Cordina Chicken Farms Pty Limited v Poultry Meat Industry Committee & Anor

Cordina Chicken Farms Pty Limited v Poultry Meat Industry Committee & Anor - [2005] NSWCA 28 - NSWCA 2005 case summary — Zoe

[13]

The dispute as to the validity of Base Rate Determination No 31 4 This is an appeal against a judgment of Young CJ in Eq dismissing claims by the appellant for orders "in the nature of certiorari" quashing "Base Rate Determination No 31" made by the first respondent, the Poultry Meat Industry Committee ("the Committee"), and the approval of that Determination by the second respondent, the Minister for Agriculture and Fisheries. 5 Base Rate Determination No 31 was made by the Committee on 18 December 2002. The Minister approved the Determination on 20 February 2003, and the determination was published in the Government Gazette on 28 February 2003. The Committee and the Minister so acted in purported fulfilment of their respective duties under s 10 of the Poultry Meat Industry Act 1986 (NSW) ("the PMI Act"). 6 Base Rate Determination No 31 is in the following terms: "The following Base Rates apply from 1 July 2002 for batch poultry, namely chickens of the species Gallus gallus , not more than 18 weeks old when processed: … (d) Cordina Chicken Farms Pty Limited: 53.77 cents per bird. …" 7 The appellant is a processor of chickens. By the PMI Act, the appellant is required to have agreements with growers who provide it with chickens for processing. The appellant has agreements with approximately 40 such growers ("the Cordina growers"). The appellant provides the chickens (as chicks) to the Cordina growers as well as feed and other goods required to enable them to grow the chickens. When the chickens reach particular age categories, the Cordina growers supply them to the appellant for processing. 8 During the period relevant to the present dispute, all but three of the Cordina growers grew their chickens in conventional sheds. The three in question used "tunnel" ventilated sheds. Tunnel ventilated sheds have more sophisticated air conditioning and other systems than conventional sheds. The costs of tunnel growers differ from those of conventional shed growers. 9 By s 11(1)(b) of the PMI Act, the price received by a processor from a grower delivered under a standard agreement "is to be determined at a rate no less than the base rate for birds of the class to which the poultry belongs". The prices at which both groups of Cordina growers supply poultry to processors are materially influenced by determinations that are from time to time made by the Committee under s 10 and approved by the Minister. 10 The appellant contends that Base Rate Determination No 31 is invalid and should be quashed. The appellant has not paid the Cordina growers in accordance with the prices determined by Determination No 31 but has paid them on a basis that results in lower prices. Should the appellant fail in this appeal, it will have to pay its growers whatever is required to comply with Determination No 31.

[14]

The PMI Act 11 The Committee is a statutory corporation "representing the Crown" and it is subject to the control and direction of the Minister (s 4(1) and s 4(2) of the PMI Act). It consists of 15 members, six of whom represent processors and six represent growers. Three are independent persons. The Committee is an expert body. 12 The functions of the Committee include the setting of guidelines for the drawing up of agreements between processors and growers and approving forms of agreement between them. In addition, it is "to determine, in accordance with section 10, base rates for batch poultry" (s 6(c)). 13 Section 3 of the PMI Act defines "base rate", in relation to a class of batch poultry, as "the rate determined under section 10 in relation to batch poultry of that class". "Batch poultry" is defined as "designated poultry grown in batches of 1,000 or more". "Designated poultry" is defined relevantly as "a chicken of the species Gallus gallus which is not more than 18 weeks old". 14 The determination of base rates is governed by s 10 which provides: "(1) Subject to subsection (2), the Committee may from time to time determine base rates for batch poultry. (2) The Committee must determine base rates for batch poultry at least once every 6 months. (3) Different base rates may be determined for different classes of batch poultry. (4) In determining base rates, the Committee is to have regard to the following: (a) any suggested base rate agreed to by processors and growers, (b) growing costs, (c) the species of poultry involved, (d) the duration of any relevant rearing period, (e) the annual throughput of poultry, (f) poultry housing density, (g) the needs of the industry, (h) market forces affecting the industry, (i) the public interest, (j) the reasonable minimum returns to growers while encouraging industry efficiency, (k) such other matters as the Committee thinks relevant. (5) A determination made under this section must be submitted by the Committee to the Minister for approval. (6) A determination has no effect unless approved by the Minister. (7) A determination, if approved by the Minister: (a) must be published in the Gazette and in such other manner as the Minister considers appropriate, and (b) takes effect: (i) on the date on which the determination is published in the Gazette (the publication date), or (ii) subject to subsection (8), on any other date or dates (whether before or after the publication date) as may be specified in the determination. (8) No determination may be made to take effect on a date or dates that is earlier than: (a) if the determination is made between 1 January and 30 June (inclusive) in a year - 1 January of that year, or (b) if the determination is made between 1 July and 31 December (inclusive) of a year - 1 July of that year." 15 The PMI Act had been amended by the Poultry Meat Industry Amendment (Price Determination) Act 2002 (NSW) (the "Amending Act"), which commenced on 11 October 2002. Prior to the Amending Act, s 10 provided: "(1) The Committee may, by order made with the approval of the Minister and published in the Gazette, determine the prices to be paid by processors to growers for designated poultry. (2) In determining the prices to be paid for designated poultry by processors to growers, the Committee shall endeavour to ensure a reasonable minimum return to growers while encouraging industry efficiency and shall have regard to - (a) growing costs; (b) the species of poultry involved; (c) the duration of any relevant rearing period; (d) the annual throughput of poultry; (e) poultry housing density; (f) the needs of the industry; (g) market forces affecting the industry; (h) the public interest; and (i) such other matters as the Committee thinks relevant. (3) A price may be determined by an order so as - (a) to apply generally or be limited in its application by reference to specified exceptions or factors; (b) to apply differently according to different factors of a specified kind; or (c) to provide for a maximum or minimum price, or so as to do any combination of those things." 16 Prior to the Amending Act, s 10(1) provided for the determination by the Committee of "the prices to be paid by processors to growers for designated poultry". The Amending Act, however, by s 10(1), directed the Committee to "determine base rates for batch poultry". 17 Prior to the Amending Act, s 10(2) required the Committee, in determining the prices to be paid for designated poultry by processors to growers, to "endeavour to ensure a reasonable minimum return to growers while encouraging industry efficiency" and, in doing so, to have regard to the factors listed in s 10(2)(a) to (i) of the PMI Act. By the Amending Act, however, "the reasonable minimum returns to growers while encouraging industry efficiency" became merely one of the factors to be taken into account by the Committee "in determining base rates".

[15]

Events leading to the making of Determination No 31 18 Section 10(2) of the PMI Act provides that the Committee must determine base rates for batch poultry at least once every six months. Section 10(8) envisages that the six-month periods will be from 1 January to 30 June and from 1 July to 31 December each year. At a meeting of the Committee on 13 August 2002, the Committee perceived that there was a duty upon it, by the terms of the PMI Act, to determine, by 31 December 2002, the base rates for the six-month period ending 31 December 2002. 19 At the meeting of 13 August 2002, the Committee discussed the fact that the date of commencement of the Amending Act was not known and it could take "several weeks" before it was fixed. Due to the uncertainty as to the commencement date, it was likely that the base rate determinations for the six-month period ending 31 December 2002 would have to be made late in the period. The Committee recognised that this would affect price negotiations and the determination of classes of poultry. 20 The circumstances prevailing at the time of the 13 August 2002 meeting are described in a document dated 17 January 2003 and entitled "Recommendation and Support Information". The author of the document was the chairman of the Committee, Mr G D Slennett. He stated, with regard to the proposed Determination (No 31): "Protracted but unsuccessful negotiations to arrive at a new model for price determinations had indicated that new procedures were desirable to meet the current industry situation. It was felt however that there was insufficient time to allow new procedures to be properly developed and implemented within the required time frame for the period July to December 2002. Added to this was the fact that by the time the determinations were made the chickens to which the base rates would apply would have been already grown. During that time growers had no indication that the basis for negotiations would change for the period and it would not be appropriate to retrospectively apply new conditions." 21 The minutes of the meeting of 13 August 2002 record, in regard to the proposed Determination for the period 1 July to 31 December 2002: "The Chairman said that recent price determinations had been based on the 1994 model pending agreement on a new model. He said that rather than re-enter negotiations on the model review at this stage it was preferable to again use the 1994 updated model for the current period and to move quickly ahead on a review of the procedures used by the Committee for its price determinations." 22 The following motion was approved at that meeting: "[T]hat the current fee be calculated using the existing Model as well as considering items (a) to (k) as listed in section 10 of the current legislation, with the understanding that this Model Price will be subject to negotiations between processors and growers on the basis of the current procedures for price negotiations." 23 The use of a "model" for the determination of growing fees had been the practice in the industry since the late 1970's. According to a document compiled in the relevant period to assist growers in negotiating with processors: "The 'model' is based on an assessment of the cost of production on an 'industry average' farm and assumes that all farms and processors operate in the same manner. In arriving at a price to apply to individual processors the growers contracted to that processor negotiate using the 'price' produced by the 'model' but such negotiations have involved adjustments based only on 'above model' requirements of the processor or 'market forces adjustments'. No provision has been made to negotiate on the actual production and cost situation of the individual processor. The model contains some 26 line items covering the normal costs involved in contract meat chicken growing and this is an appropriate framework for a price determination based on cost of production. However, distortions arise when figures are applied to the line items due to the need under current industry wide negotiations to synthetise 'normal' figures from within the range of conditions applying in the industry." 24 Mr Slennett explained, when giving oral evidence, that the "model" was a model farm concept used to determine the estimated average cost of production. This estimated average cost was known as the model fee. It was adjusted every six months by reference to several factors, including changes in the Consumer Price Indexes, interest rates, costs of labour, costs of electricity and gas, insurance and several other factors. Additional adjustments were made for "throughput" and "market force". Mr Slennett said that: "Throughput relates to the number of chickens that a processor places or processes from a farm in a 12 month period. The model assumes that an average farm would produce approximately 300,000 chickens in a year. If the processor decided to provide the grower with a higher number of chickens and there has been an increased number of chickens, there would be a difference between the throughput figure in the model and the actual throughput figure for that processor."

[17]

Generally, the model fee was used as a benchmark for negotiations between processors and growers pursuant to the legislation. 25 Prior to Determination No 31, the Committee had determined separate prices for different groups of growers linked to two processors, Baiada Poultry and Sunnybank. Mr Slennett explained, in the document dated 17 January 2003 entitled "Recommendation and Support Information": "At the meeting on August 13 the Committee resolved that the classes of batch poultry for the period July to December 2002 would correspond to one class for each processor group except for Baiada Poultry which had traditionally operated separate groups for Sydney and Tamworth and Sunnybrand which had operated on separate tunnel and conventional shed groups for several years." 26 Thus, prior to the Amending Act, the price determinations made by the Committee were based on classes of batch poultry that corresponded with each processor and its group of growers, save for Baiada Poultry and Sunnybrand. By the resolution of 13 August 2002, the Committee proposed to continue that practice for the purposes of arriving at Determination No 31. 27 Mr Slennett explained in the "Recommendation and Support Information" document: "The reasons for [the 13 August 2002] resolution included: (a) by the time the base rates for the period were determined the chickens to which they referred would have already been grown and it would not be appropriate to suddenly classify them in retrospect and pay differing amounts based on new classes. (b) The Committee needed to give very serious consideration to the classes of poultry and it was preferable to keep the classes at a minimum initially and subsequently expand them in an orderly manner." 28 On 28 October 2002, the secretary of the Committee wrote to the members attaching a document that recorded the calculation of the model fee for the period 1 July to 31 December 2002. According to this calculation the model fee was 57.17 cents per bird. The secretary stated, "[p]rocessors are advised to proceed with the price negotiations with their growers using the updated Model Fee as provided". He noted, however, that the model fee "still needs to be finalised through the Committee". 29 On 30 October 2002 Mr Slennett sent an aide memoire to members of the Committee stating: "The [Committee] on August 13, 2002 resolved that the base rate (Price) determinations for the period July to December, 2002 would use the existing model as a basis for negotiation between growers and processors using the current procedures for price negotiations. The line items in the current model have been adjusted in the usual manner and, as recently advised to you, this has produced a 'model fee' of 57.17 cents per bird. Processors and growers now have authority under the Act to meet and negotiate on base rates for their group and these negotiations should be undertaken using the procedures which have been used in the past to negotiate on price adjustments. The objective of the negotiations is for growers and their processor to reach agreement on a base rate as referred to in [s 10(4)] taking into account all relevant items in [ss 10(b) to 10(k)]. The [Committee] will have regard to any suggested base rate resulting from the negotiations in making a determination on the base rates for the relevant classes of poultry. Suggestions made to the Committee under [s 10(4)(a)] should show those items in the list [s 10(4)(a) to s 10(4)(k)] that have been taken into account by the growers and the processor in reaching agreement on the suggested base rate. The 'model price' of 57.17 cents per bird produced by the current model may be used in negotiations under [the item 'growing costs' in s 10(4)(b)] to assist in arriving at [the suggested base rate agreed to by processors and growers in terms of s 10(4)(a)], suggested base rates for the relevant classes of poultry. If a group of growers and their processor do not [reach agreement on a suggestion to make to the Committee as referred to in section 10(4)(a)] then the [Committee] will make a determination. The Committee in making a determination will have regard to all the matters rescheduled in [s 10(4)(a) to s 10(4)(k)] and will not be obliged to adopt the 'model feel' of 57.17 cents per bird as the base rate for any particular class of poultry. In all cases the 'model fee' will be adjusted as considered appropriate by the Committee." 30 On 6 November 2002 the Committee considered a motion "[t]hat classes for poultry be accepted as they currently are (as per the last gazettal) for the present fee determination period". On this basis there would be a single claim for the Cordina growers. An amendment in the following terms was then moved to the motion: "[U]nless otherwise agreed under current procedures by an individual processor and its growers". 31 At the meeting of 6 November 2002 Mr Cordina (a director of the appellant) argued against the amendment and the motion. He contended that "the motion contravenes the Act". He argued that two classes should be determined for the Cordina growers, namely, a class for the tunnel shed growers and a class for the conventional shed growers. The amendment to the motion was accepted, however, and the motion was put and carried. 32 By e-mail dated 21 November 2002, Mr Cordina complained to the Committee about the use of the model fee. He asserted that "several grower groups will hang out for the model fee". His concern was that the industry average, being the basis of the model fee, would not accurately give effect to the true costs incurred by the Cordina growers. 33 On 21 November 2002 Mr Slennett advised certain members of the Committee and other growers' representatives, including Mr Cordina, that: "If growers and their processor are unable to reach agreement on base rates to suggest to the Committee then the Committee will make base rate determinations taking into account items [s 10(b) to s 10(k) of the PMI Act]. Grower groups and processors may separately provide the Committee with detailed information, in relation to [s 10(b) to s 10(k)], to assist it in making determinations. Such information must reach the secretary of the Committee by close of business on November 27." 34 In response to Mr Slennett's request, the Cordina growers made a submission to the Committee. The submission recorded that the appellant had come to an agreement with its three tunnel growers which involved a "grow fee 53.5 cents or 1 cent above conventional shedding, fixed for the next 6 months, current period 51.81 cents". The submission, however, asserted that the Cordina growers should be paid more, namely, a "grow fee" of "57.17 cents per bird" (that is, the model fee). So, Mr Cordina's fears were realised. The Cordina growers did not provide any details of their individual growing costs to the Committee. 35 The appellant, in turn, submitted to the Committee that separate classes should be established for the Cordina tunnel growers and conventional shed growers. The appellant made detailed submissions in relation to each of the factors referred to in s 10(4)(b) to s 10(4)(k). It mentioned "the absence of actual grower cost information". It contended for a base rate of 51.81 cents per bird and fully explained the grounds for that. 36 Thereafter, on 4 December 2002, the Committee met again. The minutes of that meeting record, in regard to the base rates for the period July to December 2002: "J Cordina queried the non-inclusion of the Cordina tunnel base rate. The chairman replied that the Committee had decided on the classes of poultry for which base rates would be determined for the current period at the previous meeting and this is recorded in the minutes. It was therefore not appropriate to make base rate determinations for other classes of poultry for this period."

[22]

51 The minutes do, however, record that, prior to the passing of the resolution on 6 November 2002, Mr Cordina, on behalf of the appellant, was given the opportunity to argue that two separate classes should be constituted in respect of the Cordina growers. Mr Slennett, thereupon, supported the use of the existing model, which involved only one Cordina class. He explained (in evidence) that he did so principally for two reasons (which were known to the Committee). Firstly, at the stage the Committee began to consider what base rates should be determined for the relevant period, the chickens to which they would be applicable had been fully grown. Mr Slennett considered that it would be inappropriate and unfair at that stage to classify them differently with retrospective effect so that differing amounts based on new classes would have to be paid by growers. Secondly, the question whether new classes should be established was a complex and difficult one that required careful consideration. As I have explained, the Committee believed that Determination No 31 had to be made before 31 December 2002. It would be a difficult task to undertake and complete the investigations necessary to establish, in a fair and appropriate way, new classes in the time available. The argument was that, in the circumstances, it was preferable to keep the classes at a minimum and to expand them later in an orderly manner. 52 Thus, on 6 November 2002, despite the resolution taken on 13 August 2002 to apply the existing model as a basis for determining prices, the Committee discussed and voted on the issue whether new classes for Cordina growers should be established. On that date, therefore, that issue was regarded as still being open, at least until the Committee passed the resolution in question. Thereafter, subsequent events show that the Committee remained prepared to receive further submissions, to reconsider the issue, and to vote on a further resolution relating to it. 53 The evidence does not establish that, in taking its decision of 6 November 2002, the Committee applied an inflexible policy. The Committee considered Mr Cordina's submissions on their merits and resolved the question against the appellant. The reasons to which I have referred, which underlay the Committee's decision, indicate that there was a proper consideration of the merits of the issue and that inference is supported by the other evidentiary material.

[25]

59 In my opinion, the evidence does not establish that on 18 December 2002, by rejecting the resolution that the tunnel growers be regarded as a separate class, the Committee applied an inflexible policy. Nor does it establish that, at that meeting, the Committee exercised its discretion other than as required by the statute. 60 Mr Griffiths rightly accepted that it was open to the Committee, on proper grounds, to determine a single class of growers identified by the processor to which they were linked by agreement. In my view, the Committee, in determining that there should be only one class of Cordina growers for Determination No 31, acted within its powers under the PMI Act. 61 Accordingly, I would not uphold this ground of appeal. Did the Committee leave the question of the determination of a new class to be decided by others? 62 The Committee was plainly not of the opinion that its power to determine a new class depended upon whether a processor and its growers agreed to that class. Rather, the Committee decided, for pragmatic reasons, that a new class would only be established for the relevant period if an individual processor and its growers agreed to it. 63 Mr Griffiths rightly conceded that, at the least, it was reasonable for the Committee to consider that it should make Determination No 31 before 31 December 2002. The lateness of the coming into effect of the Amending Act, and the need to make a Determination before the end of the year, caused the Committee to conclude that there were serious difficulties involved in creating new classes for the period in question. Hence, it decided a new class should only be recognised if the individual processor and its growers agreed to the establishment of a new class. In my view, this decision could not be said to be unreasonable. 64 In my opinion, the requirement of agreement between processor and growers was a legitimate means of determining whether a new class should be recognised. The existence or otherwise of such an agreement was merely a criterion, taken into account by the Committee, in a proper exercise of its discretion, in determining whether a new class should be established. It was not an impermissible delegation by it of its discretionary powers. 65 I would therefore dismiss this ground of appeal.

[26]

The argument that the Committee failed to take into account the growing costs of the individual growers in the Cordina class 66 In determining the base rate for the Cordina class, the Committee took into account its existing model based on the average of industry growing costs. The model was not based on and did not have regard to the particular growing costs of the individual Cordina growers. 67 Having regard to the terms of s 10(4), it was appropriate for the Committee to take into account industry growing costs as a whole, and Mr Griffiths did not submit to the contrary. 68 Mr Griffiths' basic submission was that the Committee could take into account industry average growing costs "as long as it discharges its statutory obligation of having regard to growing costs in respect of the class for which the base rate is being determined". 69 Mr Beech-Jones accepted that there was a statutory obligation on the Committee to have regard to the growing costs of growers in a particular class but submitted that it was not obliged to do more than take into account those growing costs of individual growers to which it had access. This qualification was of particular significance as, at the time Determination No 31 was made, the Committee had no power to compel growers to disclose their growing costs. 70 For my part, I do not think that the PMI Act imposed an absolute duty on the Committee to have regard to the growing costs of particular growers or a particular group of growers. There are circumstances in which it might be inappropriate for the Committee to have regard to the growing costs of individual growers. For example, a particular group of growers might incur high growing costs because of inefficiency or extravagance. In such circumstances, the Committee might decide that it would not be fair to compensate those growers for their increased costs. 71 Several of the factors set out in s 10(4)(a) to s 10(4)(k) apply to the industry, generally. These include the needs of the industry (s 10(4)(g)), market forces affecting the industry (s 10(4)(h)), the public interest (s 10(4)(i)), as well as "such other matters as the Committee thinks relevant" (s 10(4)(k)). These industry-wide factors militate against construing s 10(4)(b) as imposing a mandatory duty upon the Committee to have regard to the growing costs of individual growers or a class of growers. 72 In my opinion, the Committee is afforded a broad discretion in regard to the use of growing costs when determining base rates under s 10(4). That discretion it is to be exercised in accordance with the exigencies of the situation that obtains at the time each Determination is made. If those exigencies require the Committee to ignore individual growing costs of particular growers, or a class of growers, it would be entitled to do so. 73 In any event, to a limited extent, the Committee did have regard to the growing costs of the Cordina class growers. It did so in the way it was best able, having regard to the refusal of the Cordina growers to disclose their growing costs. 74 Mr Cordina, himself, in making his submissions to the Committee, had regard to the particular growing costs of the Cordina growers by stating "[I]n the absence of actual grower cost information, I have referred to the model and adjusted (to reflect increased farm size) fixed and batch costs (excluding return on investment) by increasing direct variable costs by 13%". To this extent, the particular growing costs of the Cordina growers were before the Committee when it made Determination No 31. 75 Next, although the minutes of the meetings do not expressly record that items (d) to (k) of s 10 were considered insofar as they related to the individual Cordina growers, Mr Slennett's "Recommendation and Support Information" document of 17 January 2003 records, under the heading "Cordina Chicken Farms Pty Limited Class of batch poultry": "Consideration was given to all information supplied by the processor and the growers especially as it related to items (b) to (k) of section 10 of the Act".

At a glance

Court

Decision date

Before

Source

Judgment (30 paragraphs)

Parties

Legislation Cited (4)

Cited By (1)