relative consistency across the year.
12 On and from 17 June 2020 Lactalis published on its website the following documents:
(a) seven sets of the boilerplate Milk Supply Agreement documents as follows:
(i) Milk Supply Agreement – Queensland Payment Region;
(ii) Milk Supply Agreement – Queensland Payment Region – New Supplier;
(iii) Milk Supply Agreement – New South Wales – New Supplier;
(iv) Milk Supply Agreement – Victoria, Tasmania and NSW (Southern Riverina);
(v) Milk Supply Agreement – South Australia Payment Region;
(vi) Milk Supply Agreement – Western Australian Payment Region (for the supply period 1 January 2021 to 30 June 2021);
(vii) Milk Supply Agreement – Western Australian Payment Region – New Supplier;
(b) five editions of several Handbooks, each of which was applicable to a particular region as follows (collectively referred to herein as “Regional Handbooks”):
(i) Queensland & Northern NSW Region - Milk Supplier Handbook - Queensland and Northern NSW – Edition effective from 1 July 2020;
(ii) Victoria, Southern Riverina & Tasmania Region - Milk Supplier Handbook – Victoria & Riverina, South Australia and Tasmania – Edition effective from 1 July 2020;
(iii) South Australia Region - Milk Supplier Handbook – Victoria & Riverina, South Australia and Tasmania – Edition effective from 1 July 2020;
(iv) New South Wales Region - Milk Supplier Handbook – Central and Southern NSW – Edition effective from 1 July 2020;
(v) Western Australia Region - Milk Supplier Handbook – Western Australia – Edition effective from 1 July 2020; and
(c) the QDairy Farm Food Safety Manual which is a food safety program manual.
13 From around September 2020, Lactalis published on its website the following:
(a) an eighth boilerplate Milk Supply Agreement document named Milk Supply Agreement – Western Australian Payment Region (for the supply period 1 January 2021 to 30 June 2022); and
(b) a ninth boilerplate Milk Supply Agreement document named Milk Supply Agreement – Queensland Payment Region (for the supply period 1 January 2021 to 30 June 2021).
14 Lactalis’s general practice was to sign a Milk Supply Agreement (herein referred to as an “MSA”) after receiving at least part of a signed copy of the boilerplate document from farmers.
15 From 1 January 2020 until around 14 January 2021, Lactalis entered into 378 “Exclusive Supply” MSAs.
16 From 1 January 2020 until around 14 January 2021, Lactalis did not enter into any standard form “Non-Exclusive Supply” agreements in the form published on Lactalis’s website from 17 June 2020. In relation to an MSA dated 4 January 2021 entered into in relation to a farm nominated as “Farm 6750”, which by Condition 4 of Schedule 1 indicated that it was a “Non Exclusive Supply” agreement, the farmer in fact supplied Lactalis on an exclusive basis and Lactalis paid the exclusive price for this milk. The “Non-Exclusive Supply” option was inadvertently ticked by the farmer.
17 However, Lactalis did negotiate and enter into 13 non-standard, “Non-Exclusive Supply” MSAs with farmers in the period from 19 June 2020 to 5 May 2021. Nevertheless, it paid the “Exclusive Supply” price for the milk supplied by these farmers.
Lactalis’s method of entering into MSAs with farmers
18 On 344 occasions during the period from 1 January 2020 to 14 January 2021, Lactalis signed and sent to farmers executed copies of a version of the boilerplate MSA document (or part thereof) without the relevant Regional Handbook or QDairy Manual attached or otherwise provided with it.
19 On 19 occasions during the period from 1 January 2020 to 14 January 2021, after Lactalis signed the MSA document, it did not send an email providing the farmer with any pages of the executed MSA document, Regional Handbook or QDairy Manual.
Contents of the Lactalis boilerplate documents
20 The boilerplate MSA documents published on Lactalis’s website from 17 June 2020 and the boilerplate MSA documents published from or around September 2020 contained, inter alia, the following clauses:
(a) at Schedule 1:
Background
…
Therefore the Lactalis milk supply offers 3 separate but related documents;
1. The Milk Supply Agreement
2. The Milk Supply Handbook relevant to that dairy/Milk Payment region
3. The Quality Assurance Scheme applicable to that region
(b) at Schedule 6 clause 1.1:
Material Breach means
(a) a breach of any of the following Handbook and QDairy provisions (and subsections)
…
(iii) Processor Reputation (Handbook clause 6)
(c) at Schedule 6 clause 13.1:
13.1 Entire Agreement
This agreement together with the Handbook contains the entire agreement between the parties in relation to the subject matter of this Agreement and supersedes any prior agreement or understanding between the parties in relation to that subject matter.
(d) at Schedule 6 clause 10.1:
10.1 Termination rights
Either party may terminate this Agreement
(a) if the other party commits a Material Breach of this Agreement and, in the case of a Material Breach capable of remedy, fails to remedy the Material Breach within 14 days (or any longer period agreed between the parties) after the receipt of a written notice by the party not in default, giving full particulars of the Material Breach and requiring it to be remedied;
(b) immediately in the event that the other party (if an individual) is declared bankrupt;
(c) immediately in the event that the other party (if a corporation) enters into liquidation or any other form of external administration;
and the terminating party must give to the other party, as soon as practical after the terminating party terminates the agreement:
(a) written notice of:
(i) the termination;
(ii) the reason for termination; and
(iii) the day the termination takes effect.
21 The five editions of the Regional Handbooks published on Lactalis’s website on 17 June 2020 contained the following clause:
6. Processor Reputation
Lactalis reserves the right to suspend or terminate supply where in the opinion of Lactalis, the supplier has engaged in public denigration of processors, key customers or other stakeholders.
22 On 384 occasions during the period from 1 January 2020 to 14 January 2021, Lactalis entered into MSAs with farmers which contained the clauses outlined in paragraphs 20 and 21 above.
23 On 7 occasions during the period from 1 January 2020 to 14 January 2021, Lactalis entered into MSAs with farmers (being Farms 5130, 5150, 5234, 5350, 5354, 5538 and 6925) which contained the clauses outlined in paragraph 20 above but did not contain the clause outlined in paragraph 21 above.
Issues for consideration
24 The issues requiring consideration in this matter are appropriately categorised by reference to the ACCC’s four distinct allegations referred to above. They are discussed in that order in these reasons.
25 However, before turning to them, it should be observed that several issues raised between the parties involved the consideration and interpretation of certain words or expressions which are undefined in the Dairy Code. That code, being a suite of regulations, is to be construed in the same manner as a statute: Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389 at 398; Legislation Act 2003 (Cth) s 13(1). Accordingly, weight must be given to matters of text, context and purpose: see Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs v Moorcroft (2021) 95 ALJR 557, 562 at [15]; Australian Securities and Investments Commission v King (2020) 270 CLR 1, 15 at [24] (Kiefel CJ, Gageler and Keane JJ). Moreover, the approach to the proper construction of such words or expressions must not be divorced from the text of the Dairy Code itself. The High Court has repeatedly stated that words of a statute should be interpreted according to their natural and ordinary meaning, in light of the context and purpose: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, 384 at [78] (McHugh, Gummow, Kirby and Hayne JJ). As stated by Kiefel CJ, Nettle and Gordon JJ in SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362, 368 at [14]:
The starting point for the ascertainment of the meaning of a statutory provision is the text of the statute whilst, at the same time, regard is had to its context and purpose. Context should be regarded at this first stage and not at some later stage and it should be regarded in its widest sense. This is not to deny the importance of the natural and ordinary meaning of a word, namely how it is ordinarily understood in discourse, to the process of construction. Considerations of context and purpose simply recognise that, understood in its statutory, historical or other context, some other meaning of a word may be suggested, and so too, if its ordinary meaning is not consistent with the statutory purpose, that meaning must be rejected.
(Footnotes omitted).
26 In Certain Lloyd’s Underwriters v Cross (2012) 248 CLR 378, 389 at [24] – [25], French CJ and Hayne J further explained the importance of context and purpose in the interpretive exercise in the following terms:
The context and purpose of a provision are important to its proper construction because, as the plurality said in Project Blue Sky Inc v Australian Broadcasting Authority, “[t]he primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute” (emphasis added). That is, statutory construction requires deciding what is the legal meaning of the relevant provision “by reference to the language of the instrument viewed as a whole”, and “the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed”.
Determination of the purpose of a statute or of particular provisions in a statute may be based upon an express statement of purpose in the statute itself, inference from its text and structure and, where appropriate, reference to extrinsic materials. The purpose of a statute resides in its text and structure. Determination of a statutory purpose neither permits nor requires some search for what those who promoted or passed the legislation may have had in mind when it was enacted. It is important in this respect, as in others, to recognise that to speak of legislative “intention” is to use a metaphor. Use of that metaphor must not mislead. “[T]he duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have”…
(Footnotes omitted).
27 It is also uncontroversial that regard may be had to legislative history and extrinsic material to interpret legislation. As recently stated by Thawley J in Commissioner of Taxation v Auctus Resources Pty Ltd (2021) 284 FCR 294, 308 at [53] (McKerracher J and Davies J agreeing):
The task of statutory construction must begin and end with a consideration of the text itself and the provision is to be construed in its context which includes legislative history and extrinsic material.
(Citations omitted).
28 As is not uncommon with modern legislation, there is no need in this case to assay the provisions of the Dairy Code in order to devine its purpose or the mischiefs it was intended to overcome. Section 7 of the Dairy Code provides that, for the purposes of section 51AE of the Competition and Consumer Act, the Dairy Code (Division 2) is (a) prescribed for the purposes of Part IVB of the Act; and (b) is declared to be a mandatory industry code. Being a mandatory industry code, it sets minimum standards of conduct for participants in the industry towards other participants or consumers in the industry where a problem such as a market failure has been identified: Dairy Code, Explanatory Statement, Purpose (paragraph 1) and Background (paragraph 1). In relation to the dairy industry, those identifiable market failures are said to “have arisen from the structure of the dairy industry and the terms of contracts offered by processors to farmers”, and include:
(a) an imbalance in bargaining power between dairy farmers and processors;
(b) some standard industry practices deterring farmers from responding to market signals; and
(c) unfairness of some standard industry practices and unreasonable transfer of risk to farmers.
29 A contravention of the Dairy Code may subject Lactalis to the imposition of civil penalties. Accordingly, the principles of construction relating to legislative provisions which give rise to potential civil penalties assume importance in these proceedings. These principles may be aptly stated as follows. Firstly, the imposition of a civil penalty should be “certain and its reach ascertainable by those who are subject to it”: Construction, Forestry, Mining & Energy Union v Mammoet Australia Pty Ltd (2013) 248 CLR 619, 634 – 635 at [48]. Second, the Court should presumptively avoid a construction which imposes a requirement “which may prove to be impossible or impracticable” to comply with: Uelese v Minister for Immigration and Border Protection (2015) 256 CLR 203, 232 at [100]. Third, the Court should presumptively avoid a construction “which appears irrational or unjust”: Legal Services Board v Gillespie-Jones (2013) 249 CLR 493, 509 at [48]. Fourth, the Court should presumptively avoid a construction which creates a test that “can be applied only with difficulty”: The Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal (2012) 246 CLR 379, 416 – 417 at [92] – [93].
Were Milk Supply Agreements published by Lactalis on its website by 1 June 2020?
30 The ACCC’s first allegation is that during the period from 1 June 2020 until at least 17 June 2020, Lactalis failed to publish standard form MSAs on its website at or before the publication deadline (being 2.00pm on 1 June 2020), and that this constituted a breach of s 12(2) of the Dairy Code. The ACCC alleged that although Lactalis published certain information on its website about its MSAs, in order to obtain a copy of any of the agreements, Lactalis required persons, including farmers, to complete and then submit a form on Lactalis’s website, after which a standard form MSA would be emailed to that person. This, so the ACCC alleged, had the result that Lactalis had failed to “publish on its website” its standard form MSAs. Lactalis contended that its facilities for the provision of MSAs had the consequence that it had not contravened this publishing requirement during the period alleged. It is not alleged by the ACCC that any contravention continued after 17 June 2020, at which point the standard form MSAs became “visible on Lactalis’s website”.
Relevant Dairy Code provisions
31 Subdivision B of Division 2 of the Dairy Code imposes publication requirements on a processor in relation to standard form MSAs into which it is prepared to enter for the following financial year. Section 12 of the Dairy Code relevantly provides:
12 Requirement to publish standard forms of agreements each 1 June
Publication deadline
(1) This section applies in relation to a corporation that, at 2 pm (by legal time in the Australian Capital Territory) on 1 June in a financial year (the publication deadline):
(a) is a processor; and
(b) intends to purchase milk during the next financial year.
Requirement to publish standard forms of agreements
(2) The processor must, at or before the publication deadline, publish on its website in accordance with subsections (3) to (5):
(a) one or more standard forms of milk supply agreements; and
(b) for each standard form the processor publishes under paragraph (a)—a statement of the circumstances in which the processor would enter into a milk supply agreement in that form.
Note: The circumstances may, for example, relate to:
(a) the region in which the supply occurs; or
(b) the quantity of milk to be supplied; or
(c) the supply period; or
(d) whether the processor has already entered into sufficient milk supply agreements to meet the processor’s demand for milk.
Civil penalty: 300 penalty units.
(3) The processor must publish as many standard forms and statements under subsection (2) as are necessary to ensure that the published statements cover the circumstances in which the processor intends to purchase milk in the financial year mentioned in paragraph (1)(b).
(4) Each standard form published under paragraph (2)(a) must be a standard form of a milk supply agreement that:
(a) has a supply period starting during the financial year mentioned in paragraph (1)(b); and
(b) provides for a cooling-off period of 14 days; and
(c) subject to subsection (5), is a non-exclusive supply agreement.
(5) If, in particular circumstances to which subsection (3) applies, the processor would enter into an exclusive supply agreement, the processor must publish under subsection (2):
(a) a standard form of an exclusive supply agreement the processor would enter into in those particular circumstances; and
(b) a standard form of a non-exclusive supply agreement the processor would enter into in those particular circumstances.
(6) The processor must not, after the publication deadline and before the end of the financial year mentioned in paragraph (1)(b), vary or remove from its website a standard form or statement published under subsection (2).
Civil penalty: 300 penalty units.
…
32 Section 12 required publication on the processor’s website of “one or more standard forms of milk supply agreements” and “for each standard form the processor publishes under paragraph (a) – a statement of the circumstances in which the processor would enter into a milk supply agreement in that form”: s 12(1)(a) and (b). The explanatory note to s 12(1) identifies that the circumstances referred to in s 12(2)(b) may, for example, relate to the “region in which the supply occurs”.
33 The requirements of s 12 ensure that:
(a) processors publish on their website standard form MSAs before the publication date;
(b) processors publish standard form non-exclusive MSAs as well as exclusive MSAs; and
(c) that farmers are made aware of the circumstances in which a processor would enter into any particular standard form MSA.
It is difficult to avoid the conclusion that the object or purpose sought to be achieved is that, within an appropriate time prior to the commencement of the forthcoming financial year, farmers would be able to access and compare the MSAs which the processors to whom they might supply would be prepared to enter into. This enables the farmer to make a fully informed choice as to which of the available MSAs would best suit their circumstances.
34 It was undisputed between the parties that at the publication deadline of 1 June 2020, Lactalis was a processor who intended to purchase milk during the next financial year and, as such, was subject to the obligations in s 12 of the Dairy Code.
The meaning of the expression “publish on its website”
35 The parties disputed the proper meaning of the expression, “publish on its website”. The word “publish” is not defined and should be accorded its natural and ordinary meaning. In that respect, Lactalis referred to the following ordinary senses of the word which were adopted by the Western Australian Court of Appeal in Re Section 46L of the Criminal Appeals Act 2004 (WA); ex parte Commissioner of Police (2020) 56 WAR 209, 239 – 240 at [161] – [174]:
(a) “[t]o make public”: Oxford English Dictionary;
(b) “[t]o make public or generally known; to declare or report openly or publicly; to announce …”: Oxford English Dictionary;
(c) “[t]o make generally accessible or available for acceptance or use (a work of art, information, etc.); to present to or before the public; spec. to make public (news, research findings, etc.) through the medium of print or the internet”;
(d) “to make publicly or generally known”: Macquarie Dictionary.
36 There is no reason to doubt that these are the ordinary meanings of the word with the consequence that s 12(2) required Lactalis’s standard form MSAs to be publicly available on its website. That did not occur. In no sense could it be said that the MSAs were published “on its website” in the period 1 June 2020 to 17 June 2020. It would strain the ordinary meaning or meanings of the word “publish” were it to include circumstances where the text of the MSA did not actually appear on the processor’s website but rather, after providing certain information, the farmer might receive a copy of the agreement via email. Lactalis’s standard form MSAs could not be said to be made public or generally known “on its website”. The expression used in s 12(2) is a composite one which requires that the standard form MSA is published and that publication must take place on the processor’s website. Lactalis’s submission sought to conflate the publishing on its website information about how to obtain a copy of the relevant MSA, with the statutory requirement. The two are not equivalent. Although it would seem that a farmer who visited Lactalis’s website might engage in a process whereby they would be sent a copy of an MSA, that is far from the website being the means of publication.
37 It is important to keep in mind that the processor is obliged under s 12(2) to take the requisite action “at or before the publication deadline”. That requirement is either satisfied at the relevant time or it is not. An ability, or mechanism allowing for a processor to distribute a copy of an MSA via email to a farmer, does not obviate compliance with this strict requirement. The matter can be tested by ascertaining whether, immediately after the deadline had expired, any publication of the MSA on Lactalis’s website has occurred. Necessarily, the answer is in the negative. Publication will only occur once a farmer, who has supplied relevant information, is sent an email containing the MSA and that email is received. The processor’s conduct in sending a copy of the MSA does not satisfy the publication obligation in s 12(2).
38 There is no “defence”, as such, provided by the Dairy Code. Despite the substantial submissions received on this topic, the meaning of the words of s 12(2) are relatively clear. The only method by which a processor might satisfy the requirements of s 12(2) is to publish the MSAs by making them readily available to the public on their website as and from the required date and time.
39 The Explanatory Statement to the Dairy Code supports a construction that is consistent with the meaning of the word “publish” as set out above. It provides (at 6-7):
Section 12 – Requirement to publish standard forms of agreements each 1 June
This section requires that by 2pm by legal time in the Australian Capital Territory (ACT) on 1 June in a financial year corporations that are processors and intend to purchase milk during the next financial year publish one or more standard forms of milk supply agreement (SFA) that the processor is willing to enter into, on their website. The requirement that this be done by 2pm ACT time effectively means by 2pm Australian Eastern Standard Time. To be clear, the intention is that processors’ SFAs are available publicly.
Requiring processors to publish one or more SFAs on a set date each year improves the farmers’ ability to compare prices and conditions across processors.
…
(Emphasis added).
This passage, which articulates the obvious purpose of s 12(2), also emphasises the important temporal aspect of the requirement. The publication of the standard form MSAs must occur as at a particular time. As at 2.00pm on 1 June 2020 it was not possible to ascertain the terms of Lactalis’s MSAs by reference to its website. In order for the terms of those agreements to be known, it was necessary to complete the form provided and await the receipt of Lactalis’s email.
The ACCC’s submissions
40 The gravamen of the ACCC’s complaint was that from 1 June 2020 until 17 June 2020, Lactalis did not publish any standard form MSAs on its website because, in order to obtain the standard form MSAs persons, including farmers, were required to submit a form on Lactalis’s website after which a standard form MSA would be emailed to them. Its submission, which should be accepted, is that the provision of a facility by which an MSA would be made available via email did not fall within the plain meaning of the words “publish on its website”. Put another way, the substance of what was published on the website was information as to how one might obtain a copy of an MSA, but that publication of the MSAs did not occur on the website.
41 According to the ACCC’s submissions, it was critical that the word “publish” be read with the remaining words of s 12(2), which requires the processor to publish “on its website”. General publication, in the sense of making the standard form MSAs available in some way to third parties, was said to be insufficient. It further submitted that compliance with s 12 required that the standard form MSAs be publicly available on Lactalis’s website, rather than being made available upon request through a portal by a person who has provided certain details, after which a copy would be sent by email. It should be mentioned that Lactalis disputed the assertion that the details were required to be entered into a “portal” but, instead, asserted that a farmer was required to access a link named “Milk Supply Agreements” which then took them to a web page where their details could be entered. As is apparent from the previous discussion, it is irrelevant whether the version advanced by the ACCC or Lactalis as to what was required by a farmer to obtain an MSA from Lactalis is accepted. In neither scenario are the MSAs published on the website.
42 The ACCC also submitted that Lactalis’s practice did not align with the purpose of the publication requirements under the Dairy Code, being to ensure that farmers have full and free access to information from all processors at the same point in time such that they may make an informed and timely decision as to the benefits of contracting with particular processors. In oral submissions, Ms Forsyth QC referred to the fact that a farmer had to input certain information, including personal details and information about their farm, and noted that this provided a disincentive to farmers. So the submission went, this enabled Lactalis to create (and store) an electronic history of accessing and delivery of the relevant MSA applicable to a region. It followed that even though there was no restriction on who could receive the MSAs by email, it was not “free, unrestricted access in the true sense, because it does come at the cost of providing personal information, including your identity, names of suppliers and other bits and pieces”. With respect, this submission seeks to give s 12(2) a wider reach than its words will permit. The requirement is that the MSAs be published and that occur on the processor’s website. As it has been concluded that Lactalis’s processes did not satisfy that, it need not be decided whether a processor might require steps to be taken to access the information. Nevertheless, it might be observed that unless it is suggested that compliance with s 12(2) can only occur if the terms of a processor’s MSAs are set out on the homepage of their website, which is not correct, it may not necessarily be discordant with the requirements of s 12(2) for a processor to require a farmer to take some steps before viewing the MSAs which exist on their website. That may be as simple as clicking on an icon or link which will immediately disclose the text of the MSAs. However, it might equally be that a link to a further page must be accessed and, on the page to which the reader is taken, they are to select other links to expose the relevant agreement. Likewise, if the MSAs are on the website and open to anyone to peruse, it cannot matter that the provision of information is required before the terms are revealed. There is no requirement in s 12(2) that access to the information on the website be wholly unrestricted in the sense that there can be no additional steps required to view it. So long as any required steps are not such as to have the result that publication does not occur, there is a strong argument that s 12(2) does not prevent the processor requesting information before a reader can access the text of the MSAs.
43 In this case it cannot be said that the publication has been prevented by Lactalis requiring the provision of information. As Mr Hodge QC submitted, one did not have to enter “true information” but could simply just enter any information. In that regard, paragraph [30] of the affidavit of Mr Houlihan referred to a copy of a compiled list of 195 emails which were sent following requests for copies of MSAs via Lactalis’s website. That list illustrated that it was possible for users to provide information which was false such as entering “Live Test” in the name field. In this respect, there would have been a publication by Lactalis if, after providing the information requested, the terms of the MSAs were available to be viewed on the website.
Submissions by Lactalis
44 Lactalis submitted that, on its proper construction, all that s 12(2) of the Dairy Code required was that a processor make its MSAs publicly available on the website. This, so it was said, reflected the applicable ordinary meanings of the word “publish” as identified in the definitions referred to above. It contended that s 12(2) does not specify any precise form of publishing. That is, there was no statutory direction which obliged processors to adopt any particular method of dissemination on the website such as ensuring that an MSA is available in a pdf format, or that it is visible either in html or some other format on the front page of the website. It submitted that the essential requirement was “public availability or accessibility, irrespective of the precise form”.
45 Lactalis also submitted that it published its MSAs in accordance with the requirements of the Dairy Code in the following manner, as was set out at paragraph [27] of Mr Houlihan’s affidavit:
(a) Any person could access the front page of Lactalis’s website located at www.lactalis.com.au.
(b) From there, the person could access a link named ‘Milk Supply Agreements’ which linked them to a web page.
(c) Once on that web page, the person was asked to input the following information:
(i) Name;
(ii) State of residence; and
(iii) Email address.
(d) After that information was entered, the relevant MSA (based on the relevant region), including the milk supply agreement, Regional Handbook and QDairy Manual, were automatically and immediately sent to the email address provided.
46 Contrary to the ACCC’s allegation in its Amended Concise Statement, Lactalis submitted that this did not amount to requiring persons to “submit a form on Lactalis’ website”.
47 Lactalis further submitted that it distributed agreements in this way to ensure that farmers received the documents which are applicable to them and their circumstances, and that this was important as there were different health and safety requirements as between the different regions. This had the further advantage of creating an electronic history of accessing and delivering the relevant milk supply agreement applicable to a region. Although it may be correct that Lactalis’s process resulted in an orderly distribution of its MSAs, that is irrelevant to whether the requirements of s 12(2) were satisfied.
48 Lactalis also submitted that any person could access the agreements via the website, that such access was “instantaneous”, and that there was no restriction on who could access them. This somewhat overstates the position. “Instantaneous”, means that something was done instantly, whereas the mechanism implemented by Lactalis required a farmer to input the requisite personal and commercial information at an antecedent stage before subsequently receiving an email with a copy of the MSA. It could hardly be said this mechanism offered instantaneous access to farmers of the MSAs. Similarly, even though access to the MSAs was unrestricted, that does not address the question of whether they were “published on its website”.
49 In Lactalis’s submission the mechanism provided for via its website was wholly consistent with the objects of s 12(2) given that farmers were able, with ease, to obtain a copy of the relevant terms. This mechanism, so it was said, was more consistent with the objects of the Dairy Code than other potential mechanisms for publication. To this it was added that by emailing the documents directly to farmers, Lactalis ensured that farmers were provided with the MSAs and associated documents relevant to them and their circumstances. For this submission to be accepted, the sending of an email with a copy of an MSA would have to equate with the concept of “publish on its website”. Clearly, the two concepts are different and this submission, along with other permutations of it which were advanced by Lactalis, are flawed for that reason.
50 Lactalis also attempted to highlight the alleged meaninglessness of the distinctions drawn by the ACCC. For example, it posed this question in its submissions, “if it is publication to click a link on the website and have a pdf file downloaded to a person’s computer, why is it not publication to click a link and have the pdf file emailed to a person?”. It then submitted that “what must be done on the website is publishing i.e., the provision of public access. Public access is provided where all the tools for any member of the public to access the agreement are supplied on the website and are made available. That occurred here.”. However, again that submission conflates the concept of “publication” of information with that of the provision of directions to a person to equip them with the knowledge of how to access that information. Whilst Lactalis’s conduct amounted to the latter, it did not equate to the former.
51 Finally, Lactalis rightly took issue with the ACCC citing its own guidance documents published after the commencement of the Dairy Code, to support its proffered construction of the publication requirement in s 12(2). It submitted that it was irrelevant that the ACCC had made a public statement about its interpretation of this requirement. That submission should be accepted. It is unnecessary to consider the content of the guidance issued by the ACCC, and the conclusions reached in these reasons have had no regard to it. Likewise, the ACCC’s submission based on a letter from the ACCC of 14 May 2020 recommending that Lactalis take a particular course lacks relevance and has no bearing whatsoever on the construction question.
Evidence relied on by the ACCC
52 The ACCC relied on affidavit evidence of two of its employees, namely Mr Hedge and Ms Vaughan (who swore two affidavits dated 8 April 2022 and 12 April 2022 respectively) to establish that Lactalis contravened s 12(2) of the Dairy Code. Mr Hedge deposed that at around 2.00pm (AEST) on 1 June 2020, he visited Lactalis’s website and found that no standard form MSAs were displayed on the webpages he visited, nor did any webpage contain any links that would open the standard form MSAs. Instead, in order to obtain the standard form MSAs, Lactalis required persons to (a) complete a web form; (b) indicate whether they were a current Lactalis milk supplier, milk supplier to another company, or a member of the public; (c) provide their contact details; and (d) select the region for which they wished to receive documentation. Relevant documentation, including a standard form MSA, was then emailed to the person at the email address provided.
53 Ms Vaughan’s affidavit provided evidence of what occurred were one to indicate on Lactalis’s website that they were a supplier to another company. Her affidavit annexed various screenshots which disclosed questions such as the following: “Are you currently contracted for the 2021 year, yes or no? If so, with which companies?”. This required the farmer to disclose to whom they were supplying, provide details of the numbers of cows, annual milk volumes, as well as their personal details. Ms Forsyth QC rightly submitted that this was significant commercial information that a farmer was seemingly to disclose before they obtained a copy of an MSA.
54 The evidence of Mr Hedge and Ms Vaughan was unchallenged and ought to be accepted. It clearly establishes that from 1 June 2020 until 17 June 2020, Lactalis did not publish any standard form MSAs on its website with the result that it contravened s 12(2) of the Dairy Code. The contraventions were not rectified until 17 June 2020, when as evident from Mr Houlihan’s affidavit, standard form MSAs became “visible on Lactalis’s website”.
Lactalis’s failure to publish on the website
55 It follows that the ACCC has established Lactalis’s contraventions of s 12(2) of the Dairy Code. The clear language of s 12(2) required publication of the MSAs on its website at or before the publication deadline of 2.00pm on 1 June 2020. For the reasons stated above, Lactalis did not comply with this publishing requirement during the period 1 June 2020 to 17 June 2020. The construction put forward by Lactalis about the proper meaning of “publish on its website” cannot be maintained and it is irrelevant to the question of contravention that the mechanism provided by it for those 17 days may have had a similar result to providing a link where one could download an MSA to their computer.
Did Lactalis publish a non-exclusive MSA?
56 The ACCC’s second major allegation was that Lactalis failed to publish a standard form non-exclusive MSA in circumstances where s 12(5) of the Dairy Code required it to publish both exclusive and non-exclusive MSAs. The ACCC asserted that although Lactalis purported to publish the terms of a non-exclusive MSA into which it was prepared to enter, the substance of that agreement had the effect that it did not permit the producer to sell milk to another processor, with the consequence that the agreement was, in fact, an exclusive MSA. The ACCC contended that Lactalis’s contraventions in this respect occurred during the period 1 June 2020 until at least 23 July 2021, being the date of its Originating Application.
57 It was not disputed that Lactalis’s purported non-exclusive MSA required a farmer to supply Lactalis with a monthly minimum volume (MMV) which was defined as 90% of the prior financial year’s monthly farm supply or, where a farmer’s monthly production was less than the previous financial year, 90% of the current year’s monthly total farm supply (the MMV requirement). The ACCC submitted that as other processors would have no interest in contracting with a farmer to acquire the remaining 10% of their supply, the MMV requirement had the practical effect of “prohibiting” farmers from supplying milk to another processor. As such, the purported non-exclusive MSA was, effectively, an exclusive supply agreement.
58 Lactalis submitted that as its non-exclusive MSAs did not, by their terms, prohibit supply to another processor they could not be regarded as being “exclusive MSAs”. They were, therefore, non-exclusive and for the relevant period it complied with s 12(5) by causing the agreement to be publicised. However, given the findings in relation to the first issue, that submission could only be good, if at all, from 17 June 2020.
Relevant Dairy Code provisions
59 Although referred to above it is convenient to again set out the terms of s 12(3) and (5) of the Dairy Code. They provided as follows:
(3) The processor must publish as many standard forms and statements under subsection (2) as are necessary to ensure that the published statements cover the circumstances in which the processor intends to purchase milk in the financial year mentioned in paragraph (1)(b).
…
(5) If, in particular circumstances to which subsection (3) applies, the processor would enter into an exclusive supply agreement, the processor must publish under subsection (2):
(a) a standard form of an exclusive supply agreement the processor would enter into in those particular circumstances; and
(b) a standard form of a non-exclusive supply agreement the processor would enter into in those particular circumstances.
60 The effect of these sections was that in the relevant period Lactalis was required to publish both exclusive and non-exclusive standard form MSAs on its website. So much was not in dispute.
61 The concept of a “non-exclusive supply agreement” is defined in s 5 of the Dairy Code to mean “a milk supply agreement that is not an exclusive supply agreement”. An “exclusive supply agreement” is defined (s 5) to mean “a milk supply agreement between a farmer and a processor that prohibits the farmer supplying milk to another processor”.
The meaning of “prohibit”
62 Central to whether Lactalis failed to comply with s 12(5) is the meaning of the word, “prohibit” as it appears in the definition of “exclusive supply agreement”. It is not defined in either the Dairy Code, the Competition and Consumer Act, or in the Australian Consumer Law.
63 In the course of its submissions Lactalis referred to the following dictionary definitions of the word “prohibit”:
(a) to forbid (an action, a thing) by authority: Macquarie Dictionary;
(b) to forbid (an action, event, commodity, etc.) by a command, statute, law, or other authority; to interdict: Oxford English Dictionary.
64 Conversely, the ACCC referred to the following definitions from the Oxford English Dictionary (3rd ed., 2010):
(a) formally forbid someone from doing something; or
(b) (of a fact or situation) make (something) impossible; prevent.
65 It then submitted that the term “prohibit” as used in the definition of “exclusive supply agreement” should be read consistently with the latter, broader definition rather than the former, narrower one. The former, and those relied upon by Lactalis, include the element of an express proscriptive command by the document in question in the sense that there is a direction, order or requirement that the conduct in question not occur. The latter definition would include circumstances where, although there is no express restraint or proscription, compliance with the terms of the agreement render it practically impossible for a person to engage in the conduct. In reliance on the broader definition, the ACCC here submitted that the MMV requirement of the purported non-exclusive MSA that the farmer supply a minimum of 90% of its production to Lactalis amounted to an effective prohibition on supplying to other processors because it is not commercially viable for most farmers to supply 10% or less of their production volume to any other processor. It further submitted that a construction of the word “prohibits”, which includes prevention as a practical consequence of complying with the MSA’s terms, was consistent with the purposes of the Dairy Code, to, inter alia, address the imbalance in bargaining power between dairy farmers and processors, although how that purpose would be achieved by such construction was not explained in any detail.
66 In support of the broader definition, the ACCC also referred to various authorities, albeit ones which considered the power to make regulations to prohibit activities. In particular, reference was made to Country Roads Board v Neale Ads Pty Ltd (1930) 43 CLR 126, 134 – 135 where Knox CJ, Starke and Dixon JJ held that the power to make bylaws prohibiting conduct did not require entire and unconditional suppression to be valid, but that the relevant authority could prohibit such conduct completely or partially, conditionally or unconditionally. The ACCC also submitted that even where a prohibition is qualified (for example, where consent is capable of circumventing a prohibition), a restriction on certain conduct such as the use of land, has been held to “prohibit” that use: Lennard v Jessica Estates Pty Ltd (2008) 71 NSWLR 306, 312 at [27] (Tobias JA, McColl and Bell JJA agreeing). These authorities do not, however, address the issue at hand. As Lactalis submitted, the principle for which they stand is that a power to enact regulations prohibiting activities includes the power to prohibit all activities or some only. They do not stand for some overarching proposition that the term “prohibit” means practically deter. Indeed, they tend to support the construction of the word “prohibit” as involving the forbidding of the act or acts in question by a direction to that effect.
67 In the context of s 12(5) of the Dairy Code and the definitions of “exclusive supply agreement” and “non-exclusive supply agreement” the term, “prohibit”, refers to and means the “legal effect” of the agreement as opposed to its “practical effect” on most farmers. Lactalis advanced several substantive submissions which highlighted the flaws in the contrary construction. Firstly, a construction which favours the practical effect of an agreement is inherently uncertain and the answer to whether any contravention occurred would depend on the circumstances of the market and of the particular dairy farmers. As referred to earlier, achieving “certainty” in the construction of the Dairy Code’s provisions is important given that a contravention may result in the imposition of civil penalties. Courts can legitimately adopt a strict construction of a provision in such circumstances. This approach was applied in Australian Competition and Consumer Commission v Yazaki (2018) 262 FCR 243, 263 [67] – [68] where the Court (Allsop CJ, Middleton and Robertson JJ) said:
67 If there is a true ambiguity, the Court may resolve that ambiguity in favour of a respondent. In relation to criminal offences, Gibbs J (as he then was) in Beckwith v The Queen (1976) 135 CLR 569 at 576 stated:
The rule formerly accepted, that statutes creating offences are to be strictly construed, has lost much of its importance in modern times. In determining the meaning of a penal statute the ordinary rules of construction must be applied, but if the language of the statute remains ambiguous or doubtful the ambiguity or doubt may be resolved in favour of the subject by refusing to extend the category of criminal offences … The rule is perhaps one of last resort. …
68 This statement has been endorsed by the High Court in Deming No 456 Pty Ltd v Brisbane Unit Development Corporation Pty Ltd (1983) 155 CLR 129 at 145; and Waugh v Kippen (1986) 160 CLR 156 at 164. These principles equally apply to civil penalty provisions: see Trade Practices Commission v TNT Management Pty Ltd (1985) 6 FCR 1 at 47-48 and Rich v Australian Securities and Investments Commission (2004) 220 CLR 129.
68 Second, the generality and vagueness of the proposition that one looks to the impact of an agreement on “most farmers” is problematic in that, in seeking to ascertain whether the requirement has been met, it would not be clear which farmers in each particular region are to be considered. There would be many factors which might influence the viability of a farmer supplying to a second processor. They would include, amongst other things, the size of the dairy, its proximity to the processor, and the availability of supply from surrounding farms. Third, the concept of “practical effect” is neither expressly nor impliedly found within the term “prohibit” as is used within the Dairy Code. It is an expression of broad connotation and one which is not easily objectively ascertained. Whether a farmer is practically prevented from supplying 10% of their milk to another processor may depend upon an individual farmer’s perceptions of the costs and benefits of doing so. Fourth, there is also support within other sections of the Dairy Code which indicate that the term “prohibited” is intended to apply to legal prohibitions rather than practical effects. Reference was made to s 42(2)(b) where the word is used in relation to “other conditions prohibited by section 15” in which the word prohibited is used as meaning the existence of an express direct restriction on the relevant activity. Lactalis also referred to the headings to ss 27 and 28 each of which used the word “prohibited” in the same sense.
69 The foregoing submissions of Lactalis should be accepted. The more common meaning of the word “prohibit” is concerned with the prevention of something by command pursuant to some authority. In the context of the definition of the expression an “exclusive supply agreement” the prohibition is to be derived from the MSA and, it might be expected, from the terms of that agreement. Were it intended that the definition would extend to an agreement that had the economic effect of preventing a farmer from supplying milk to another processor, it would have been relatively easy for that to be expressly stated. Moreover, it would be unusual to construe a provision, the contravention of which might result in the imposition of civil penalties, in a way which would lead to great uncertainty in its application. It would be almost impossible for a processor to ascertain in advance whether any requirement in its MSA would have the consequence of preventing “most farmers”, either generally or in a specific area, from entering into supply agreements with other processors.
70 In the course of the hearing it was submitted by the ACCC that the fact that Lactalis has subsequently amended its pro forma agreement to allow farmers to nominate a non-exclusive option without the 90% requirement, is indicative that its construction is correct and Lactalis’s actions are an effective admission that its non-exclusive MSAs did not meet the statutory definition. With great respect, that submission is not sustainable. Lactalis’s actions neither assist nor have any relevance to the purely interpretative exercise required to be undertaken. Certainly, they do not amount to a tacit admission as to the correct construction of the Dairy Code.
71 It follows that Lactalis did not contravene s 12(5) of the Dairy Code as alleged. At least in the period from 17 June 2020 it complied with the requirement to publish a non-exclusive MSA, being one which did not prohibit supply to another processor.
Did the Lactalis Milk Supply Agreement effectively prohibit the supply to other processors?
72 In light of the above it is strictly unnecessary to consider whether Lactalis’s non-exclusive MSAs effectively prevented farmers supplying to other processors. However, the ACCC adduced significant evidence in relation to this issue and it is appropriate to address it to some extent. In particular, some observations should be made concerning the expert evidence of Mr Mulvany which was adduced by the ACCC. The intent of Mr Mulvany’s report was to establish that the majority of farmers who supplied to Lactalis could not economically enter into a supply agreement with another processor for the supply of 10% of their product.
The Reports of Mr Mulvany
73 The ACCC relied on Mr Mulvany’s reports dated 11 November 2021 and 10 March 2022. The letter of instruction to him in relation to his initial report had sought his opinion in relation to two questions. The first was circulated in the following terms: “Does the 90% MMV requirement, contained in Lactalis’s non-exclusive MSA, have the practical effect of preventing a farmer from supplying milk to another processor?”. The second was: “In answering question one, if you are of the opinion that certain farmers (or a certain proportion of farmers) would be able to supply 10% of their monthly volume to another processor, please specify the circumstances in which they could do so and the reasons for your opinion”. For the reasons which will become apparent, it is unnecessary to consider his opinion in relation to the second question.
74 It is clear from his reports that Mr Mulvany had access to substantial amounts of Lactalis’s data and his initial report was based on an estimate that there were 419 farms throughout Australia which had continuously supplied milk to Lactalis from January 2020 to January 2021.
75 In relation to the first question, Mr Mulvany concluded that the defined MMV requirement effectively prevented a farmer from supplying another processor with the remaining 10% when that residual volume was below the minimum commercial annual supply volume. He asserted that those minimum commercial supply volumes were 30,000 litres per month (being 10% of a total annual farm production of 3.6 million litres) for the Queensland and the Northern Territory regions, and 50,000 litres per month (being 10% of a total annual farm production of 6 million litres) in other regions. He opined that there were exceptions where the residual milk was collected and processed by a small “artisan” type processor such as a cheesemaker of which there are limited numbers. He added that the opportunity to supply to such processors is not available to the majority of dairy farmers due to their limited number and the low volumes required. He further opined that, based on the individual data for those 419 farm businesses which provided continuous milk supply to Lactalis in 2020, if all farmers were required to fulfil a 90% MMV non-exclusive MSA, only 6.3% (26 out of 419 farms) of them would have an acceptable minimum commercial supply volume of residual milk which might be sold to another processor.
Evidential objections to Mr Mulvany’s report
76 Lactalis took objection to Mr Mulvany’s report and it is appropriate to address the issues raised by that objection.
77 Section 76(1) of the Evidence Act 1995 (Cth) articulates the general exclusionary rule in relation to opinion evidence, being that “evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed”. The significant exception is contained in s 79(1) which provides that “if a person has specialised knowledge based on the person’s training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge”. Section 80 provides that evidence of an opinion is not inadmissible only because it is about (a) a fact in issue or an ultimate issue; or (b) a matter of common knowledge.
78 The conditions for admissibility of expert evidence are similar to those which apply at common law and are summarised in Cross on Evidence (10th edition) at [29200] as follows:
There must be a field of “specialised knowledge”.
There must be an identified aspect of that field in which, by reason of specified training, study or experience, the witness has become an expert.
The opinion proffered about the facts must be “wholly or substantially based on the witness’s expert knowledge”.
Accordingly, there must be evidence explaining both how the opinion stated is said to rest on the specialised knowledge of the witness and how the specialised knowledge is based, wholly or substantially, on the witness’ training, study or experience.
The majority view is that the expert must identify the assumptions of primary fact on which the opinion is offered (“the assumption identification rule”).
…
(Citations omitted).
79 There was no issue as to whether the economic viability of dairy farms and supply arrangements between farmers and processors constituted a field or fields of specialised knowledge. That industry is both a complex and volatile one, involving a range of production systems and processors with different processing demands depending on the end product. The manner in which aspects of the industry operate requires specialised knowledge based on training, study or experience, and it is not a topic on which a lay person might provide an opinion. It was not disputed that Mr Mulvany had the requisite training, study and experience to proffer his opinion. He has extensive experience and expertise in the area of dairy farming in all major dairy regions in Australia. His special area of expertise is the management and profitability of grazing enterprises, specifically dairy and beef. This involves a detailed knowledge of farming systems and factors that impact farming systems. He claimed that he prepared his reports based on his analysis of data including Lactalis’s standard form MSAs, “Non Exclusive Supply” MSAs entered into by Lactalis, 2020 milk volume data provided by Lactalis, as well as publicly available data from Dairy Australia.
The objections to Mr Mulvany’s report
80 There were initially several objections taken by Lactalis with respect to the admissibility of Mr Mulvany’s expert report of 11 November 2021. One was allowed with the consequence that a relatively minor statement in his report was excluded. The more general objection related to Mr Mulvany’s conclusions as to the minimum commercial supply volumes of 30,000 litres per month or 360,000 litres per year in Queensland and Northern New South Wales and 50,000 litres per month or 600,000 litres per year in other regions. The essence of the objection was that s 79 of the Evidence Act had not been satisfied because Mr Mulvany did not expose in his report the reasoning process by which he connected his conclusions to his area of expertise, or use of specialised knowledge. It was also faintly suggested that the admission of the report into evidence should be rejected by reason of the operation of s 135 of the Evidence Act on the ground that it would be unfair to admit it due to the author’s failure to expose his reasoning process. However, exclusion on the basis of the operation of s 135 was not pressed by Lactalis.
81 As Mr Hodge QC for Lactalis submitted, this general objection was important in the context of the hearing in that the alleged contravention of the non-exclusive agreement provision was dependent upon acceptance of Mr Mulvany’s evidence. If the objection had been allowed that issue could not have been pursued. Albeit with some hesitation, Lactalis’s objection taken at the commencement of the hearing was rejected and the report (with one minor matter excised) was admitted. In the course of submissions Mr Goodman for the ACCC convinced the Court that Mr Mulvany’s reasoning for his opinions as to the minimum commercial monthly supply volumes could be inferred or implied when the report was considered holistically. However, subsequently and in the course of Mr Mulvany’s cross-examination, it became apparent that Mr Goodman’s submissions as to how the opinions were supported by the report were incorrect. The cross-examination of Mr Mulvany on this issue was extensive, although that is not a criticism. It was undoubtedly effective and it established that Mr Mulvany was unable to justify his opinions as to the minimum commercial supply volumes by reference to the information in his report or, indeed, otherwise. The following matters are instructive:
(a) Mr Mulvany admitted that there was nothing in his report which supported the figure of 50,000 litres per month or 600,000 litres per year as the minimum commercial supply volume in regions other than Queensland and the Northern Territory. He said that “there is nowhere I can refer to that tells me a minimum commercial amount that a processor might be interested in”;
(b) He acknowledged that there were no benchmarks for the minimum commercial supply volumes and asserted that the figures were the result of his “feelings” as to what would be a commercially viable volume of supply;
(c) He also acknowledged that there was no data about any processor refusing to take milk from a farmer offering to supply less than the minimum commercial supply volumes he had identified;
(d) Mr Mulvany asserted that his opinions as to the minimum commercial supply volumes were based on his experience “of individual farms in the past with unnamed processors before the Dairy Code”. However, that assertion does not establish a basis for the opinions given and especially so because the Dairy Code altered the manner in which processors were to deal with farmers;
(e) Mr Mulvany was unable to identify any calculations or assumptions which would justify his opinion as to the minimum commercial supply volumes. He was taken through the relevant portion of his report page-by-page and was unable to point to any supporting material on which his conclusions were based;
(f) Mr Mulvany admitted that, on the figures supplied to him and replicated in Table 5 of his report, there were 29 farms in the sub-tropical region which supplied continuously to Lactalis in 2020 and which provided an annual supply of less than 360,000 litres per year. Although Mr Mulvany sought to explain this away as being related to existing long term suppliers that was mere speculation on his part;
(g) He also acknowledged that Table 5 in his report revealed that there were many farms supplying less than 500,000 litres per year in those areas where he had indicated that a minimum of 600,000 litres would be required. The data in that table was pivotal to Mr Mulvany’s opinions as to the minimum commercial supply volumes and in relation to it the following exchange occurred:
And do you agree with me that nothing in this table [Table 5 of the Report] is capable of supporting the proposition that the minimum commercial annual milk supply volume required by a processor is 360,000 litres per year in the subtropical region?---Correct.
And do you agree with me that nothing in this table is capable of supporting the proposition that the minimum commercial annual milk supply volume in all of the other regions is 600,000 litres per year?---Correct.
And then the remainder of the page – you will see there’s a paragraph where you say:
This data confirms the lowest volume of commercial milk that a processor such as Lactalis or similar would be interested in purchasing.
?---Yes.
That’s just wrong, isn’t it?---It – it gave me confidence in my levels of 360,000 and 600,000. It gave me confidence, and based on my experience with the industry, that data confirmed my initial thoughts because of the spread of suppliers and the reaction if I approached a processor with the quantities of milk I have described.
This data says nothing about what would happen if you approached the processor with the quantities of milk you have described?---No, but what I said was the data and my experience with dairy farmers and processors in the Australian dairy industry gave me confidence that if I did approach a processor I know full well that if I’m 360,000 litres and I’m in Queensland and northern New South Wales I’m at the lowest level of production in the supply base.
82 With great respect to Mr Mulvany, it is apparent that he was unable explain the reasoning process by which he connected his opinions as to the minimum commercial supply volumes to the application of his area of expertise or specialised knowledge. In order to do so he would have needed to identify the data or information to which he applied his expertise so as to form his opinion. Here, due to the absence of any underlying evidence for the opinions given, it was not possible to be satisfied that they were based on his specialised knowledge or expertise. The information in Table 5 undermined rather than supported his views and there was nothing else in his report which might have substantiated them. The result is that his opinions as to the minimum commercial supply volumes were unsupported and unexplained by the material in his report. At best, they were educated guesses, albeit not supported by any identified reasoning.
83 Apart from the foregoing, there were other difficulties with Mr Mulvany’s opinions as to the minimum commercial supply volumes. He had not examined any of the MSAs published by the processors for the 2020 – 2021 period to ascertain whether there were any minimum monthly supply requirements and, if so, what they were. As Lactalis submitted, it is difficult if not impossible to express an opinion as to what the processors’ minimum requirements might be without assessing what, in fact, were their actual requirements. Under the scheme established by the Dairy Code, unless a processor identified in its published standard agreements a minimum volume it will be obliged to accept any offer made by a farmer and, consequently, the relevant information would have been easily identified. It must be observed that the only contract to which Mr Mulvany was able to refer and which contained a minimum volume was one which required 400l per day on a “skip day collection” which equated to only 78,000 litres per year. That supply was well below the minimum commercial supply volumes proffered by Mr Mulvany. Although he indicated that this agreement was with an existing supplier, its existence substantially undermined his evidence. Moreover, Mr Mulvany had not examined the nature of the supply arrangements between Lactalis and those identified in Table 5 which supplied at substantially below his identified minimum volumes and there was no evidence as to whether they were long-term suppliers. His disregard of them for the purposes of forming his opinions was not appropriate.
84 Lactalis did not seek to have Mr Mulvany’s report excluded following the cross-examination which revealed the correctness of its initial submissions as to admissibility. It did, however, submit that it should be given no weight and, in the circumstances, that is appropriate.
85 It follows that, even if s 12 of the Dairy Code should be construed so that, if the effect of the terms of a non-exclusive MSA was that it became commercially unviable for a farmer to supply to another processor, the agreement should amount to an exclusive supply agreement, there was no admissible evidence to justify the conclusion that the MMV requirement of Lactalis’s MSAs had that effect.
Mr Mulvany’s evidence fell short of establishing prohibition
86 It was further submitted that, even if Mr Mulvany’s evidence was accepted, it would fall short of establishing that the 90% minimum monthly volume would practically prevent farmers from supplying other processors or, certainly, that the majority of farmers would be unable to supply. There is force in that submission and it should be accepted. At its highest Mr Mulvany’s evidence was that if a farmer had less than the minimum commercial supply volumes to supply they would be “less confident” in being able to attract a second processor to take the milk. This was acknowledged by him on a number of times during the course of his evidence and there is no need to identify all of them. It suffices to say that his opinion was not that the supply obligations to Lactalis under its non-exclusive MSA would necessarily prevent or prohibit the farmer from selling to another processor. The result is that, it would only be on an unusual construction of the definitions of the expressions “exclusive supply agreement” and “non-exclusive supply agreement”, that it could be said that Mr Mulvany’s evidence established that Lactalis’s non-exclusive MSA “prohibited” the supply to other processors.
87 The ACCC’s claims in relation to the alleged contraventions of s 12(5) of the Dairy Code fail for this reason as well.
Was the Lactalis MSA constituted by a single document?
88 The ACCC’s third complaint was that, between 1 January 2020 and 14 January 2021 (“the relevant period”), Lactalis contravened s 17 of the Dairy Code by entering into 363 MSAs which did not comply with s 22(b) because each MSA did not consist of a “single document”. The essence of the ACCC’s complaint was curiously founded upon the proposition that a contravention of s 17(1) occurs if, in its communication of the acceptance of an offer received from a farmer to enter into an MSA, a processor does not attach the entirety of the contract document. Lactalis contended otherwise and submitted that the ACCC’s construction was patently absurd and incorrect.
Relevant Dairy Code provisions
89 Subdivision C of Division 2 of the Dairy Code sets out the substantive requirements for valid MSAs. Relevantly, s 17(1) provides that:
17 Requirement for milk supply agreements to comply with Code
(1) A processor must not enter into a milk supply agreement that does not comply with this Code.
Civil penalty: 300 penalty units.
90 Subdivision D of Division 2 of the Dairy Code sets out a number of requirements to which an MSA must conform. Relevantly, s 22 provides:
22 Written milk supply agreements
If the milk supply agreement is in writing, it must:
(a) either:
(i) be in plain English; or
(ii) contain a plain English overview of the agreement; and
(b) consist of a single document.
Note: For agreements that are not in writing, see section 18.
91 Section 18 of the Dairy Code provides as follows:
18 Written records of unwritten milk supply agreements
Scope of this section
(1) This section applies if:
(a) a processor enters into a milk supply agreement with a farmer; and
(b) the agreement is not in writing.
Requirement for processor to give farmer written record of contents of agreement
(2) The processor must, no later than 30 days after entering into the milk supply agreement:
(a) make a written record of the contents of the agreement in accordance with subsections (3) and (4); and
(b) give a copy of the record to the farmer; and
(c) if the supply period of the agreement is 90 days or longer—make all reasonable efforts to obtain from the farmer a written acknowledgement that the record is a complete and accurate record of the contents of the agreement.
Civil penalty: 300 penalty units.
(3) Without limiting paragraph (2)(a), the record must:
(a) cover all of the matters dealt with by Subdivision D and subsections 43(1) and (3); and
(b) in particular, record all of the matters that Subdivision D and subsections 43(1) and (3) require to be specified in, or provided for by, a written milk supply agreement.
Civil penalty: 300 penalty units.
(4) The record must:
(a) either:
(i) be in plain English; or
(ii) contain a plain English overview of the agreement; and
(b) consist of a single document.
When is an MSA “entered into”?
92 The issue as to whether the MSA consists of a single document at the time of entry into it necessarily focuses attention on the construction of the phrases “enter into” and “single document” albeit that neither is defined.
93 Section 17(1) imposes an obligation on a processor not to “enter into” an MSA that does not comply with the Dairy Code. In that context, the expression “enter into” can only mean the making of a legally enforceable contract between a processor and a farmer. The making of the MSA occurs when the processor accepts the farmer’s offer: Goldsbrough, Mort & Co Ltd v Quinn (1910) 10 CLR 674, 678. In general terms the parties accepted that the usual process by which an MSA was formed was that the boilerplate MSAs were first signed by the farmer, then countersigned by Lactalis, and a countersigned document (or part of it) was then sent to the farmer. It was not doubted that the MSAs under consideration were written agreements for the purposes of the Dairy Code.
94 The major issue of controversy arose in relation to the manner of Lactalis’s acceptance of offers made by farmers. It was agreed that Lactalis generally communicated its acceptance by the sending of an email to the farmer. On 344 occasions during the relevant period Lactalis signed and sent the farmers executed versions of the MSA document or part thereof, albeit without including in the email the Regional Handbook or the QDairy Manual. On 19 other occasions, Lactalis signed the MSA but did not send an email providing the farmers with any pages of the executed MSA document, Regional Handbook or QDairy Manual.
95 The ACCC contended that communication of acceptance fixes the moment when the contract begins because a contract is not formed until there is an acceptance which has been communicated to the offeror: Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93, 111. Accordingly, where acceptance occurs by an exchange of documents by counter-signature, the exchange itself “is the crucial and vital fact which brings the contract into existence”: Sindel v Georgiou (1984) 154 CLR 661, 666. The relevance of that case to the present circumstances was not entirely clear as it was concerned with the formal “exchange” of two signed documents; being one from each party. That was not the process adopted in the present case. Here, the farmer received the template MSA by email, signed it and sent it to Lactalis. That constituted the offer, the acceptance of which occurred when Lactalis countersigned the boilerplate MSA and returned it to the farmer. There is nothing to suggest that the contract was only to be formed when each party presented the other with a signed version of the same document.
96 Lactalis submitted that the ACCC’s analysis was incomplete and that acceptance need not be communicated by an express act. Instead, the test was objective with the ultimate issue being “whether a reasonable bystander would regard the conduct of the offeree, including his silence, as signalling to the offeror that his offer has been accepted”: Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523, 535. Lactalis highlighted the difficulty in the ACCC’s approach by referring to other methods by which an offer can be accepted; i.e. it might be communicated orally or by conduct. For example, acceptance by conduct may occur by a processor collecting a farmer’s milk after the farmer had sent a signed agreement and it is not apparent how the ACCC’s construction could work in these circumstances. Indeed, the authorities are clear that actual express communication of an acceptance may not be necessary in all cases: see Davis, Contract: General Principles – The Laws of Australia (Thompson, 2006) at 54 [7.1680]: and there is nothing in the Dairy Code which justifies giving the expression “enter into” a narrow construction limited to physical exchange or actual express communication.
97 In this case there is no reason to dispense with the usual contractual principles of offer and acceptance and in each case it is a matter of objectively ascertaining whether Lactalis had accepted the offer made by a particular farmer.
What does “single document” mean?
98 The more essential dispute between the parties was whether, in the circumstances described above, the MSAs between Lactalis and the farmers consisted of a “single document”.
99 At the outset it might be accepted that the absence of any definition of the expression “single document” lends against any constrained or narrow construction. The ordinary meaning of the word “single” is “one only, not double or multiple” or “united or undivided”: Australian Oxford Dictionary (2nd edition). In relation to the ordinary meaning of the word “document”, the parties accepted that the various MSAs, either in hard form or in electronic form, constituted a document. The noun, “document” refers to something that is in written form which furnishes evidence or information upon a particular subject: The Oxford English Dictionary Online, 2022. That does not suggest that a single document must be constituted by a single page. It may consist of many pages which might be divided into parts or divisions. In this case it was not submitted that the MSA could not “consist of” a single document merely because it comprises three parts being the MSA standard terms, the Regional Handbook and the QDairy Manual. It was also not disputed that what an agreement “consists of” does not turn on what is contained in the communication accepting the offer to enter into it. There is no statutory direction for such a construction.
100 The expression “single document” has been used deliberately in the Dairy Code. Apart from ss 17 and 22, it is referred to in s 19 which concerns written records of unwritten variations of MSAs and requires that the written record of variation provided to the farmer must, inter alia, “consist of a single document”. The expression also appears in s 40 which requires that any written variation to an MSA be contained in a single document. Penalties are imposed for any non-compliance. It is clear that the deliberate use by Parliament of the reference to “single document” is not only important in the context of entering into an MSA, but also in relation to any variations that may occur.
101 The Explanatory Statement to the Dairy Code referred to the provisions relating to the requirement that an MSA consist of a single document as follows:
Where the milk supply agreement is in writing, this section requires that the agreement must consist of a single document, and either be in plain English or contain a plain English overview of the document.
The requirement for a milk supply agreement to consist of a single document prevents other documents which are considered to be part of the agreement, such as handbooks, from being able to be changed unilaterally and provides processors and farmers with certainty regarding the contents of the agreements.
102 As best as can be ascertained, the identified purpose of the “single document” obligation was to ensure that “other documents” (such as handbooks which might be incorporated into or as part of an MSA) cannot be changed unilaterally, and to provide certainty regarding the contents of the agreement. Necessarily, the construction of the expression “single document” should be informed by the regulatory purpose to the extent to which that is possible. However, there is nothing in the extrinsic materials to suggest an intention to prohibit execution of documents comprising multiple parts and, more importantly, nothing to suggest that the formation of the MSA needs to occur by the formal “exchange” of documents or by any other specific process.
Did Lactalis contravene the “single document” requirement?
103 In the consideration of whether Lactalis contravened the single document requirement it must be kept in mind that the ACCC advanced its case on a somewhat narrow basis and, given the penal consequences which would arise from any contravention of the Dairy Code, it is appropriate to deal with the allegations as they were made and not otherwise.
Did the single document requirement necessitate sending a complete copy of the MSA to the farmer?
104 The essence of the ACCC’s allegations of contravention of the single document requirement in s 22(b) is that once Lactalis entered into an MSA with a farmer, it omitted to send a complete copy of it to the farmer. It asserts that on numerous occasions when Lactalis accepted the farmer’s offer it did not send to the farmer all of the documents constituting the agreement. In particular:
(a) on 344 occasions, Lactalis signed and sent to farmers an executed copy of a version of the MSA document (or part thereof) without the Regional Handbook or QDairy Manual attached or otherwise provided with it; and
(b) on 19 occasions, after Lactalis signed the MSA document, there is no documentary evidence to suggest that Lactalis provided the farmer with any pages of the executed MSA document, Regional Handbook or QDairy Manual.
105 The ACCC submitted that on those 363 occasions the MSAs which Lactalis entered into did not consist of a single document. It was not submitted that they did not constitute a single document because they were comprised of three separate but related parts; the signed MSA template, the Regional Handbook and the QDairy Manual. The gravamen of its very narrow complaint was that Lactalis contravened the “single document” requirement by failing to provide farmers with those three parts of the agreement as a single document immediately after its execution of the agreement. In this respect it was said to be irrelevant whether the Handbooks and QDairy Manual were each separately available to a farmer. Likewise, it was said to be irrelevant that these other documents were sent to the farmers by email (or with links) or hand delivered prior to entry into the MSA, or even available on Lactalis’s website. It submitted that, if the requirement of the Dairy Code is simply one of availability of all parts of an agreement, the single document requirement has no work to do. Ms Forsyth QC for the ACCC repeated in her closing submissions that the real complaint was that the totality of the documents were not sent by Lactalis to the farmers, and somewhat over zealously contended that “the Court can start and finish there”. The essence of her submissions on this point can be seen from the following part of her address (ts 244):
So, in our submission, your Honour, you really need to ask four questions. Has an agreement been entered into? How was it entered into? If it was in writing when the process [sic] entered into it, did it consist of a single document or multiple documents? And if it’s a single document, where is it? In the case of Lactalis, we submit the answer is they haven’t complied with this. Lactalis hasn’t pointed to any standalone document on which it relies and which the entire terms of the contract are contained for these 363 occasions. Now, it was an agreed fact about the 344 occasions, does your Honour recall, and then on 19 occasions there is an agreed fact that nothing was emailed.
We say that there is no evidence that the single document requirement was complied with in those circumstances either because Mr Houlihan, when he was cross-examined about it, accepted that he didn’t know if any of those agreements had been provided by way of hand delivery, if they had been provided by email and even if they had, whether – he didn’t know what parts of the agreement had been provided. Now, I can hand up to your Honour a list, if it’s of assistance, of the 19. I don’t think there’s a lot in it but it’s simply – and the references to Mr Houlihan – essentially, Mr Houlihan explains in each case, “It might have been hand delivered, something else might have happened.”
In our submission, there is no evidence. It goes beyond the fact that the evidence is that there was no email, there’s no evidence of a communication at all. …
106 These submissions reflect the ACCC’s written submission that:
Contrary to the assertions of Lactalis, the ACCC’s case on this issue is and has always been clear. Lactalis’ MSAs comprise three separate but related documents (paragraph 9(a) of the Concise Statement). Lactalis’ contravention of the single document requirement arises out of Lactalis’ failure to provide farmers with those three parts of the agreement as a single document when the MSA was entered into (paragraphs 14 and 15 of the Concise Statement).
(Emphasis added).
107 Similarly, the ACCC submitted that Lactalis’s “chaotic and piecemeal” approach to entering into its agreements with farmers undermined the express purpose of the “single document” requirement to “prevent other documents which are considered to be part of the agreement, such as handbooks, from being able to be changed unilaterally and provide processors and farmers with certainty regarding the contents of the agreements”. Ms Forsyth QC sought to emphasise this point during the cross-examination of Mr Houlihan. The following exchange was said to highlight Lactalis’s supposed haphazard approach to entering into MSAs with the farmers:
You had no single process?---Correct.
And that was before they were signed and after they were signed. Is that correct?---Correct, yes.
Some received emails, others didn’t. Is that right?---Correct.
Some received documents emailed in addition to emails – sorry, in addition to the first Mailchimp email, but others didn’t. Is that right?---Correct.
Some farmers ultimately signed different documents than they might have initially been provided with. Is that right?---Correct.
And sometimes that task doesn’t have a record of the agreement beyond the signature page. Is that right?---Correct. Yes, that’s correct.
And there was no consistent method of providing farmers with the entire agreement after they were signed, was there?---No, there was not.
108 From this it was submitted that “when you have a processor providing bits and pieces of agreements in a chaotic and inconsistent manner it is not possible to have certainty about the terms of the agreement”.
109 The ACCC’s submissions in relation to the construction of s 22(b) should be rejected. There is nothing in the text, context and purpose of that section or in the Dairy Code otherwise which requires that, at the time of acceptance of an offer to enter into an MSA, the entire contract must be attached to the correspondence communicating that acceptance. The stated requirement is that the MSA “must consist of a single document”. That means that the terms and conditions between the respective parties are contained within a single document and whether that requirement is met is both a legal and factual question. It is legal to the extent that the terms of the agreement between the parties require identification. Once they are, the remaining question is whether they are contained in the one document and whilst that is largely factual it may also involve a question of law. If, therefore, Lactalis enters into an MSA with a farmer that is contained in a single document, in the sense that all of the terms and conditions in respect of which the parties are bound are contained in it, the requirement is satisfied. It is irrelevant to s 22(b) whether, once the agreement has been entered into, the MSA is sent to the farmer. There is nothing in s 22(b) of the Dairy Code requiring that step to occur. It only requires that the terms of the written agreement between the parties are compendiously captured in the one document, neither more nor less.
110 There is no doubt that Lactalis must accept the farmer’s offer in order for an MSA to exist and that, in the ordinary course, acceptance will involve an express communication to the farmer. However, acceptance may also occur by implication or conduct. So long as the relevant intention exists to enter into the agreement and the acceptance is objectively ascertainable, the agreement will come into effect. There is, with respect, no perceivable warrant for reading into s 22(b) any obligation that the processor who enters into an MSA to deliver a full and complete copy of it to the former with whom they have contracted. There is no method of interpretation by which the words of the section could be construed to that effect. It would require reading substantial additional words into the section, similar to those which appear in s 18 of the Dairy Code which require the sending of a written record of an oral agreement to the farmer. The circumstances in which a court might construe legislation by reading words into legislation are confined and were referred to by Edelman J in Australian Competition and Consumer Commission v Valve Corp (No 3) (2016) 337 ALR 647, 667 – 668 [96]:
[96] The joint judgment in Taylor referred to the three matters identified by Lord Diplock in Wentworth Securities Ltd v Jones [1980] AC 74 at 105–6; [1979] 1 All ER 286 at 289 (Wentworth Securities) (as reformulated in Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586 at 592 (Lord Nicholls). Those matters may be more in the nature of guidelines, which might not be sufficient even if they are established ([39]–[40]). Specifically:
(1) the court must be able to identify the precise purpose of the provision(s) in question;
(2) the court must be satisfied that the drafter and Parliament inadvertently overlooked an eventuality that must be dealt with if the provision is to achieve its purpose; and
(3) the court must be abundantly sure of the substance of the words that Parliament would have used had the deficiency been detected before enactment.
See also Herzfeld and Prince, Interpretation, 2nd ed, (Thomson Reuters, 2020), pp 129 – 133 [5.300] – [5.340].
111 Although the ACCC did not address the requirements referred to by Edelman J, it is abundantly clear that none would be satisfied in the present case. Firstly, the purpose of the section does not require the delivery of documents to the farmers but merely that the terms of the MSA be contained within a single document. Second, given that s 18 the Dairy Code specifically provides for the delivery of documents, it is not possible to reach the conclusion that a similar requirement had been inadvertently overlooked in relation to s 22. Finally, there can be no certainty as to the substance of the words which the Parliament might have used to rectify the alleged deficiency. It might have achieved the alleged intention in a variety of ways.
112 Section 22(b) does not have the meaning for which the ACCC contended.
113 The ACCC’s submission that unless s 22(b) is construed in the manner for which it contends there would be great uncertainty, does not assist on the question of construction. It seemed to be suggested that Lactalis’s failure to send each farmer a full copy of the MSA into which it entered undermined the purpose of the section which was to prevent the processors being able to alter the terms of the agreement unilaterally. With the greatest respect, the correlation between these two matters is far from clear. There is nothing in s 22(b) which suggests that an MSA might not include a term which permits the processor to alter the terms of an MSA. Indeed, s 33 of the Dairy Code specifically permits the processor to make unilateral alterations in certain identified circumstances. That permission has been adopted in this case where cl 11.2 of Schedule 6 of Lactalis’s MSA template permits unilateral variations by Lactalis to ensure consistency with the law.
114 Further, whether or not a processor sends to a farmer a complete copy of an MSA once entered into cannot generate any uncertainty about the terms on which the parties have agreed. The ACCC’s submission to the contrary appeared to be an attempt to shoehorn various statements in the Explanatory Statement into the words of the Code itself. In the context of the obligation imposed on a processor to publish the MSAs on its website, it is difficult to ascertain how a farmer might be uncertain of the terms of the agreement into which they offer to enter. As Lactalis submitted, the ACCC did not suggest (or plead, or establish by evidence) that any farmer was not aware of the terms of the MSA prior to entry into it, nor that any farmer was in any doubt as to the content of any MSA, whether before, at the time of or after formation. Further, even if it is accepted that a purpose of s 22(b) was to provide the farmers with the ability to ascertain the terms of the MSAs into which they entered with certainty, that does not warrant its wholesale rewriting so as to impose on the processor an obligation to send the farmers with whom they contract a complete copy of the agreement.
115 The ACCC also submitted that the “single document” requirement compels the provision of a single static source of rights and obligations, and that this was reinforced by the High Court’s interpretation of “single document” in AstraZeneca AB v Apotex Pty Ltd (2015) 257 CLR 356 (AstraZeneca). In that case, Nettle J discussed the meaning of “single document” as that expression was used in s 7 of the Patents Act 1990 (Cth) and noted (at 400 [120]) a single document “must be capable of standing alone without interpretative or corroborative assistance from another document or other source of information apart from common general knowledge”. However, reliance on AstraZeneca does not advance the ACCC’s case. Firstly, it was rightly acknowledged by the ACCC that reference to a single document in that case was made in a completely different context. Second, and more pertinently, Ms Forsyth QC during her oral submissions when referring to this case, once again strayed into emphasising the elusive requirement that an MSA be “physically together” at the time acceptance was communicated. Clearly, this is not what is required under the Dairy Code. It is worth reiterating that the ACCC’s submissions eschewed any suggestion that the agreements entered into by Lactalis were not “single documents” merely because the agreements were comprised of three parts.
116 In support of its central submission as to the construction of s 22(b), the ACCC referred to s 55 of the Dairy Code which, inter alia, provides that “a processor that is a party to a milk supply agreement with a farmer must keep the originals, or copies … of the agreement if it is in writing”. It seemed to be submitted that this record keeping requirement supported the ACCC’s contention that, upon entering into the MSA, Lactalis was required to send a full and complete copy to the farmer. This submission is also flawed. Compliance by a processor with s 55 is completely irrelevant to, and has no bearing upon, the requirements imposed by ss 17 and 22 respectively. No inference suggesting otherwise could possibly be drawn and it would be fanciful to attempt to do so.
117 The ACCC sought also to rely upon the guidance appearing on its webpage titled, “Plain English, single document & written acknowledgment” which was reproduced in its submissions as follows:
Single document
The Dairy Code of Conduct requires that all written milk supply agreements, and all records of unwritten milk supply agreements, consist of a single document. This ensures that:
• both parties are clear about the rights and obligations under the agreement
• parties’ rights and obligations cannot be unilaterally varied by amending secondary materials (for example, a milk supply handbook).
The ACCC considers that the requirement to have a single document is generally likely to be satisfied if the milk supply agreement:
• is provided in its entirety to the farmer at the same point in time (for example, in one piece of correspondence)
• does not seek to incorporate other documents (for example, documents that the processor purports to be able to amend without following processes set out in the agreement).
Milk supply handbooks
If processors wish to use a ‘milk supply handbook’ as part of their milk supply agreement, the ACCC considers this practice is likely to comply with single document requirement in the Code if:
• the agreement expressly incorporates the handbook
• a copy of the relevant handbook is annexed or attached as part of the written agreement or written record of a verbal agreement
• the terms of agreement together with the handbook comply with the Code.
118 There is, with respect, much in those statements which is potentially misleading although there is no need to articulate here the several reasons why that is so. For present purposes it is sufficient to observe that the ACCC’s opinions as to how the Dairy Code is to operate is irrelevant to the Court’s determination of its actual construction. The principle in Chevron USA Inc v Natural Resources Defense Council Inc (1984) 467 US 837 has no application in Australia: Minister for Immigration v SZVFW (2018) 264 CLR 541, 591 [150]. In any event, as has been identified above, the suggestion that compliance with s 22(b) might be achieved by sending a copy of an agreement to a farmer in the “one piece of correspondence” is erroneous.
119 The ACCC’s construction of ss 17 and 22(b) would lead to patently absurd results as appears from the following illustrations identified by Lactalis:
(a) If Lactalis were to make an offer and that offer were to be accepted by a farmer, Lactalis would contravene the Code if the farmer did not attach the entire contract to the written acceptance.
(b) If Lactalis were to communicate acceptance and attach the whole of the contract bar one page, and the error were corrected an hour later, Lactalis would contravene the Code.
(c) If Lactalis were to communicate acceptance by sending the whole contract, but doing so over two emails one of which bounced back but was resent, Lactalis would contravene the Code.
(d) If a farmer expressly asked Lactalis not to email the whole contract because the farmer had limited bandwidth and Lactalis emailed back only, say, the signature page Lactalis would contravene the Code.
(e) If Lactalis were to communicate acceptance via SMS or an email that simply conveyed Lactalis’ acceptance (and did not attach any part of the agreement), Lactalis would contravene the Code.
(f) If Lactalis were to communicate acceptance by saying (or writing) “I agree to your offer to enter into a contract comprising the MSA, Handbook and QDairy”, that would also involve a contravention of the Code.
120 Such outcomes could not have been intended and they are a strong indication that the ACCC’s construction would be commercially incompatible with the myriad ways in which an offer to enter into an MSA might be accepted. A construction which best advances the regulatory purpose that is also harmonious with the general principles of contract law should be accepted over a narrow construction which does not find support in the text of the Dairy Code.
Conclusion with respect to the alleged breach of the “single document” requirement
121 It follows that the ACCC has failed to establish that Lactalis contravened ss 17 and 22 of the Dairy Code by reason of its omission to send a single document to farmers containing the entirety of the MSAs which had been entered into. No other case was advanced by the ACCC in relation to s 22 and, as Lactalis submitted, no other case should be considered.
Did the Lactalis Milk Supply Agreement contain impermissible termination clauses?
122 The fourth allegation is that from at least 17 June 2020, Lactalis breached s 34(2) and (3) of the Dairy Code by publishing and entering into MSAs which provided that it may unilaterally terminate them in circumstances which did not involve a material breach of the MSA by the farmer. This non-compliance with the requirements in s 34(2) and (3) was said to constitute breaches of ss 13 and 17. Lactalis denied the ACCC’s construction of those provisions as well as the allegation that its MSAs permitted unilateral termination for circumstances other than for a material breach.
Relevant Dairy Code provisions
123 Section 13 prohibits processors from publishing on their websites standard form agreements which are non-compliant with the Dairy Code. Section 13 provides:
13 Published standard forms of agreements must comply with Code
A processor must not publish on the processor’s website a standard form of a milk supply agreement (whether or not as required by section 12) if, were the processor to enter into a written milk supply agreement in that form, the agreement would not comply with this Code.
…
124 Section 17(1) prohibits a processor from entering into a milk supply agreement that does not comply with the Dairy Code. That subsection relevantly provides:
17 Requirement for milk supply agreements to comply with Code
(1) A processor must not enter into a milk supply agreement that does not comply with this Code.
125 Subdivision D of Division 2 of the Dairy Code sets out the content that is permitted or prohibited in milk supply agreements. In particular, s 34 concerns provisions permitting the unilateral termination of MSAs. It provides:
34 Terminating milk supply agreements unilaterally
Unilateral terminations by farmers
(1) The milk supply agreement must specify the circumstances (if any) in which the farmer may unilaterally terminate the agreement.
Unilateral terminations by processors
(2) The milk supply agreement must specify the circumstances (if any) in which the processor may unilaterally terminate the agreement.
(3) A circumstance specified under subsection (2) must involve a material breach of the milk supply agreement by the farmer.
Processes for unilateral terminations
(4) The milk supply agreement must specify the processes (if any) by which the agreement may be unilaterally terminated.
(5) The milk supply agreement must require a unilateral termination of the agreement to be in writing.
(6) If a party (the first party) to the milk supply agreement may unilaterally terminate the agreement, the agreement must require the first party to give to the other party, as soon as practicable after the first party unilaterally terminates the agreement:
(a) the termination; and
(b) written notice of:
(i) the reason for the termination; and
(ii) the day the termination takes effect.
Note: For the effect of a termination, see section 41.
126 The Explanatory Statement to the Dairy Code refers to these provisions but, as is not uncommon, the commentary provides no useful discussion of what they are intended to achieve.
Relevant provisions of the MSAs
127 Each of the 384 boilerplate MSAs referred to above included certain clauses which permitted Lactalis to unilaterally terminate it where a “material breach” as defined had occurred. Relevantly, clause 10.1 of Schedule 6 – Milk Supply Agreement – Terms and Conditions provided:
Termination rights
Either party may terminate this Agreement:
(a) if the other party commits a Material Breach of this Agreement and, in the case of a Material Breach capable of remedy, fails to remedy the Material Breach within 14 days (or any longer period agreed between the parties) after receipt of a written notice by the party not in default, giving full particulars of the Material Breach and requiring it to be remedied;
(b) …
(c) …
and the terminating party must give to the other party, as soon as practical after the terminating party terminates the agreement:
(d) written notice of:
(i) the termination;
(ii) the reason for the termination; and
(iii) the day the termination takes effect.
128 Clause 1.1 of Schedule 6 – Milk Supply Agreement – Terms and Conditions relevantly defined “Material Breach” to mean, inter alia:
(a) a breach of any of the following Handbook and QDairy provisions (and subsections):
…
(iii) Processor Reputation (Handbook clause 6);
129 Clause 1.1 of Schedule 6 – Milk Supply Agreement – Terms and Conditions of the relevant boilerplate MSA documents defined “Handbook” to mean:
the Lactalis document entitled “Milk Supplier Handbook – Victoria, Tasmania, South Australia & Southern Riverina, 2020”, available on the website farmers.parmalat.com.au and emailed to you with this Agreement.
130 The Processor Reputation clause in the Handbook contained the following clause:
6. Processor Reputation
Lactalis reserves the right to suspend or terminate supply where in the opinion of Lactalis, the supplier has engaged in public denigration of processors, key customers or other stakeholders.
What is the meaning of the expression, “material breach”, in s 34 of the Dairy Code?
131 There is no definition of “material breach” in the Dairy Code. Once again, an interpretation of the expression in accordance with its natural and ordinary meaning, in light of the context and purpose becomes paramount. However, not surprisingly, both Lactalis and the ACCC had opposing contentions as to what constituted the ordinary meaning of the expression.
132 The ACCC submitted that the ordinary and natural meaning of “material breach” in the context of the regulation of contractual arrangements should be consistent with its alleged common law meaning. In this respect, it was said that a breach is material if it is of serious or substantial import, which implies significance. In circumstances where the term breached is not self-evidently a condition, a breach justifying termination of the agreement is one which gives rise to an event which will deprive the party not in default of substantially the whole benefit which it is intended that they should derive from the contract: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 (Koompahtoo v Sanpine Pty Ltd) at 138 – 139 [49] (Gleeson CJ, Gummow, Heydon and Crennan JJ). On this basis it follows that when assessing materiality, attention must be directed not to the conduct that constitutes a failure to perform a term, but to the effect of the conduct on the affected party and whether that effect has been significant: Fonterra Brands (Australia) Pty Ltd v Bega Cheese Ltd [2021] VSC 75 at [583]. It was further submitted that the breach must go to the root of the contract, taking into account the nature of the contract, the nature of the term, the kind and degree of the breach, and the consequences of the breach for the other party: Koompahtoo v Sanpine Pty Ltd at [54]. It is immediately recognisable that the meaning for which the ACCC contended is one which is both consistent with and analogous to the common law test for fundamental breach.
133 Conversely, Lactalis submitted that s 34(3) of the Dairy Code only applies where an MSA “specifies the circumstances (if any) in which the processor may unilaterally terminate the agreement”: s 34(2). That is, it is concerned with the circumstances in which the agreement gives a processor power to bring the agreement to an end and not with those in which Lactalis could take steps resulting in something less than termination, such as suspension as is provided by cl 6. It further submitted that s 34(2) and (3) of the Dairy Code are relevant only to those circumstances where an MSA provides that it may be terminated otherwise than for a material breach. It was submitted that the Dairy Code is concerned to protect farmers from clauses in an MSA which create a contractual right of termination for breaches which are not significant.
134 Section 34(3) falls within a section entitled, “Terminating milk supply agreements unilaterally”, and, true to that description, that is the substance of its provisions. By s 34(1) an MSA is to specify the circumstances in which it can be unilaterally terminated by a farmer although there is no requirement in that section that termination can only be for a material breach. It is apparent that, in general terms, the concept of “unilateral termination” is that process by which a party may terminate an agreement otherwise than for a breach of its terms. Certainly, there is nothing apart from s 34(3) which imposes any requirement that the right of unilateral termination can arise only on the breach by one party. That is consistent with the ordinary understanding of a unilateral termination as being a right to terminate despite the absence of fault on the part of the other party to the agreement. It may be, for instance, that an MSA might provide that a farmer can unilaterally terminate it if they have sold the farm from which they produce milk. Nevertheless, it is axiomatic that the right of unilateral termination and the circumstances in which it might arise must be granted by the contract’s terms.
135 However, in relation to any right given to a processor to unilaterally terminate an MSA, s 34(3) imposes the requirement that such right can only arise in circumstances involving a material breach. Logically, that condition has the effect that the right to terminate is no longer “unilateral” in the sense that it exists in circumstances other than for a breach. Rather, it is a right which arises only following conduct of the farmer which involves non-compliance with the terms of the MSA. In particular, the non-compliance must be of such a nature that it meets the description of a “material breach”. On this analysis, an MSA cannot include a term which permits the processor to terminate for any reason other than a breach and, in fact, the only breaches which can enliven such a right are those which are material. It might be said, in the broadest of terms, that these provisions recognise and seek to rectify a power asymmetry between the processor and the farmer in circumstances where it is the processor which makes available the standard terms on which it is prepared to contract. On the other hand, it is important to acknowledge that the Dairy Code appears to leave unaffected the common law contractual entitlements of the parties to terminate the MSA for a “fundamental breach”. In these circumstances it would seem that the rights to terminate with which s 34 is concerned are less significant than those rights which arise at common law.
136 Lactalis acknowledged that the ordinary meaning of the adjective “material” is “[h]aving significance or relevance” and includes “[o]f serious or substantial import; significant, important, of consequence”: Oxford English Dictionary (2022 online edition). A breach is “material”, therefore, only if it has some significance, relevance or consequence in the context of the parties’ agreement. Although there have been a number of cases in which the expression “material breach” as it appears in particular agreements has been construed, of itself, it has no accepted common law meaning and there is no necessary equivalence with the expression “fundamental breach”. Of particular relevance is the decision in Androvitsaneas v Members First Broker Network Pty Ltd [2013] VSCA 212 (Androvitsaneas) where the Victorian Court of Appeal addressed the meaning of the expression “material breach” in the context of a contract which entitled one party to terminate a deed by notice where it reasonably considered the other’s breach was a material breach. The Court’s discussion is most useful in the resolution of the issues in this case and, in particular, the following paragraphs:
87 Before turning to her Honour’s analysis of these questions it is convenient first to consider the meaning of ‘material breach’ as it appears in cl 13.2(b).
88 Both parties relied upon what Warren J (as her Honour then was) said in Forklift Engineering Australia Pty Ltd v Power Lift (Nissan) Pty Ltd: (full citations omitted)
A ‘material breach’ of a contract does not appear to be a concept known to the law of contract. It is then a question of determining the parties’ intention of the use of the expression ‘material breach’ in the agreement. In so doing I identify the ordinary sense of the word or words used unless such application leads to absurdity or inconsistency: see Watson and Anor v Phipps (1986) 60 ALJR 1, 3; Caledonian Railway Co v North British Railway Co (1881) 6 App. Cas. 114, 131. Furthermore, it is to be recalled that each of the dealership agreements was a commercial transaction. The general approach of the courts has been to strive to give effect to commercial arrangements and expectations: see Vroon BV v Foster's Brewing Group Limited [1994] VicRp 53; (1994) 2 VR 32, 67-68.
The dictionary meaning of ‘material’ is ‘essential’ or ‘important’: see Oxford English Dictionary. At common law the word ‘material’ has been attributed a meaning of ‘significance’ in the context of a material risk: see Rogers v Whitaker (1992) 175 CLR 749, 490. In the context of statutory construction the word ‘material’ has been attributed a meaning of ‘significance’. Also, see: Duke of Westminster v Birrane (1995) 3 All ER 416, 422-3, CA. Applying these meanings to the expression ‘material breach’ in the termination clause I consider the expression can be equated with the expression known to the law of contract of ‘fundamental breach’.
A ‘fundamental breach’ has been held to mean a breach of a contract that goes to the very root of the contract: see Suisse Atlantique Societe d'Arment Maritime SA v NV Rotterdamsche: Kolen Centrale (1967) 1 AC 361, 397, 421-2. Whether a breach of contract constitutes a fundamental breach will depend upon the contract and all the facts and circumstances of the particular case: see Suisse Atlantique at 422. It is relevant, also, to consider the consequences of the act constituting the breach: Harbutt's ‘Plasticine’ Limited v Wayne Tank and Pump Co Limited (1970) 1 QB 447. A ‘fundamental breach’ has been described as any breach which provides the promisee with a right to terminate performance of the contract: Suisse Atlantique, supra, at 397. It can consist of total non-performance of the contract: Suisse Atlantique at 431. It can be a breach that deprives a party of substantially the whole benefit of the contract: see Hong Kong Fir Shipping Co Limited v Kawasaki Kisen Kaisha Limited [1961] EWCA Civ 7; (1962) 2 QB 26, 71; Suisse Atlantique at 397, 410.
89 We agree with her Honour that the word ‘material’ is to be attributed the meaning of ‘important’ and to connote ‘significance’. Whilst it may have been appropriate, in the context of the termination clause of the particular contract in the Forklift case, to equate the expression ‘material breach’ with the concept of fundamental breach, it is not necessary to give it that meaning in the present case. Unlike the present case, in Forklift a party was permitted to terminate the agreement upon written notice to the other party if that other party committed ‘a material breach’ of the agreement which was not capable of being remedied – an entirely objective enquiry. The condition for termination in the present case, as already observed, is that the licensee must ‘reasonably consider the breach to be a material breach’. In our view, at least in those circumstances, it is not appropriate to equate the expression ‘material breach’ with the concept known in contract law as a fundamental breach.
137 That passage illustrates both that the concept of “material breach” has no accepted meaning at common law but, rather, is an expression which requires interpretation in the context in which it is used. It may be construed as being synonymous with the concept of “fundamental breach” and signify a breach going to the root of the contract, or alternatively, as meaning a breach that is important or significant but not necessarily a fundamental one. So much can be accepted.
138 In Androvitsaneas the issue at hand was the construction of the expression “material breach” in a purely contractual setting. Although in the present case the issue is one of statutory construction, as the context concerns the nature of contractual terms and conditions, the observations made in that case and in the authorities referred to are suitably applicable. Section 34 of the Dairy Code unashamedly regulates the nature of the terms and conditions upon which processors and farmers might agree as part of MSAs and its words must be construed keeping that context in mind.
139 Although the ACCC submitted that the expression “material breach” as used in s 34(3) should be analogous with the concept of “fundamental breach”, the circumstances do not permit that conclusion. Such a construction would restrict a processor’s entitlement to terminate an MSA to circumstances where the farmer had committed a breach which effectively denied it the benefit of the agreement and would necessitate the processor articulating in advance the myriad circumstances in which such a breach might occur. Moreover, such a construction does not give any meaning to the so-called “unilateral” nature of the right to terminate. Where a breach going to the root of the contract has been committed by one party, the correlative right to terminate is not “unilateral” in the sense that it is a dealing which relates to only one party to the agreement. It is the response to the failure of the party in breach to comply with their contractual obligations in such a serious and significant manner that generates the right of the innocent party to terminate the agreement. That type of breach is not the concern of s 34(3). Its concern is with a contractual entitlement to terminate the agreement in other circumstances. Those circumstances include where a breach of a term would not otherwise enliven a right to terminate at common law. It is possible to describe that as a “unilateral right” in the sense that it does not arise by reason of the farmer’s conduct which creates a correlative entitlement to terminate. The restriction, however, is the MSA can only provide that termination is available where the farmer’s breach is material.
140 It follows that a material breach in s 34 is one which falls short of a fundamental breach that goes to the root of the contract, but which is nevertheless “important” or something that is objectively “significant” or “substantial” to both parties. Conversely, it does not include a breach that would be considered trifling or trivial.
Can the parties agree to expand the concept of material breach?
141 The issue of whether the parties can agree in an MSA that breaches of particular terms constitute a “material breach” involves the intersection of contract law and the Dairy Code. Undoubtedly, where the breach of an MSA is a material breach in the objective sense, it would follow that a right to terminate in those circumstances would not contravene s 34 if those circumstances were specified in the agreement. The more vexing issue is whether the parties can, by agreement, expand the scope of breaches which will be regarded material for the purposes of s 34(3). In other words, can the parties contract out of the operation of s 34(2) and (3) and agree that certain breaches will be regarded as “material breaches” even though they would not otherwise be so regarded for the purposes of the Dairy Code?
142 Despite the absence of any substantive submissions on this important question it is apparent that the Dairy Code applies regardless of the agreement of the parties. By its nature it is intended to regulate the relationship between processors and farmers and it does so on the hypothesis that the farmers have substantially less bargaining power than the processors and that its provisions will tilt the balance in the farmers’ favour. It would be contrary to its purpose were the processors, who are assumed to have the benefit of a power asymmetry, to be capable of requiring farmers to agree to terms which might circumvent it. Moreover, it is a mandatory Code intended to apply uniformly across the industry and, again, it would be the antithesis of such a Code were it able to be circumvented in such a significant way by agreement between the parties.
143 It follows that, regardless of the fact that Lactalis’s MSAs have sought to apply a particular concept of “material breach”, it is the meaning of that term as it is used in the Dairy Code which applies in the consideration of the alleged contravention.
Does the MSA permit termination for other than material breaches?
144 The ACCC submitted that as the MSAs in question purportedly permitted Lactalis to terminate the MSA consequent upon a breach of the Processor Reputation clause, it did not comply with s 34(3) because that would permit termination otherwise than in circumstances of a material breach. Its key submissions on this point were set out in its written outline and were as follows:
(a) Any public denigration of processors, key customers or other stakeholders in the opinion of Lactalis gives rise to a right to terminate pursuant to this clause, yet any such conduct does not necessarily go “to the root of the contract” nor is it necessarily of serious or substantial import.
(b) Conduct which may breach this clause is not even limited to conduct toward Lactalis, but includes processors, key customers or other (undefined) stakeholders who may well be strangers to the contract.
(c) Mr Houlihan, in his affidavit, states that the clause was drafted in response to alleged abuse and bullying of a field officer and was intended to be subject to a reasonableness requirement. However, even if his evidence is accepted:
(i) the alleged abuse and bullying was not public denigration, being by email (not all of which have been provided in evidence);
(ii) the terms of the Processor Reputation clause go well beyond protection against abuse and bullying; and
(iii) the clause is not subject to any express reasonableness requirement.
(d) Mr Houlihan deposes that the clause has not been relied on to terminate an MSA. This is no answer to the question as to whether the MSA complies with the Dairy Code. Moreover, the ACCC submits that the clause could have a silencing effect on farmers who may want to raise genuine concerns publicly regarding milk supply or processor behaviour.
(References omitted).
145 Lactalis submitted that these submissions should be rejected for three independently sufficient reasons. The first was that it is not possible to breach cl 6 because it does not stipulate a norm capable of breach. Rather, it provides for the right to suspend or terminate supply. In this respect it was emphasised that the suspension period is not at large and in fixing the suspension period, Lactalis is subject to overriding requirements of reasonableness (arising from cl 6 of the Handbook), by reason of its implied duty of good faith, and the express requirements of s 11 of the Dairy Code which is headed “Obligation to deal in good faith”. Moreover, any doubt as to cl 6 and its interaction with cl 10.1 of Schedule 6 should be given an interpretation that ensures compliance with the Dairy Code.
146 Undoubtedly, in and of itself, cl 6 does not permit Lactalis to terminate an MSA, but only reserves to it the right to suspend or terminate supply. However, that does not negate the proposition that a farmer might be in breach of cl 6 and thereby enliven Lactalis’s right under cl 10.1 of Schedule 6 to terminate the MSA. Clause 10.1 grants to Lactalis the express and unequivocal right to terminate where there has been a material breach which is defined to include a breach of cl 6 of the Handbook, being the Processor Reputation clause. It can be accepted that there is difficulty in reading cl 6 with cl 10.1 as the former merely reserves the right to suspend or terminate supply where Lactalis is of the opinion that the farmer has, “engaged in public denigration of processors, key customers or other stakeholders.” Of itself, cl 6 does not impose any obligation on the farmer not to engage in the identified conduct. Nevertheless, the MSA specifically provides that a breach of cl 6 of the Handbook would entitle Lactalis to terminate. The objective contractual intention must be that it would be possible for cl 6 to be breached by a farmer and it is appropriate to give effect to that intention if possible. The principle that the Court should attempt to give effect to every provision and thereby avoid redundancy is not absolute and it is merely a presumption which can be negated by the circumstances of the agreement: Herzfeld and Prince, Interpretation (2nd ed, Thomson Reuters, 2020) [22.50]. However, no circumstances exist in the present case which would justify not attempting to give meaning to the ill-fitting clauses and it would be only in circumstances where no rational meaning could be given to them that the Court might omit to give them some effect.
147 It is apparent that the gravamen of the Processor Reputation clause is conduct by a farmer which amounts to a public denigration of processors, key customers or other stakeholders. It is not overly difficult to read cl 10 of the MSA with this clause as meaning it is a breach of the MSA for the farmer to engage in conduct of that kind. For present purposes it is not necessary to determine whether the conduct needs to be of such a nature as to actually meet that standard or merely of such a nature that Lactalis, acting reasonably, can form the opinion that it is of such a nature. In either case the MSA has the effect that a farmer may breach cl 6 and, thereby, trigger Lactalis’s right to terminate under cl 10.1 of the MSA if they engage in the relevant conduct.
148 Lactalis’s second submission was that even if cl 6 of the Handbook could be breached, clause 10.1, read with cl 6, would not permit termination other than for material breach. The essence of this submission was that Lactalis cannot terminate just because it has formed the opinion that a supplier has engaged in public denigration of processors, because it must also act reasonably in doing so. It was submitted that as s 11 of the Dairy Code obliged a processor at all times to deal with farmers in good faith, it followed that Lactalis could only terminate an MSA if it acted reasonably and only when the breach was truly material. In advancing this submission Lactalis emphasised the importance of the good faith obligations in the Dairy Code and particularly, s 11(4) which includes a range of factors listed in (a) – (i) which may be taken into account in determining whether a processor or farmer (the first party) has acted in good faith in dealing with the other party. Some of those factors referred to by Lactalis to support their “good faith” argument included (a) whether the first party has acted honestly; (b) whether the first party has tried to cooperate with the other party to achieve the purposes of any relevant milk supply agreement; and (c) whether the first party has not acted arbitrarily, capriciously, unreasonably, recklessly or with ulterior motives. It was submitted that, “it is most difficult to see how the exercise in good faith of a power to terminate could encompass termination for immaterial breaches”.
149 These submissions are misdirected and must be rejected. Section 34(3) is not concerned with whether a processor might act within the scope of its statutory obligations in exercising its contractual rights. Its concern is as to the content of the MSAs which a processor indicates to farmers it is prepared to enter into (s 13) and, in fact, does (s 17). There is non-compliance with s 34(2) and (3) if an MSA specifies circumstances in which a processor might unilaterally terminate the agreement for other than a material breach and it is irrelevant that if, in the exercise of its rights under an MSA, the processor is constrained by the Code from taking full advantage of them. Further, it should not be thought that, even if by reason of the Dairy Code the processor could not lawfully rely upon certain terms of its MSA, a farmer would be unaffected by the existence of clauses such as cl 10.1 and cl 6. The latter may not be aware of the ameliorating effect of the Code or that the processor will comply with its terms. The farmer may, therefore, be constrained by the import of the contract’s terms in the carrying on of their business and act in a manner which is other than in their best interests. The terms of s 34(2) and (3) are sufficiently clear and they have effect according to their natural meaning regardless of whether, unknown to the farmer, a processor would not act upon its contractual rights if to do so would contravene the obligations imposed upon it by the Dairy Code.
150 It should be added that the foregoing does not necessarily accept the premise of Lactalis’s submission. It is far from self-evident that the obligation imposed on a processor to deal in good faith by s 11 of the Dairy Code would impede the exercise by Lactalis of its right to terminate where a farmer’s contravention of cl 6 is less than material. A party subject to a contractual obligation of good faith is not bound to sacrifice their own interests for the benefit of the other party. For present purposes however, it is not necessary to reach any final conclusion on this point.
151 Lactalis further submitted that if cl 6 of the Handbook read with cl 10.1 of Schedule 6 is not able to be reconciled with the Dairy Code then, as a last resort, the offending operation can and must be severed under cl 2 of Schedule 6 of the MSA. That clause provided:
2. Compliance with the Code
Any provision in this Agreement which is invalid or unenforceable under the Code is to be read down if possible, so as to be valid and enforceable, and if that is not possible, the provision shall, to the extent that it is capable, be severed to the extent of the invalidity or unenforceability, without affecting the remaining provisions.
It was submitted that if this clause had the effect of severing cl 6, any question of non-compliance with the Dairy Code must necessarily fall away.
152 It was not self-evident that cl 2 was applicable in circumstances where s 34(3) of the Code does not expressly invalidate or render unenforceable a non-complying term but merely provides that the MSA must not include such a term. Other sections provide penalties for publishing an MSA which fails to comply with the requirements of the Code (ss 12 and 13) or for entering into the same (s 17). Mr Hodge QC was unable to identify any other provision of the Dairy Code which invalidated a term of an MSA or rendered it unenforceable if it did not comply with the stipulated requirements. He did, however, seek to rely upon the observations of the High Court (Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ) in SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516. There, the High Court considered the operation of s 4L of the Trade Practices Act 1974 (Cth) which expressly preserved the enforceability of contracts which contained terms which were prohibited by that Act. Section 4L provided:
If the making of a contract after the commencement of this section contravenes this Act by reason of the inclusion of a particular provision in the contract, then, subject to any order made under section 87 or 87A, nothing in this Act affects the validity or enforceability of the contract otherwise than in relation to that provision in so far as that provision is severable.
153 Their Honours observed that s 4L was only engaged where the making of the contract contravened the Act by reason of the inclusion of a specific term and that it operated to prevent the usual rule that where a contract is made in breach of a prohibition it will be illegal, void and unenforceable. In relation to the principles relating to severability it was observed (at 530 [43]) that there are no established set of rules to be applied in all cases and that the word “severance” has several meanings depending upon the circumstances in which it is used. Mr Hodge QC took the Court specifically to paragraph [52] at p 533 of their Honours’ reasons which read:
What follows is that s 4L, on its proper construction, requires rather than permits the severance of offending conditions. The phrase “in so far as” marks the limit of the severance that must be undertaken. In many cases that would be achieved by a “blue pencil” approach to severance. But that may not always be the case. If it is not, the phrase marks the limit of invalidity and unenforceability of the offending condition. The working out of those limits in each case will depend upon the particular contractual provisions that are to be considered. In the present case, no such difficulty arises. So much of the provisions of the loan agreement as required repayment of the loan with interest are valid and enforceable. It follows that the answer which the respondents sought to make to the claim against them on the guarantee they had given was not made out.
154 However, there the Court was particularly concerned with the operation of s 4L of the Trade Practices Act and its operation in relation to a specific term of an agreement which had been entered into. Their Honours’ comments in paragraph [52] have no wider application.
155 The submissions to the Court on the issue of severability were advanced at a high level of generality and failed to address any specific basis on which the Court might apply the “blue pencil rule” with respect to any non-complying terms. In any event, its attempted application in the circumstances of the present case is somewhat unusual. Here the ACCC has alleged that Lactalis has contravened the Dairy Code because it has published or entered into MSAs containing prohibited terms. Lactalis denies the contravention because, whilst the prohibited term was included in the MSA, it is unenforceable and void by reason of the Dairy Code and can be severed. Were this submission to be accepted it would render the penal provisions of the Code relating to the requirements of an MSA all but nugatory. Any contravention by the inclusion of a prohibited term would be met with the answer that the offending term is automatically severed such that no contravention occurred. That is an absurd outcome.
156 Further, it is not necessarily the case that a contravention of s 11 of the Code will render the MSA or any particular clause in it void or unenforceable. The Code imposes penalties for contraventions of its provisions and there is no necessary reason why, if the existence of a provision renders the MSA non-compliant, it should also be void or unenforceable. The modern approach to this issue was clearly articulated by Gageler J in Gnych v Polish Club Ltd (2015) 255 CLR 414, 434 – 435 [73], where his Honour said:
The consideration of public policy that a person ought not to be permitted by law to found a cause of action on an immoral or illegal act is the product of an earlier age. The broader consideration of public policy is now rarely recognised by the common law to have application in relation to illegality which arises under a modern regulatory statute. That is the import of the observation by Mason J in Yango that “[t]here is much to be said for the view that once a statutory penalty has been provided for an offence the rule of the common law in determining the legal consequences of commission of the offence is thereby diminished”. It is not the function of the common law to seek to improve on a regulatory scheme by supplementing the statutory sanctions for its breach. If a statute itself does not operate to deny legal operation to an agreement made in breach of one of its prohibitions, or to render that agreement unenforceable by reason of that breach, the coherence of the law is best served by a court respecting and enforcing that legislative choice.
(Footnotes omitted).
157 Unfortunately, there were no submissions made to the Court as to the application of these principles. That said, it suffices to observe that there was nothing identified in the Dairy Code which rendered the impugned provisions of the MSAs void or unenforceable such that cl 2 of the MSA had no operative effect.
158 In this case the prohibition imposed by s 17 is the entering into of the MSA which does not comply with the specified requirements. One such requirement for the contents of an MSA is that it must specify the circumstances in which the processor may unilaterally terminate the agreement and that any such circumstances must involve a material breach of the MSA by the farmer. The prohibition is not upon the existence of a term in the agreement which does not comply with any of the stipulated requirements, but the entering into of the agreement which contains such a term. Clause 2 of schedule 6 of the MSA does not render a non-complying MSA compliant in the present circumstances, if at all. It permits the severance of clauses which are “invalid or unenforceable under the Code”. There is nothing in the Code which renders clauses which makes an MSA non-compliant invalid or unenforceable. To the extent to which a non-complying term might be unenforceable that consequence is a result of the application of public policy.
The MSA permits termination other than for material breach
159 Given the foregoing the combination of cl 10.1 of Schedule 6 and cl 6 of the Handbook have the consequence that Lactalis is entitled to terminate the MSA other than for a material breach in the sense that they permit termination for breaches which are other than important or significant. Any denigration by a farmer of processors, key customers or other stakeholders will breach the section regardless of whether the breach can be described as “important” or “significant”. It follows that the MSAs entered into do not comply with the Dairy Code and Lactalis has contravened s 17 on each occasion on which one such non-complying MSA was entered into.
Relief
160 The ACCC failed to establish the alleged contraventions concerning the publication of non-exclusive MSAs or those concerning the requirement that an MSA be contained in a single document. However, it did establish that, in contravention of s 12(2) of the Dairy Code, Lactalis failed to publish its MSAs on its website as at 2:00pm on 1 June 2020 and it is entitled to a declaration to that effect. It has also established that the MSAs which were published and entered into by Lactalis did not comply with s 34(2) and (3) in that they permitted Lactalis to unilaterally terminate them other than in circumstances involving a material breach. As a result it is entitled to declarations that Lactalis breached s 13 of the Dairy Code by publishing such agreements and breached s 17 by entering into them.
161 The ACCC seeks further remedies in its Originating Application including by way of injunctive relief and the imposition of penalties. A further hearing is required to determine whether such relief is appropriate.
162 The parties are to be heard on the question of the costs of the first hearing.
I certify that the preceding one hundred and sixty-two (162) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington. |
Associate:
