Factory 5 Pty Ltd v State of Victoria

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 219

Counsel for the Applicant: Mr M L Sifris SC with Mr J Richardson

Solicitor for the Applicant: Piper Alderman

Counsel for the First Respondent: Mr T Woodward with Ms E Dias

Solicitor for the First Respondent: Allens Arthur Robinson

Counsel for the Second and Third Respondents: Mr A Herskope

Solicitor for the Second and Third Respondents: Moray & Agnew

BETWEEN: FACTORY 5 PTY LTD (IN LIQUIDATION) (ACN 112 313 238)

MADELINE T MOULIS PTY LTD (TRADING AS MTM RETAIL MARKETING) (ACN 069 069 889)

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

BETWEEN: FACTORY 5 PTY LTD (IN LIQUIDATION) (ACN 112 313 238)

MADELINE T MOULIS PTY LTD (TRADING AS MTM RETAIL MARKETING) (ACN 069 069 889)

introduction 1 In 2006, the Commonwealth Games ("the Games") were held in Melbourne. To manage and conduct the Games, a statutory corporation was formed. The corporation was known as M2006. The applicant ("F5") has a claim against M2006 but sues the first respondent because the State of Victoria has assumed all liabilities of M2006 that existed prior to 30 November 2006. 2 F5 was created as a joint venture vehicle by two experienced 'venue based retail operators' known as The Promotions Factory (Aust) Pty Ltd ("TPF") and Stage 5 Promotions ("Stage 5"). In December 2004, TPF and Stage 5 began negotiating with M2006 for a contract for F5 to become the sole retail concessionaire of licensed souvenirs, memorabilia and apparel ("Games product") for the Games. 3 The second respondent ("MTM") and the third respondent ("Cohen") were retained by M2006 to act as consultants and to advise in relation to the licensing and marketing of Games product. Cohen is the principal director of MTM. 4 This is a complex case. It touches upon many aspects of contract law, including formation, interpretation, breach, repudiation, acceptance and abandonment. However, there are two primary issues in this case, the determination of which will flow through to and impact upon most other issues of significance. The first is whether there was a legally binding contract between F5 and M2006. The second is, if there was such a contract, what were the agreed terms of the clause in the contract which, in their negotiations, the parties called the concessionaire as manufacturer clause? That clause dealt with the circumstances in which M2006 may be required to appoint F5 to manufacture Games product, or appoint an alternative manufacturer to a manufacturer already licensed to manufacture Games product which F5 was to purchase ("the concessionaire as manufacturer clause"). 5 F5 claims that on 23 December 2004 it made with M2006 what many authorities have referred to as a fourth class Masters v Cameron agreement. That is an agreement in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon, whilst expecting to make a further more formal contract in substitution for the first contract containing, by consent, additional terms: Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 per McLelland J at 628D-E. The recognition of a fourth class was not at issue. Its existence is supported by a number of authorities, including the affirmation of the judgment of McLelland J on appeal in GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 per Kirby P, Glass JA and McHugh JA. See also Graham Evans Pty Ltd v Stencraft Pty Ltd [1999] FCA 1670 per French, Whitlam and Dowsett JJ at [44]-[45]; Brunninghausen v Glavanics (1999) 46 NSWLR 538 at [33] per Handley JA (with whom Priestley and Stein JJA agreed); Randwick City Council v Nancor Trading Co Pty Ltd [2002] NSWCA 108 at [48]; Cullen v ZLB Behring LLC [2006] NSWSC 265 at [26]-[31] per Einstein J. 6 F5 pleaded the concessionaire as manufacturer clause in a number of ways. Ultimately, it pressed the Court to accept that the agreement it contends for contained a term that F5 had the right to manufacture licensed Games product that it would sell as concessionaire if, in view of certain trading benchmarks, a licensee of Games product appointed by M2006 was unreasonable or uncommercial. F5 further contended that whether or not the trading benchmarks were met by a licensee, M2006 and F5 had agreed that M2006 could allow F5 to manufacture or appoint another licensee. 7 F5 claims that M2006 breached the concessionaire as manufacturer clause. It claims that Playcorp Pty Ltd ("Playcorp"), the licensee appointed by M2006 to manufacture Games apparel, was unreasonable or uncommercial in its dealings with F5. That circumstance, F5 contends, required M2006 to allow F5 to manufacture Games apparel, or for an alternative manufacturer to be appointed. M2006's refusal to meet that requirement is asserted to be the breach. 8 F5 also claims that M2006 repudiated the contract. It says repudiation occurred on 24 June 2006 when M2006 denied the existence of the contract and soon thereafter commenced negotiations with other potential concessionaires. 9 F5 claims to have accepted the repudiation. It says that by reason of the breach of the concessionaire as manufacturer clause and the repudiation of the contract, it suffered loss and damage by way of lost profits and reliance damages. 10 Whilst by its Further Amended Statement of Claim F5 made other claims against M2006 (including for breach of the Trade Practices Act 1974 (Cth), collateral warranties and estoppel), only the contractual claims were pressed at trial. In the course of the trial, claims brought by F5 against MTM and Cohen were dismissed by consent. 11 M2006 denies that a contract of any kind was made on 23 December 2004 between it and F5. It contends that what occurred on 23 December 2004 resulted in a class three Masters v Cameron situation. That is, a situation where the intention of the parties was "not to make a concluded bargain at all, unless and until they executed a formal contract": Masters v Cameron (1954) 91 CLR 353 at 360. In the alternative, M2006 contends that if it and F5 did make an agreement on 23 December 2004, the terms of that agreement were that F5 was to be appointed as concessionaire subject to reaching agreement on a legally binding Long Form Concessionaire Agreement approved by the Board of M2006. This was said to be in the nature of a class two Masters v Cameron agreement where the parties "have completely agreed upon all of the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document": Masters v Cameron at 360. 12 In relation to the alternative agreement contended for, M2006 says (and the evidence confirms) that a Long Form Concessionaire Agreement ("LFA") was never approved by the M2006 Board or executed by the parties. When the condition precedent for the agreement was not fulfilled within a reasonable time, M2006 claims it was entitled to terminate. 13 M2006 further argues that if there was a contract made on 23 December, it did not contain a concessionaire as manufacturer clause in the terms contended for by F5, but was instead in the following terms: That M2006 would grant permission in its absolute discretion to allow F5 to manufacture, and reserved the right to find an alternative licensee should it decide this was appropriate. 14 If the Court accepts F5's version of the concessionaire as manufacturer clause, M2006 contends that the clause was not breached by it, because on the evidence, any obligation of M2006 to appoint F5 or an alternative manufacturer never arose. That is said to be so because Playcorp was neither unreasonable nor uncommercial. 15 Apart from denying the making of the contract, M2006 also denies that it repudiated the contract for which F5 contends. It says, firstly, that any such contract was repudiated by F5 by reason of F5's insistence upon an erroneous interpretation of the concessionaire as manufacturer clause. In this respect, M2006 contends that F5's insistence manifested an unwillingness to perform the contract on the terms agreed and was thus repudiatory. M2006 asks the Court to construe its letter of 24 June 2005 not as a denial of the existence of the contract, but as indicating the acceptance by M2006 of F5's repudiation. 16 Further, assuming that its letter of 24 June 2005 constituted a wrongful repudiation, M2006 contends that F5 did not and could not validly terminate the contract and therefore has no cause of action for damages for loss of bargain or profits based upon wrongful repudiation. It says that F5 could not validly terminate because it was not itself ready and willing to perform the contract. M2006 contends for this view relying upon F5's insistence upon an incorrect interpretation of the concessionaire as manufacturer clause. Further, M2006 contends that F5 did not validly terminate the contract because, on the evidence, it did not accept any repudiation by M2006. In those circumstances, and because neither party sought performance of the contract, M2006 contends that the contract was abandoned by mutual consensus. 17 As is apparent, a complex matrix of issues arises for determination on the question of liability. Those issues, each of which I will deal with in turn, are as follows: (1) Was a binding contract made? (2) If so, was the contract a class 2 or class 4 Masters v Cameron agreement? (3) If class 4, what were the terms of the concessionaire as manufacturer clause? (4) If class 4, was the concessionaire as manufacturer clause breached by M2006? (5) If a class 4 contract, was the contract: (a) repudiated by F5; and (b) validly terminated by M2006? (6) If a class 4 contract, was the contract: (a) repudiated by M2006; and (b) validly terminated by F5? (7) Alternatively, was the contract abandoned? 18 For the reasons that follow, I have determined that on 23 December 2004, F5 and M2006 did make a legally binding contract. That contract was a fourth class Masters v Cameron contract and its legally binding effect was not subject to the parties making an LFA. I have further found that M2006 did not breach the concessionaire as manufacturer clause. Even if, by reason of its insistence upon an incorrect interpretation of that clause, F5 repudiated the contract, the contract was not validly terminated by M2006 and was on foot when, on 24 June 2005, M2006 repudiated the contract by denying its existence. Despite M2006's repudiation, I have determined that, by reason of F5's insistence upon an incorrect interpretation of the concessionaire as manufacturer clause and F5's conduct in pursuance thereof, F5 was not ready and willing to perform the contract. Nor did F5 validly communicate acceptance of M2006's repudiation. I have determined that the contract was abandoned by mutual consensus. As a result, I have found that F5 is not entitled to claim loss or damage.

was a binding contract made? 19 The applicable principles of law on formation of contract are well settled and were not contested. Whether a contract was formed, and the terms agreed to, is to be objectively ascertained by reference to the presumed common intent of the parties. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40] the High Court said: This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction. It is necessary then to examine the words and conduct of the parties not only by reference to what are said to be the contractual documents, but also by reference to the surrounding circumstances known to the parties, and the purpose and object of their transaction. 20 The Commonwealth Games were held in Melbourne from 15 to 26 March 2006. The Games featured some 4,500 athletes from 71 countries participating in 16 sports. As is common with major sporting or entertainment events, commercial arrangements were put in place for the sale of event merchandise at event venues. 21 The licensing of manufacturers and retailers of Games product provided M2006 with a means to gain a commercial benefit from the Games. MTM was retained by M2006 to act as consultants and advise in relation to the licensing and marketing of Games product and assist with implementing the 'Games Licensing Program'. For that purpose, MTM provided the services of its Director, Madelaine Cohen, and a Project Manager called Catherine Mair. In relation to the Licensing Program, Cohen and Mair reported to Tyrus Speer, the General Manager of the Sales and Commercial Department of M2006. That department included the Licensing Group, which was responsible for the Licensing Program. Working with Speer was Mark Jenkins, a lawyer. Jenkins joined M2006 as Acting General Counsel, but in mid-May 2004 was appointed Group Manager, Commercial. The overall responsibility for the management, implementation and staging of the Games fell on John Harnden AM, the Chief Executive Officer of M2006. M2006 was governed by a Board. The Board had a number of committees including a Joint Marketing Committee. 22 A component of the Licensing Program was the production and sale of Games apparel. M2006 appointed Playcorp as an official licensee for the manufacture of apparel. A further aspect of the Licensing Program involved the appointment of one or more 'Official Merchandising Concessionaire(s)' to design, build and operate various concessions outlets and stores for the sale of Games product before, during and after the Games. 23 In September 2004, M2006 issued a document entitled 'Request for Proposal' seeking tenders for the concessionaire business ("the Request for Proposal"). By this request, M2006 sought proposals from persons interested in becoming the official retail concessionaire for the Games ("the concessionaire"). The Request for Proposal set out information about the expected retail activities of the concessionaire, and identified the key information required by M2006 to assess proposals from prospective concessionaires. 24 Robert Hilton and Simon Strapp were both directors of TPF. TPF had already been appointed by M2006 as an official concessionaire in the area of corporate fulfilment for the Games. When the Request for Proposal was issued, Strapp and Hilton became interested in exploring the retail concessionaire opportunity therein described. Strapp and Hilton met with Derek Glover who was a director of, and ran, Stage 5. Hilton and Strapp were interested in working together with Glover on the concessionaire opportunity, as Glover had extensive experience in event merchandising. Hilton, Strapp and Glover agreed to collaborate. 25 By a document dated October 2004, TPF and Stage 5 responded to the Request for Proposal. Their proposal indicated that if TPF and Stage 5 were successful, they would form a joint venture vehicle for M2006 to contract with. The proposal included a detailed written response providing cash flow and revenue projections, and a proposal as to the royalties to be paid to M2006. The proposal identified the key personnel of the proposed joint venture as Glover in the position of Event Director, Hilton in the position of Creative Director and Strapp in the position of Financial Director. Kam Dheda was identified as the proposed Event Manager. The document stated that upon selection, the joint venture would begin to put its team in place, including by employing Dheda in January 2005, with the expectation that she would be located at M2006's head office. 26 On 15 November 2004 Hilton, Strapp and Glover attended a meeting with Cohen, Mair and Speer at which TPF/Stage 5 made a presentation in support of its proposal. At that meeting and in communications prior thereto (to which I will return), concern was raised by TPF/Stage 5 as to what might occur if Playcorp, the only official licensee for manufacturing Games apparel that M2006 had appointed, was unreasonable in relation to its pricing or other matters. 27 On 25 November 2004, Cohen and Mair provided a document to Speer which summarised and critiqued the proposal of TPF/Stage5 and another entity competing for the concessionaire contract. TPF/Stage 5 was identified as the preferred applicant and it was suggested that negotiations continue with TPF/Stage 5. On 7 December 2004 Cohen sought, and Strapp provided, information about the proposed joint venture entity that would be established if TPF/Stage 5 were successful. 28 On 6 December 2004, both M2006's Joint Marketing Committee and Finance Committee approved TPF/Stage 5 as the preferred negotiating partner "based on the structure presented". These decisions were endorsed by a circular resolution of the Board of M2006 in the course of December 2004. 29 From mid-December 2004, correspondence was exchanged of particular importance to the determination of whether an agreement was made, and the terms of that agreement. The first was a letter of 16 December 2004 prepared by Cohen and Mair and sent by Mair to Hilton. At the start of the letter, Mair identified that the purpose of the correspondence was to outline M2006's "favoured structure and terms for the Licence Merchandise Games Time Concessions Business for your immediate consideration". 30 The letter relevantly stated: This document is intended to form the basis for negotiation and does not constitute an offer. At this time we are also pleased to advise you that we are offering TPFS5 an exclusive negotiation period until the close of business 23 December 2004 to reach an agreement on our proposed terms and structure. Should we be unable to reach an agreement in this time, we will again open our discussions with the other applicants. … In order to achieve the most successful outcome for both Melbourne 2006 and TPFS5 we propose the following terms and structure. These terms will be further detailed in a legally binding Deal Memo and Long Form Agreement. 31 Thereafter, the letter set out two columns in which 37 different subject matters were identified and dealt with. Opposite each subject matter, a brief description of the terms proposed by M2006 was given. 32 Mair closed the letter by indicating that M2006 looked forward to securing a meeting with Hilton as soon as possible "with a view to reaching a mutually rewarding agreement with TPFS5". 33 Letters also dated 16 December 2004, in the same terms as that sent to Hilton, were sent by Mair to Strapp and Glover. 34 On 20 December 2004, Hilton emailed Cohen, replying to the letter of 16 December. He thanked Cohen for the opportunity for TPF/Stage 5 to be appointed the exclusive concessionaire. With regard to the proposed terms and structure proposed in the 16 December letter, Hilton made a number of responses. His responses were organised into 15 numbered short paragraphs, each of which dealt with a subject matter in play in the negotiations for a concessionaire contract. The responses included a proposed compromise on the issue of royalties. There was a reasonably detailed response on the subject of "Concessionaire as Manufacturer" - a matter to which I shall return when considering the proper interpretation of that clause. Hilton closed the email by indicating that TPF/Stage 5 looked forward to discussing "these points with you at your earliest convenience". 35 Also on 20 December 2004, and after Cohen had seen Hilton's email of that day, Cohen had a telephone discussion with Glover and Hilton. The conversation addressed some of the matters raised in Hilton's email, including royalties and the 'concessionaire as manufacturer' issue. Both Glover and Hilton gave evidence that at the conclusion of the telephone discussion Cohen said words to the following effect: We would like this agreement to be finalised by Christmas and the long form agreement as soon as possible after that. Cohen was not a witness in the proceeding, but an email she sent to Speer and Mair on that day referred to her meeting with Glover and Hilton. In the email she said that the aim "is to have a HOA decided by 23 December 2004" and urges all to "make this happen". Whilst I have some doubts about the capacity of Glover and Hilton to recall what had been said so many years earlier, Cohen's email confirms their account and I accept their evidence. 36 On 21 December 2004, Strapp emailed Cohen referring to her conversation with Hilton and Glover of 20 December and said, "we have just one further query on the terms of the agreement". Strapp then raised a query about a proposed requirement for the concessionaire to take out professional indemnity insurance and requested its exclusion. 37 At 7.12 pm on 22 December 2004, Cohen sent an email to Strapp, Hilton and Glover. The email is relevant to the question of what the terms were of the concessionaire as manufacturer clause, and I shall later return to it for that purpose. However, the email is also of importance on the question of the formation of a contract. Cohen thanked Strapp, Hilton and Glover for their responses to the letter of 16 December and their subsequent discussion. Cohen indicated that matters that were raised by Strapp, Hilton and Glover had been raised with the commercial, finance and legal teams of M2006 and that in this email M2006 would detail its further response. There then followed 12 numbered paragraphs under subject headings, many or most of which had appeared in the prior correspondence. Many of the responses noted M2006's agreement on the issue raised. Other responses put M2006's revised position, including in relation to royalties. A detailed response was given under the heading "Concessionaire as Manufacturer" (to which I will return). 38 The email ended with the following paragraph: We trust that we have now provided you with positive and workable solutions to the matters you have raised in regard to our correspondence dated 16 December 2004. We await your immediate confirmation to move forward to the next stage of achieving an agreement on the basis negotiated as soon as possible. Cohen requested that either she or Mair be contacted and for that purpose provided their mobile telephone numbers. 39 At 10.10 am on 23 December 2004, Glover sent an email to Cohen and Mair in the following terms: Following our discussion, we are in agreement with the points outlined. Please change the Event program sales to a 'right of a refusal'. Would you please have a heads of agreement drafted today incorporating all the deal points & we would propose to go into the Comm Games office today at say 3 pm & sign off on this. Great to have agreement in place & move forward. 40 On 23 December 2004, F5 was incorporated. On that day, under the signature of Harnden, M2006 wrote to each of Hilton, Glover and Strapp in their capacity as directors of F5. 41 The letter of 23 December was headed "Concessionaire Agreement". The letter relevantly stated: We refer to previous discussions regarding Factory 5 Pty Ltd (F5) entering into an agreement with the Melbourne 2006 Commonwealth Games Corporation (M2006) to be the Official Concessionaire to sell merchandise and souvenirs at the Games venues. We confirm that the parties have agreed that F5 is to be appointed as Concessionaire subject to reaching agreement on a legally binding Long Form Concessionaire Agreement to be provided by M2006 and subject to M2006 Board Approval. The parties have agreed to enter into this agreement on the commercial terms and conditions set out in the following correspondence, which is attached: 1. Letter from Catherine Mair dated 16 December 2004; 2. Email from Rob Hilton dated 20 December 2004; 3. Email from Madelaine Cohen dated 22 December 2004; and 4. Email from Derek Glover dated 23 December 2004. … The parties acknowledge that the Confidentiality Agreements which have been signed continue to apply and neither party will make any public announcement until a Long Form Concessionaire Agreement has been executed. The M2006 office will be closed until 10 January 2005 and we will endeavour to provide you with a draft Long Form Concessionaire Agreement as soon as possible thereafter. Please sign in the space provided below to acknowledge agreement with these terms. Yours sincerely John Harnden Chief Executive Officer Executed on behalf of Factory 5 Pty Ltd (ACN 112 313 238) by its duly authorised representative who warrants that it has the required authority: ­­­­­­­___________________ _____________________ Witness Authorised Representative ___________________ _____________________ Print Name Print Name 42 At about 3 pm on 23 December 2004, Hilton and Glover attended at the offices of M2006. The purpose of that attendance was to sign the letter of 23 December 2004. Glover and Hilton came armed with a bottle of champagne. 43 Although Harnden's signature appears on the letter of 23 December, Harnden was not at the meeting. He signed the letter earlier in the day in a meeting with Speer and Jenkins. Speer could not recollect whether he attended the meeting. He did not recollect a meeting where champagne was consumed. Jenkins appears to have been the only person at the meeting representing M2006. At the meeting Hilton 'executed' the letter on behalf of F5 and Glover witnesses his signature. 44 The terms of M2006's letter of 16 December 2004 are of central importance to the ultimate conclusion I have reached about whether a legally binding contract was concluded on 23 December 2004. Those terms identified a plan by which M2006 and F5 would negotiate and thereafter arrange their agreement. The plan involved the following steps: (i) TPF/Stage 5 would be afforded an exclusive negotiating period until the close of business on 23 December 2004 to reach an agreement upon the "terms and structure" proposed by M2006 in the letter of 16 December; and (ii) Once agreement on the terms and structure was reached, that agreement would be reflected in a legally binding "Deal Memo" followed by a legally binding "Long Form Agreement". 45 There is no issue that this plan was both proposed and accepted as the intended modus operandi of the parties as at 16 December 2004. From the point of view of the reasonable observer, the letter of 16 December provided a road map or plan which identified what ultimate result the parties were seeking to achieve and the path that they intended to travel in order to reach it. Of course, any plan may be altered or changed. However, in the absence of any expression of a changed intent, the objective of the plan was clear - there would be a legally binding Deal Memo on or before 23 December 2004 (M2006's last working day of 2004), followed by a further agreement. 46 The reference to a further agreement and its description as a "Long Form Agreement" makes it clear that the plan was for a formal contract to be made which would express in a fuller or more precise way the agreed terms contained in the Deal Memo. What is abundantly clear is that the plan was to make a binding agreement at the Deal Memo stage. This was certainly not a plan for the parties not to reach a binding agreement until the execution of a formal contract. 47 On that basis, as at 16 December 2004 the presumed common intention of the parties was that if their negotiations were successful, they would make a legally binding agreement at the Deal Memo stage of their intended contractual arrangements. 48 It is then necessary to ascertain whether that common intent was altered or abandoned by any conduct that occurred at or before the time when, on 23 December 2004, F5 signed the 23 December letter. M2006 does not contend that the letter of 23 December was not understood by the parties or is not to be objectively understood as the "Deal Memo" foreshadowed by the letter of 16 December 2004 49 Hilton's email of 20 December 2004 did not in any respect suggest a departure from the scheme identified in the letter of 16 December and was confirmatory of it. The email is evidence of negotiations consistent with the negotiations contemplated by the letter of 16 December. Cohen's telephone call with Glover and Hilton on that day included the reconfirmation of the plan. So too did Cohen's email sent in the evening of 22 December. In particular, two references in that email are of note. First, the reference to the involvement in the negotiations of M2006's legal team. Second, Cohen's statement that M2006 awaited immediate confirmation "to move forward to the next stage of achieving an agreement". That comment could only have been objectively understood as expressing M2006's desire to make a legally binding Deal Memo, being the next stage of the plan identified in the 16 December letter. 50 Glover's email of 10.10 am on 23 December confirmed that F5 was in agreement. Consistently with the plan, he sought that the heads of agreement be signed off that day. M2006 does not contend that, prior to F5 receiving the letter of 23 December, anything occurred that may have been objectively perceived as altering the intent for a binding Deal Memo, expressed in the letter of 16 December. 51 In those circumstances, in order to displace the common intent for a binding contract which I am satisfied existed on the morning of 23 December 2004, M2006 is left to rely on the terms of the 23 December letter, and a conversation it asserts occurred between Jenkins and Hilton at the meeting at which the letter was signed. Both parties also rely upon the subsequent (post-23 December 2004) conduct of the parties. I turn first to examine the conversation at the meeting on 23 December. 52 The conversation was referred to in an affidavit of Jenkins as follows: Derek Glover and Rob Hilton, and possibly Simon Strapp, the directors of the Applicant, came into M2006's offices on 23 December 2004 to sign the 'deal memo'. I explained to Messrs Glover and Hilton that while M2006 was not appointing the Applicant as Concessionaire, it was not negotiating with any other party and would work with the Applicant with a view towards its potential future appointment as Concessionaire. Mr Hilton told me that the Applicant was intending to make a public announcement as soon as possible about its appointment as concessionaire. I replied to Mr Hilton with words to the effect of 'No, you cant do that, you're not actually appointed yet'. I also directed Mr Hilton to the provisions of the 'deal memo' concerning confidentiality. 53 Whilst Jenkins' affidavit suggests a single conversation, Jenkins explained in his oral evidence that there were actually two conversations and the conversation where he says Hilton told him that F5 was intending to make a public announcement (and his reply thereto) occurred after the letter of 23 December was signed by F5. Both Glover and Hilton denied that conversation. Given its timing, that conversation is of little moment to the question of whether a legally binding agreement was intended. 54 M2006 does, however, rely upon what Jenkins referred to as the first conversation - the conversation set out in the second sentence of the extract (above) from Jenkins' affidavit ("the second sentence"). For the reasons that follow, I am not satisfied that a conversation in the terms suggested by Jenkins occurred. 55 Jenkins' evidence was inconsistent in a number of respects. Firstly, he was unclear as to who participated in the meeting and then in the first conversation. In his affidavit he adverted to the possibility of Strapp being at the meeting. Strapp was not. In his affidavit he said the conversation occurred with both Glover and Hilton. In cross examination he described the discussion as a discussion with "at least Hilton". Jenkins was also unclear as to when, relative to the signing of the 23 December letter, the discussion occurred. His affidavit did not specify the time. In cross examination, he initially said the discussion "definitely" occurred at the "champagne time", thereby suggesting that it occurred after the letter was signed. Later, he changed his evidence to "at some point in the meeting". 56 Furthermore, in his cross examination Jenkins said that the content of the conversation was to the effect that the 23 December letter was not legally binding. When it was pointed out to him that the evidence in his affidavit about the conversation did not say that he used words to the effect that the letter was not legally binding, he referred to the content of the second sentence. He said that would have made it clear that the 23 December letter was not intended to be legally binding. When pressed as to what he actually said, he said he couldn't recall that he said that the document was or was not legally binding, but he could recall that there was a discussion that the appointment as concessionaire was subject to reaching agreement on a legally binding LFA. In that context, Jenkins accepted that what he did in fact recall was that he had read out the second paragraph of the 23 December letter which refers to an LFA and approval by the M2006 Board. Contrary to his previous evidence about timing, at that point in his evidence, Jenkins said that the conversation occurred before the champagne. 57 Counsel for M2006 argued that this evidence did not negate the evidence in the second sentence because the evidence of Jenkins is to be understood as demonstrating that Jenkins read out the letter as well as made the statement in the second sentence. I disagree. A better view of the evidence is that Jenkins conceded that he read the second paragraph of the 23 December letter and the content of the second sentence was intended to reflect what he had read. The contention of M2006 requires me to accept that in the meeting there were three conversations: the first when the 23 December letter was read out, and involving all persons who attended; the second between Jenkins and Hilton when the contents of the second sentence was given; and a third conversation between Jenkins and Hilton after the champagne. Jenkins gave evidence of two conversations, not three. 58 It is difficult to accept that when he made his statement and gave oral evidence, Jenkins had any actual recollection of a conversation which had occurred some 5 years earlier and in relation to which he had no contemporaneous notes. That tends to confirm that the evidence given was evidence of Jenkin's perception of what he had conveyed in the conversation rather than what was actually said. Even if M2006 was right in asserting that the second sentence was said independently of Jenkins reading out the 23 December letter, I would not regard that evidence as reliable. 59 I am conscious that Hilton, in his affidavit in response, did not specifically deny the content of the second sentence. He did say that he did not agree that Jenkins had told him F5 could not make a public announcement because it had not actually been appointed yet. But, although not clear, this seems to be a response to the third sentence from the extract from Jenkin's affidavit and not the second sentence. Neither Counsel pursued the matter with Hilton in any detail. In so far as it was pursued, Hilton said that in giving his response he had exhausted his memory. Given the time that had elapsed, that is hardly surprising. In the circumstances, even if I accept the asserted absence of a denial, I am not able to place much weight on that absence. 60 There is another feature of the evidence Jenkins gave, which speaks against the proposition that apart from reading the letter he said anything more to Hilton that may have reasonably alerted Hilton to understand that as at 23 December, M2006 did not intend to enter into a legally binding agreement. The evidence of Jenkins was that he did not perceive there to have been a change of position by M2006 in relation to the binding nature of the intended "Deal Memo" between the position taken on 16 December 2004 and that taken on 23 December 2004. Jenkins was involved in the preparation of both letters. The letter of 16 December specifically refers to a legally binding "Deal Memo". Jenkins understood that the letter of 23 December was the "Deal Memo". He referred to it by that name in his evidence. Jenkins gave evidence that he had no recollection of anyone from M2006, including himself, ever discussing a change in M2006's position with anyone from F5. 61 For all these reasons, I find that in the discussions which occurred at the meeting of 23 December and prior to the signing of the 23 December letter, nothing was said by Jenkins to the effect that the letter was not intended to be legally binding. I do not accept that a conversation in the terms of the second sentence occurred. I do accept that Jenkins read out the contents of the letter of 23 December. Leaving to one side for the moment the content of that letter, I further find that there was nothing said by Jenkins in the meeting to the effect that M2006 had changed its position as to the binding nature of the intended "Deal Memo". 62 Those findings are of little assistance to M2006. That the letter was read by Jenkins to Hilton and Glover during the meeting does establish that its terms were known to F5. The evidence is unclear as to when F5 first knew of the terms of the letter. That matter is of some importance. The terms of the letter are to be considered by reference to the objectively ascertained impact those terms may have had upon the common intent of the parties as at 23 December 2004. F5's opportunity to assess and appreciate the meaning and effect of the terms of the letter is relevant to that consideration. 63 Whilst there is evidence that the letter was sent to F5, the evidence fails to identify when on 23 December the letter was sent or received. It could not have been sent prior to Glover's email of 10.10am. Given the need to prepare the letter after receipt of that email, it is likely that the letter was not sent for a number of hours thereafter. Hilton couldn't recall if the letter was received prior to the meeting. Glover speculated that it was sent in advance of the meeting. The fact that the letter was read out aloud at the meeting on 23 December suggests that it contents were not known or not well known to Glover or Hilton prior to the meeting. It is likely that, even if it was received before the meeting, F5 had little opportunity to appreciate the contents of the letter of 23 December before the meeting. There was certainly no opportunity for F5, or indeed M2006, to have been cognisant of the fine points of semantic distinction and linguistic nuance which Counsel for both parties relied upon at trial. 64 F5 relied upon the "Concessionaire Agreement" heading to the letter of 23 December, but that was merely the identification of the letter's subject matter. It is of neutral value on the question of the common intent of the parties. However there are other matters F5 pointed to in support of its argument. Reliance was placed upon the reference in the third paragraph of the letter to the parties having agreed to enter this agreement. Additionally, reliance was placed on the final paragraph which calls for a signature to acknowledge F5's "agreement with these terms". Those references, as well as the solemnity associated with the requirement for a signature and the witnessing of the signature that "executed" the agreement, support the conclusion that in the context of the plan laid out by the 16 December letter, the letter of 23 December was the foreshadowed legally binding Deal Memo. 65 In support of the counter-argument, M2006 points to the future tense with which the letter refers to F5's appointment as concessionaire. In particular it relies on "is to be" in the second paragraph. M2006 also relies upon the remainder of the second paragraph of the letter and in particular the use of the phrase "subject to". 66 Neither of these phrases are to be read in isolation from each other or from the content of the paragraph as a whole. 67 In the absence of the surrounding circumstances, including the plan laid out in the 16 December letter, the second paragraph provides strong support for M2006's position. The natural sense of a stipulation that an agreement is subject to the making a formal contract (or expressions of similar import) is that no contractual intent is intended independently of the stipulation being satisfied: Masters v Cameron at 362. However, as the Court in that case emphasised, the formula "subject to contract" is not so intractable as always and necessarily to produce that result. 68 Much depends on context, including the surrounding circumstances. The relevant question in this case is: What would these words, in their relevant context, have led a reasonable person in the position of F5 to understand about the intent of M2006? 69 Immediately prior to the time that representatives of F5 first read the paragraph, they had no basis for believing that the letter put before them was anything other than the legally binding Deal Memo foreshadowed in the letter of 16 December. The foreshadowed negotiating period was about to expire. No extension of it was sought by M2006. There were no outstanding issues to be resolved in the negotiations. All matters on the table had been resolved. There was no suggestion, not even the slightest of hints, that M2006 had cause to or had changed its mind about the legally binding nature of the intended Deal Memo. A reasonable person in the position of F5 was entitled to expect and must have expected that a volte face in terms of contractual intent would be the subject of a clear and unambiguous communication. 70 Furthermore, by reason of the plan laid out in the 16 December letter, the reasonable person would have understood that beyond the Deal Memo stage there was a second stage - the making of a binding LFA and an intended contractual commencement (specified in the letter of 16 December) of 31 January 2005. 71 In that context and together with those matters in the letter of 23 December that are confirmatory of a contractual intent, the second paragraph would not have been understood by the reasonable person as the communication of a volte face by M2006 as to the binding nature of the Deal Memo. The paragraph would not have persuaded the reasonable observer that what had been planned was no longer planned, and that a very different intent was now held by M2006. 72 Whilst the second paragraph may have confused, it would not have disabused the reasonable person of the clear and firm expectation that the letter was the legally binding agreement intended. The paragraph may have seemed to the reasonable observer to be ambiguous, but given the time available in which to appreciate the contents of the letter, the handshakes and champagne, any ambiguity would have been resolved by the reasonable person (unaided by lawyers or legal expertise) in favour of what was expected rather than in favour of the completely unexpected. In other words, ambiguities that may have been raised would have been rationalised in favour of the existing understanding and legitimate expectation held at the time. 73 In those circumstances, the second paragraph would likely have been understood as specifying the need to address the foreshadowed second stage - the making of the formal contract. The future tense in which the appointment was expressed would not have been understood as suggesting that no contract would exist until the appointment, but rather that the taking up of the appointment was prospective and, in accordance with the terms incorporated into the 28 December letter, would begin at the time of the agreement's operative commencement on 31 January 2005. 74 At the very least, in these respects, the second paragraph was equivocal. That equivocation denied to the phrase "subject to" the natural sense or meaning that it may have otherwise conveyed. 75 There is little to be gained from the various careful comparisons which each of the parties wanted to make between the language used in the letter of 23 December and language used in other documents known to the parties (or some of them) including the Deal Memo made with TPF. Those comparisons, relying as they do on fine points of distinction in language, presume a capacity for appreciation devoid of the contextual reality in which the common intent of the parties was formed. 76 In denying the existence of intent to create binding legal relations, M2006 also relied on its contention that there were important matters left outstanding by the 23 December letter. M2006 referred in this respect to the judgment of Kirby P in Geebung Investments v Varga Group Investments No 8 Pty Ltd (1995) 7 BPR 14,551 where (at 14,569) his Honour said that the existence of matters of importance in which the parties have not reached consensus in their informal agreement will render it less likely that they intended immediately to be bound before the execution of a formal document. However, Kirby P went on to observe (at 14,570) that courts should be the upholders of bargains and not their destroyers, and should avoid an 'over-nice approach' to the arrangements between the parties which results in a disharmony between the parties' reasonable expectations and what the law provides. At 14,570, his Honour said: If business people have agreed upon essential terms and shake their hands upon their agreement, it is normally the business of the common law to uphold and enforce that agreement. It should not be the purpose of the law to rifle through the terms to find some particular which has not been agreed, which a party later seeking to renege relies upon in order to escape its bargain. 77 The 23 December letter incorporated into what it called "this agreement" the commercial terms and conditions that were set out in the correspondence specified, including the letter of 16 December 2004. As I have indicated, that letter identified 37 subject matters and set out the proposed terms in relation to each. The list of matters dealt with appears comprehensive. It is not apparent that any term of importance to a contract of the kind here in question was not dealt with by the terms specified. Speer could not suggest any matters that were not in the letter that he would regard as important. However in its submissions, M2006 identified a number of matters that it contended were 'key clauses' not dealt with. M2006 called no evidence to support the contention that any of these clauses were key or important in a transaction of the kind in question. 78 There are seven 'key clauses' identified by M2006. Two of those, stock levels and minimum guarantee, were both dealt with in the terms and conditions incorporated into the 23 December letter. M2006's position in relation to these two matters seems to be that some aspects of those subject matters were not finalised. There is no evidence that those aspects were important matters. Nor am I satisfied that their content was not finalised in the sense that the 'gaps' referred to were not capable of being filled by way of an implication. 79 Other 'key' matters identified by M2006 were: (i) shrinkage; (ii) M2006's discretion to grant rights to Official Sponsors to sell at venues; (iii) concessionaire unable to perform/redirection of services; (iv) concessionaire to provide quarterly unaudited statements; and (v) pricing of merchandise. 80 Shrinkage refers to stock lost because of theft. It was not dealt with in the 23 December letter. The Request for Proposal stated that "no shrinkage allowance will be available". Its non-inclusion in the 23 December letter is thus unsurprising. 81 The second, third and fourth matters were new matters first raised during the drafting of the LFA. I have no basis upon which to find they were matters of importance to an agreement of this kind. 82 Whilst pricing will be important in many contractual arrangements, the pricing of the merchandise to be sold by F5 does not appear to have been regarded as a matter of importance. The Request for Proposal states that products were to be offered at the recommended retail price. Glover's evidence was that he understood that M2006 had the final say about price. Both M2006 and F5 had a common interest in having prices set which maximised the profitability of F5 and thus the royalties to be paid to M2006. The matter was not dealt with in the 16 December letter nor in subsequent correspondence. Even in the subsequent drafting of the LFA, the issue seems to have attracted little or no attention. As between F5 and M2006, the pricing of merchandise was not contentious and was not accorded any significance as an issue. There is no evidence before me that price is an important matter in contracts of this kind. 83 Both F5 and M2006 sought to rely upon subsequent communications and conduct of the parties to the putative contract. For the purpose of determining whether the parties intended to conclude a binding contract, their post-agreement communications and conduct may be taken into account: Sagacious Procurement Pty Ltd v Symbion Health Limited [2008] NSWCA 149 at [99] and [100] per Giles JA (with whom Hodgson JA and Campbell JA agreed). As I will explain, there are however limitations upon the proper use of such communications, including communications which constitute admissions. 84 M2006 asserted that the parties continued to negotiate the terms of the agreement after 23 December 2004. Evidence of negotiations was said to negate the idea of an existing concluded contract as at 23 December 2004: Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647at 669. The acceptance of this contention is difficult in a context where the parties, by their agreement, expressly contemplated that their agreement should be further detailed in a formal contract. That course necessarily entailed the need for further communications and negotiations as to the form of the formal contract. Accordingly, that further negotiations occurred as to the form of the LFA is apt to be regarded as consistent with what was agreed, rather than being an acknowledgement of no agreement having being made earlier. There is an obvious distinction to be drawn between negotiations held for the purpose of reaching an agreement and negotiations held for the purpose of reflecting and properly expressing an agreement already reached. In the context of a fourth class Masters v Cameron agreement, evidence of the negotiation of the form of a formal contract and evidence of the negotiation of additional terms is not ordinarily to be regarded as evidence of no prior concluded agreement. 85 A review of the evidence of the post-23 December 2004 communications between F5 and M2006 shows that a draft of the LFA was prepared by M2006 and provided to F5 for consideration and comment. A number of communications occurred in relation to the first draft, and further drafts were exchanged. Those exchanges, other than for the drafting of the concessionaire as manufacturer clause, show that in relation to clauses dealing with subject matters that were canvassed in the 23 December letter, there was little or no controversy as to how the LFA should be expressed. The evidence is consistent with what may be expected in a drafting exercise. 86 I have already identified a number of clauses first introduced by M2006 when the LFA was being drafted. The evidence reveals a level of concern in relation to these clauses by F5 and negotiations as to the content of these clauses. However, given that these clauses are additional terms which M2006 sought to introduce, negotiations about them does not necessarily support the absence of a prior concluded agreement, because the evidence is equally consistent with the existence of a class four Masters v Cameron contract. 87 The one matter which clearly commanded the lion's share of attention (in the meetings and other communications which occurred in relation to the LFA) related to the wording of the concessionaire as manufacturer clause. The draft LFA provided by M2006 included terms as to when F5 could manufacture or an alternative manufacturer could be utilised. I deal with the concessionaire as manufacturer clause in more detail below. For current purposes, the communications which occurred between F5 and M2006 on that issue reflect a disagreement between F5 and M2006 as to what had been agreed on that issue, rather than acknowledge a lack of prior agreement and continuing negotiations for an agreement. I have drawn that conclusion because, in large part, the context of these communications (set by F5 without demurrer from M2006) was that what had been agreed needed to be better expressed by resolving the meaning of the phrase "reasonable commercial terms" - a phrase which appeared in the clause of the draft LFA dealing with the concessionaire as manufacturer clause. 88 In relation to subsequent conduct, M2006 also relied on two further matters. The first was F5's failure to pay M2006 a sum of $50,000, being 10% of the minimum guarantee for royalties which the terms of the putative agreement provided was payable on signing. That conduct was explained by Glover. He said that the normal practice for such payments was for an invoice to be issued and that upon the presentation of an invoice the payment is made. His evidence was that F5 was not presented with an invoice by M2006 and therefore did not pay the $50,000. 89 The other matter relied upon was the failure by Strapp to adhere to a representation that on incorporation, the shareholders of F5 would pay a $200,000 contribution by way of paid up capital. Glover explained that the amount was not paid in because it was not required at that time. Strapp denied that uncertainty (in relation to the contractual position) was the reason the payment was not made. 90 These two instances of conduct relied on by M2006 were explained and in light of that explanation and the context provided, the conduct is not probative of any fact relevant to the existence of contractual intent. 91 A wide range of post-contractual conduct was relied upon by F5. That conduct included the following: · M2006 approved F5's use of business cards and logos which referred to F5 as the "Official Concessionaire"; · F5 was referred to as the "Official Concessionaire" at a presentation to official licensees of M2006 held at a meeting in March 2005. A communication dated 18 March 2005 emanating from M2006 also referred to F5 as "our concessionaire". · M2006 did not demur when representatives of F5 referred in writing to the existence of an agreement on the following dates: 17 March 2005, 23 March 2005, 3 June 2005, 16 June 2005 and 21 June 2005. · M2006 did not demur when Cohen or Mair referred to the existence of an agreement with F5 on the following dates: 12 April 2005, 2 June 2005 and 7 June 2005. In the 12 April 2005 communication, Mair provided M2006 with a document outlining options for resolving the difficulties that F5 and Playcorp were experiencing in agreeing to the terms upon which Playcorp would provide F5 with licensed apparel. In that options paper Mair proposed, as an option, that M2006 terminate its agreement with F5. · A number of documents internally distributed within M2006 support the contention that there was a belief within M2006 that an agreement had been made. These documents include an email of 25 January 2005 sent by Kate Dyer, M2006's Coordinator of licensing, confirming an agreement and the conclusion of negotiations with F5; an email from Dyer of 15 February 2005 advising another M2006 employee that F5 was the new Games-time concessionaire; a March 2005 M2006 "Sales and Commercial, Licensing Report" which stated that F5 was being appointed as the Official Venues and Superstore Concessionaire and that detailed planning had commenced; an extract from a report to the M2006 Executive Board dated April 2005 which stated that F5 had been selected as the Official Concessionaire; and an April 2005 M2006 "Licensing Operating Plan for Games Time" prepared by Dyer and marked "Draft A" in which F5 was referred to as the contractor responsible for merchandise across M2006 competition and non competition venues and a number of public domain spaces. 92 M2006 relies on this evidence of subsequent conduct as evidence of admission made by M2006 as to the existence of a contract. 93 In Sagacious, Giles JA observed that the juridical basis on which subsequent communications bear upon contractual intention may not be settled. In that regard, at [105] his Honour said: I respectfully suggest that subsequent communications are not simply aids to interpretation, or a source of information as to matters with which a concluded contract should deal. Their probative value may be more direct. To repeat, the objective intention of the parties is fact-based, and found in all the circumstances. That in their subsequent communications the parties have continued in negotiations, or have expressed the common understanding that they are not legally bound unless and until a formal contract is executed, is of itself probative as to their contractual intention: see Howard Smith and Co Ltd v Varawa, stating simply that any statements or conduct inconsistent with the existence of a concluded contract are relevant. 94 Giles JA then dealt with the issue of post-agreement admissions. His Honour observed that admissions do not depend on communications between the parties, and may extend to internal communications. His Honour said that admissions bearing upon contractual intention present difficulties, including whether admissions may be made of matters of mixed fact and law, or involving the application of a legal standard. Giles JA did not determine the issue of admissibility of such statements, but it is necessary that I do so. 95 The determination of whether or not contractual intent existed does involve questions of mixed fact and law and the application of a legal standard. That exercise involves the objective ascertainment of contractual intent at a particular point in time. Subsequent conduct or communication based on a subjective understanding as to contractual intent does not aid the exercise required (other than in the exceptional cases where subjective intention is directly in question: see ABC v XIVTH Commonwealth Games (1988) 18 NSWLR 540 at 550 per Gleeson CJ). If that proposition were not correct, there would be a danger that the objective conclusion the court must arrive at as to whether or not contractual intent existed, will be tainted by the subjective conclusions of others. For that reason, whilst an admission by a party of a fact relevant to whether a concluded contract existed is admissible, a statement by one party, not involving communications between the parties, that there is or is not a concluded contract, is not admissible as such: cf Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 at 9256. It is, I think, for that reason that Gleeson CJ said in ABC v XIVTH Commonwealth Games at 550 that in relation to acts or statements not involving communications between the parties and which are claimed to be relevant as admissions, "it will often be necessary to identify with some care the fact which is said to be admitted". 96 An expression by parties in subsequent communications or conduct of their common view as to the existence of a contract will be admissible. However, its probative force will depend upon the extent to which the view is founded upon or sourced in the contractual intent that existed at the time the putative contract was made. Thus, as Giles JA explained in Sagacious at[106], the weight to be attributed to any statement that there is or is not a concluded contract will depend on the source of knowledge and on the person (or persons) making the admission. 97 The approval of business cards and evidence of other conduct in which M2006 presented F5 as the "Official Concessionaire" or "Concessionaire" do constitute admissions. The fact admitted is relevant to whether a concluded contract existed. The relevant fact that this evidence supports is that between February 2005 and 24 June 2005, F5 was operating as the concessionaire. 98 That fact is further made out by a range of other evidence. In the TPF/Stage 5 response to the Request for Proposal, it was envisaged that on selection as concessionaire, a team would be put in place including Dheda as Event Manager. The response also envisaged that a range of preliminary work would be performed through to July 2005, including planning, design and dealings with licensees in order to determine the range of products to be sold by the concessionaire. The evidence shows that the kind of activity envisaged did, in fact, occur. Dheda commenced work as Event Manager in or around February 2005. An Operations Manager also commenced work in or around April 2005. Two further employees were also employed by F5. Representatives of F5 including Glover, Hilton and Strapp attended numerous meetings with official licensees including for the purpose of identifying products and ordering requirements. There is a wide range of evidence in relation to dealings between F5 and Playcorp (the licensee for apparel), including in relation to product range, pricing and terms of trade. The evidence discloses that numerous meetings with other licensees were attended by representatives of F5 in the presence of representatives of M2006. F5 commissioned a company to design plans for the retail superstores and drawings for concession stands at Games venues. These were presented to M2006. Hilton worked on coordinating a website for F5 and a "web port" was built where all official licensees could post their proposals including pictures, designs and pricing information. The existence of the website was communicated to M2006. 99 The fact that with the knowledge and authority of M2006, F5 was operating as concessionaire from at least about February 2005 is relevant to contractual intent, in that it tends to confirm that the parties intended that the contract was operative from 31 January 2005. That date was identified by the terms incorporated in the 23 December 2004 letter as the commencement date. A commencement as envisaged by the 23 December letter is consistent with an intention that the 23 December letter was legally binding and operative as such, irrespective of whether the LFA with Board approval was in place. It tends strongly to negate M2006's alternative contention that the parties intended that the appointment of F5 as concessionaire was subject to the LFA and Board approval. 100 Whilst it is not uncommon for businessmen to act upon an anticipated contractual relationship prior to the contract (as Giles JA said in Sagacious at [117]), the acts undertaken by F5 were not of that character. The extent of the work undertaken in the knowledge and with the assistance and authority of M2006 is consistent with an existing contractual relationship rather than an anticipated relationship. 101 I do not regard the various communications in which representatives of F5 referred to the existence of an agreement without demurrer from M2006 as evidencing a common understanding that a legally binding agreement was in place. Whilst the communications assert an agreement, the communications that occurred prior to June of 2005 say nothing as to the binding nature of the agreement. M2006's failure to demur cannot in those circumstances be characterised as an acknowledgment of a binding agreement. In the communications that occurred in June and July of 2005, F5 not only asserted an agreement but asserted that M2006 had breached the agreement. Those assertions are more apt to be regarded as assertions of a binding agreement. However the evidence does not demonstrate that M2006 did not demur from the assertion that it was in breach of the agreement. 102 The various communications authored by staff of M2006 or Cohen or Mair which were not communicated to F5 are to be regarded as internal communications of M2006. For the reasons I have already explained, those communications are not to be received as evidence of admissions of a concluded contract. To some extent, their reference to the existence of an agreement begs the question as to whether the agreement was intended to be binding or non binding, with the exception, of course, of Mair's email of 12 April 2005 to Speer, Jenkins and Cohen in which one of the options identified by her was the termination of the agreement with F5. A number of those internal communications include a reference to the negotiations ending and to F5 being appointed or selected as the concessionaire. Those communications do aid a relevant fact or facts. They tend to confirm the fact that F5 had commenced as the concessionaire. They also tend to confirm the fact that after 23 December 2004, the parties were no longer in negotiations for an agreement. I have accorded some weight to that evidence, but only for those purposes. 103 As is often the case, there are indicators for and against a binding contract. For the reasons that I have expressed, those indicators that support the existence of contractual intent are significant. Those matters advanced by M2006 against the existence of contractual intent are either not made out or are of diminished weight for the reasons that I have outlined. On balance, I find that the requisite contractual intent existed, and that a legally binding contract was made between M2006 and F5 on 23 December 2004.

was the contract class 2 or 4? 104 M2006 contended that if there was a binding agreement made on 23 December 2004, it was not a contract affecting F5's appointment as concessionaire. It was a contract which contained a condition subsequent to formation but precedent to the performance of critical parts of the agreement and, in particular, F5's appointment as concessionaire. That condition was the making of the LFA with Board approval. On this alternative argument, M2006 asserted that a class 2 Masters v Cameron contract was made. 105 I have great difficulty with that characterisation. In Masters v Cameron,the court referred to the second class as characterised by a concluded bargain where performance of "one or more of the terms" is conditional upon the execution of a formal contract. Such a contract is unusual. Not many contracts are constituted by some terms that are operative immediately and yet others whose performance is conditional upon the execution of a formal contract. In any event, that is not this case. The contract here in question cannot be characterised as a contract where some terms were immediately operative and the performance of others was subject to a formal contract. What terms were immediately operative and not contingent upon a formal contract? Until the appointment of F5 as the concessionaire commenced, neither F5 nor M2006 had any obligation under the contract to do anything at all. What would be the point of M2006 and F5 making a binding contract where the performance of every obligation was conditional upon a formal contract? What was being bindingly agreed to in a contract of that kind? M2006 was not able to suggest an answer to any of these questions, nor does the evidence and nor can I. Nor, as I have found, does the evidence of the subsequent conduct of the parties support a common intent that F5's appointment as concessionaire was contingent upon a formal contract or Board approval. That all demonstrates that there are not three alternatives at play; either there was a binding contract of the fourth class, or no contract at all. 106 For the reasons that I have already addressed, I have determined that there was a binding contract. On the analysis just made it was not a contract of the second class. All of that leads to the conclusion that a binding contract of the fourth class was made between M2006 and F5 on 23 December 2004.

what were the terms of the concessionaire as MANUFACTURER clause? 107 By the time TPF/Stage 5 became interested in having their joint venture vehicle appointed concessionaire, Playcorp had already been appointed by M2006 as licensee for Games apparel. During the course of the negotiations between TPF/Stage 5 and M2006, Glover, Hilton and Strapp raised concerns about Playcorp. They were aware that the lion's share of likely sales by the concessionaire would be sales of Games apparel. Playcorp had not been appointed as an exclusive licensee but no other apparel manufacturer had been appointed by M2006. Glover, Hilton and Strapp were concerned that, given Playcorp was the only licensed manufacturer of Games apparel, there was a risk that in the absence of competition, Playcorp could behave unreasonably in its dealings with the concessionaire. 108 That concern was expressed to M2006 at a meeting held on 15 November 2004. At the meeting, it was suggested that there should be capacity for the concessionaire to manufacture itself where a licensed manufacturer was being unreasonable or was unable to deliver the products required. 109 That concern and the call made for it to be addressed led to negotiations between M2006 and the corporators of F5 with a view to including a clause in their contract. Those negotiations led to what I have earlier identified as the concessionaire as manufacturer clause. I have already set out at [6]and [13] the competing versions of the concessionaire as manufacturer clause that each of F5 and M2006 has asked the Court to accept. 110 F5 has put its case on the basis that there are four communications relevant to the proper construction of the concessionaire as manufacturer clause. Each of these communications was referred to in the letter of 23 December 2004 as containing the commercial terms and conditions of the agreement. It is necessary to set out relevant extracts from the first three communications in question. For later ease of reference, I have included (in the margin of some of the extracts) numbering in bold so as to identify particular parts of those communications. M2006 says that to construe the terms agreed upon properly, it is unnecessary to look past the words of the third communication - the 22 December email. 111 The relevant extracts are as follows: 16 December 2004 letter - Mair to Hilton/Glover/Strapp

Concessionaire as Manufacturer At the discretion of M2006 on the following basis: 1. Official Licensee not appointed 2. Official Licensee clearly unable to deliver 3. Official Licensee clearly not commercial 4. New product, M2006 unable to find a suitable company to appoint as Official Licensee 20 December 2004 email - Hilton/Strapp to Cohen

(i) 6.Concessionaire as Manufacturer - We have previously supplied to you a copy of our standard terms and conditions of purchase. We feel the following terms also need to be agreed to by suppliers in order to be commercially supportive of the programme; (ii) Orders Placed During The Commonwealth Games A mutually agreed amount of unbranded stock is to be held by the Supplier for branding & supply within 24 to 48 hours turnaround of order placement during the Games. (iii) Markdown Contribution Merchandise remaining at the conclusion of the Games will be marked down for quick sale. The supplier is required to match the markdown on a percentage basis, up to a maximum of 50%. For example: Retail Price $30 Sale Price $15 50% of Retail Wholesale $9.75Markdown to be borne by Supplier $4.88 50% of Wholesale (iv) The markdown contribution by the Supplier is capped at a maximum of 20% of the total spend with the Supplier. (v) In the event that Suppliers are not able to meet these terms or their price and terms are unworkable or not to market we would like the right to manufacture the product ourselves. 22 December 2004 email - Cohen to Strapp, Hilton and Glover

To confirm, the purpose of inclusion of trading benchmarks is to ensure the Concessionaire can manufacture should a Licensee be unreasonable or unable to deliver. Notwithstanding the benchmarks, M2006 will grant permission at its absolute discretion to allow Concessionaire to manufacture, and reserves the right to find an alternative Licensee should we decide this is appropriate.

(i) We are in agreement with the TPF trading terms provided by Simon Strapp.

(ii) We are in agreement regarding your proposal for mutual negotiations with Licensees to secure an amount of unbranded stock to be held by the supplier for branding & supply within 24 to 48 hours during the Games. (iii) Regarding markdown this is not a contractual agreement that Melbourne 2006 would enforce on Licensees, rather this is what we would consider to be reasonable and commercial terms that we would encourage the Licensees to support. We have thoroughly and diligently considered your figures but fell that they may not be industry standard and may place excessive pressure on Licensees, especially given that a proportion of your purchasing will be sale or return, and short turnaround delivery. As such we are comfortable to agree that a markdown rebate of 5% of total spend with the supplier is a reasonable request for this purpose. TPFS5 may find Licensees prepared to offer well in advance of this, however, we do not feel it is commercially appropriate to document anything greater in terms of our agreement with the Concessionaire. (iv) In terms of percentage share on markdown, again, we recommend that negotiation on a case by case basis is commercially available with every Licensee (and some may very well agree), however, in so far as an Agreement between Concessionaire and Melbourne 2006 is concerned we again feel that it would be onerous to document the terms you are requesting as based on our market knowledge and experience your request is not an industry standard. We are in agreement that you pool rebate money and apply markdowns accordingly. We trust that you are also confident in our ability to work closely with you as a team to ensure that the Concessions are a success for all concerned, and that we will apply our commercial sense in ensure that we work with you to maximise supply, sell-thru and sales opportunities at all times. We confirm that the vast majority of our Licensing Agreements are non-exclusive (Toys, Coins, Stamps are exclusive) and while we appreciate your trepidation, be aware that the Licensees need to ensure that they do great business with the Concessionaire to meet their own commitments and forecasts. A commercially sound, team approach will be a win/win for all and we are confident the Licensees also appreciate this reality. 112 It is not necessary to set out the email of 23 December 2004. That email was a response by Glover to Cohen's email of 22 December. As the terms of the email suggest and as Glover's evidence confirmed, Glover told Cohen that TPF/Stage 5 agreed to the points outlined in Cohen's email of 22 December 2004. 113 It is apparent that the critical communication is Cohen's email of 22 December, the contents of which were accepted by Glover. The first paragraph of the extract from that email, is the critical paragraph ("the critical paragraph"). Both parties rely upon it as the embodiment of the clause, but each interprets its meaning and intent differently. 114 The critical paragraph has two sentences separated by the word "notwithstanding". Each sentence refers to "trading benchmarks" or "benchmarks". 115 F5 contends that the reference to "trading benchmarks" or "benchmarks" is a reference to the "benchmarks" set out in the email of 20 December. In particular F5 relies on the sentence marked (iv) as specifying a benchmark. F5 says that on its proper construction, the sentence specifies as a benchmark the provision by a licensee of a price for its product which is workable or to market, or in other words commercial. 116 Returning then to the critical paragraph, F5 contends that on its proper construction, the first sentence provides for the capacity for the concessionaire to manufacture Games product, where a licensee is unable to deliver or is being unreasonable by reference to the trading benchmarks. Thus (as F5 contends in relation to breach), if a licensed manufacturer was being unreasonable because it was only prepared to sell to the concessionaire at a price which was not to market or was uncommercial, the concessionaire has the right to manufacture the Games product for itself. 117 M2006 contends that the first sentence of the critical paragraph is trumped by the second. M2006 says that the second sentence provides that, notwithstanding whether the benchmarks are met or not, the grant of permission to a concessionaire to manufacture is at the absolute discretion of M2006 and may be exercised without reference to the benchmarks or any other criteria. M2006 contended that the only limitation on the exercise by M2006 of its discretion was that it was not to be exercised arbitrarily or capriciously. 118 There are difficulties with each of the constructions contended for. F5's construction mis-identifies the trading benchmarks which Cohen was referring to. It is clear that the phrase 'trading benchmarks' was an intended reference to the content of the extract from the 20 December email. However, it is equally clear that price was not regarded by Cohen or included as a trading benchmark. In her response of 22 December, Cohen identified each of the trading benchmarks she had in mind. She dealt in turn with each of the trading benchmarks by reference to the order in which they were dealt with in the 20 December email. The first benchmark deals with standard terms and conditions of purchase (which I have numbered (i) in both emails), the second (numbered (ii)) with unbranded stock, and the third (numbered (iii)) with the subject of markdowns. Cohen accepted the first two benchmarks proposed and put a varied position in relation to the third. 119 In setting out what she regarded as the benchmarks, Cohen did not then deal with the item marked (iv) in the extract from the 20 December email - the sentence in which price is referred to. That is not surprising. The sentence in question does not readily identify anything which could be described as a benchmark. Unlike what precedes it, the sentence deals with what is requested should happen if the requirements just specified were not met. In that context, the sentence throws in a further request - "or their price and terms are unworkable or not to market". A requirement that price be workable and to market is so unspecific as not apt to be regarded as a benchmark. The sentence at (iv), was apt to be understood as an additional and overriding request to the effect that even if the earlier requirements (i)-(iii) were met, the concessionaire should be given the capacity to manufacture where the price and terms of the supplier are unworkable or not to market. There is nothing in Cohen's response that suggests she consented to that request. 120 The phrase 'trading benchmarks' is Cohen's phrase. She specifically identified what she had in mind in her email of 22 December. I find that, objectively understood, the reference to trading benchmarks or benchmarks in the critical paragraph are references to: · The standard terms and conditions of purchase provided to Cohen by Strapp. These were TPF's standard terms and condition provided on 15 November 2004; · The unbranded stock provision specified in the email of 20 December; and · The markdown provision specified in the email of 22 December. 121 The trading benchmarks do not include price. In rejecting F5's construction, I also reject the alternative contention that it relied upon. Prior to providing her detailed response, Cohen said in her email of 22 December that matters that did not pose an issue were not being responded to. F5 contends by reference to that comment that the reference to a price which is workable and to market at (iv) of the 20 December email, was not responded to because it was regarded by Cohen as agreed. 122 The contention is without merit. The email of 20 December dealt with 15 numbered points. Cohen responded with 12 numbered points each with a subject heading. Her opening comment was directed at the three numbered points that were not responded to and which were to be regarded as agreed. In relation to the other numbered points which included "Concessionaire as Manufacturer", Cohen gave a response. As that response shows, where Cohen agreed with a matter proposed in the 20 December email, she said so expressly. 123 M2006's contention that the second sentence of the critical paragraph is to be understood as providing M2006 with an open-ended discretion unencumbered by any criteria is also to be rejected. The construction that M2006 contends for ignores the context provided by the antecedent negotiations and gives the first sentence of the critical paragraph no work to do. 124 That M2006's construction was not intended is demonstrated by a number of matters. Firstly, the chain of communications indicates some preparedness by M2006 to compromise in order to reach agreement, rather than a hardening of its position. It should not be assumed that the presumed intent of the parties was to put F5 in a worse position vis a vis its claim, than the starting position which M2006 offered. M2006's construction has that effect. Whereas the starting point was that M2006's discretion was to be exercised by reference to specified criteria, on M2006's construction, that discretion is subject to no criterion at all. It is to be noted in this respect that the second sentence of the critical paragraph says "notwithstanding the benchmarks". It does not say "notwithstanding the first sentence". The criterion for the exercise of the discretion - that the licensee be unreasonable or unable to deliver - was not intended to be dispensed with. 125 Secondly, M2006's construction gives the first sentence no work to do. The first sentence is rendered entirely otiose because, on M2006's construction, the right to manufacture is governed by the exercise of M2006's absolute discretion. On that construction there is no purpose for the inclusion of the benchmarks, despite the fact that the first sentence says that the purpose of their inclusion is "to ensure" the concessionaire can manufacture. 126 The word benchmark is used in the critical paragraph in the sense of a point of reference from which measurement is to be taken - "a point of reference from which quality or excellence is measured": Macquarie Dictionary, 5th Edition p152. In my view, the benchmarks were included for the purpose of providing a point of reference for the exercise of M2006's discretion in determining whether or not a licensee was being unreasonable or was unable to deliver in relation to those subject matters dealt with by the benchmarks. However, the benchmarks were not intended as stand alone absolute markers, a breach of which enlivened F5's right to manufacture. It would be surprising if the parties intended that the slightest non-preparedness by a licensee to meet a minor term of the standard terms and conditions of trade, would trigger the right to an alternate manufacturer. It is for that reason, and not for the reason that M2006 proffers, that the word "notwithstanding" appears in the second sentence and the word "absolute" was added. 127 I find that on its proper construction, the concessionaire as manufacturer clause provided that M2006 would either grant permission for F5 to manufacture, or would appoint another licensee, where in the exercise of its discretion, M2006 was satisfied that a licensed manufacturer of Games product was either not willing to provide product to F5 on reasonable commercial terms or was unable to deliver. In relation to those commercial terms dealt with by the trading benchmarks (identified at [120]), M2006's discretion was to be exercised by reference to those benchmarks.

breach and repudiation 128 The relations between F5 and M2006 ended on 24 June 2005. In order to be able to characterise, in terms of legal principles, how that relationship ended and who might be held responsible for its downfall, it is necessary to canvass many of the events which led to that end point. 129 It was F5's relations with Playcorp and the failure of F5 and Playcorp to negotiate the terms and conditions of trade between them that led to the demise of F5's relations with M2006. As the only licensed apparel manufacturer and in circumstances where F5 expected that 70% or so of its sales would be of Games apparel, Playcorp was, from the perspective of both F5 and M2006, an important licensee. Relations between F5 and Playcorp were difficult throughout the course of their attempts to negotiate terms of trade. There were two matters in particular that Playcorp and F5 were having difficulty in resolving. The first was a demand by Playcorp for security for payment of purchases made by F5. The second was the prices that Playcorp would charge for the apparel sold to F5. 130 Even prior to F5's formation and the agreement of 23 December 2004, Playcorp and the incorporators of F5 were proposing disparate terms of trade. For the purpose of facilitating the tender for the concessionaire's contract, Strapp outlined proposed terms of trade to Playcorp and sought a response. He sought 60 days credit on purchases. Playcorp indicated that its normal terms were 30 days, and stated that the concessionaire would need to put up a bank guarantee as security for purchases. That was a matter of great concern to the incorporators of F5. At a meeting on 15 November 2005 with M2006 at which proposed trading terms with licensees were discussed, it was stated by TPF/Stage 5 that its joint venture would not provide a bank guarantee to licensees. Cohen was also told that there was concern about Playcorp's prices in the context that it was the only official licensee for apparel. As I have recounted, it was at this meeting that the issue of there being a facility for the concessionaire to manufacture if a licensee was unreasonable was first raised. 131 In March 2005 there were further negotiations between Playcorp and F5. Playcorp was adamant that it wanted a bank guarantee for the full amount of the anticipated initial order. The initial order was to be the major order and was anticipated to cost between $1m and $2m. Such a demand had never before been made in Glover's experience and he was particularly concerned by it. Strapp communicated to Mair, Cohen and Jenkins that Playcorp was insisting on that requirement and put F5's view that such a requirement was not commercial. Many communications, including the many meetings that occurred in March 2005, were dominated by the issue of security for payment of Playcorp product. A number of different proposals to resolve the issue were put by F5 but rejected by Playcorp. On 17 March, F5 requested that M2006 allow it to manufacture because it was unable to negotiate reasonable trading terms with Playcorp. In a paper tabled at a meeting between F5, Jenkins and Mair on 23 March 2005, F5 requested that the draft LFA be amended to include F5 as an alternate apparel licensee. The paper said that in the event M2006 could not agree to that, F5 "will need to reconsider [its] appointment as Concessionaire". 132 Playcorp's position was that it was concerned about F5's lack of trading history, and it wanted security. In a number of communications, further options were floated including the provision of guarantees from F5's parent companies. That proposal was rejected by Playcorp. Strapp raised the idea of a letter of credit instead of a bank guarantee but Glover immediately intervened to reject the idea. In an email to Speer on 5 April 2005, Glover indicated that a letter of credit was not an option, and said that if Playcorp did not wish to deal with F5 on the terms proposed by F5, then another licensee should be found or alternatively F5 should be allowed to manufacture apparel for itself. 133 On 8 April 2005, Mair, Jenkins, Strapp and Hilton and Steven Lew of Playcorp met. Despite Glover's earlier opposition to the provision of a letter of credit, Strapp indicated that F5 was prepared to provide Playcorp with a letter of credit for the initial order of apparel. Playcorp was prepared to accept a letter of credit and not insist on the bank guarantee. However, despite that progress, there were other difficulties and in particular a dispute as to how Games-time orders (that is, orders placed during the course of the Games) would be paid for. F5 sought credit for those orders. Playcorp rejected the idea of providing credit for Games-time orders and suggested that F5's directors should put Games-time orders on their personal credit cards. That suggestion seems to have added insult to injury and heightened the personal animosity which the evidence suggests existed between the representatives of F5 (particularly Glover) and those of Playcorp. 134 By 12 April 2005 Mair, Cohen and M2006 were sufficiently concerned about relations between F5 and Playcorp that an options paper was prepared for resolving the Games-time order issue. The options considered by the paper included authorising F5 to manufacture, appointing a second apparel licensee, terminating M2006's agreement with Playcorp and terminating M2006's agreement with F5. 135 F5 was seeking Games-time credit of $200,000. A discussion occurred between Hilton and Lew in which Lew said that Playcorp would consider giving F5 $200,000 in Games-time credit if F5 was prepared to purchase caps from Playcorp. Playcorp was not the only licensed manufacturer for caps and Playcorp was attempting to leverage its preparedness to provide Games-time credit if it could get F5's caps business. To get that business, Playcorp also offered to match the price offered by the other licensee for caps. Whilst in his cross examination, Glover accepted that Playcorp's proposal to resolve the Games-time credit issue was reasonable, at the time no such resolution was arrived at, including because of the emerging dispute as to Playcorp's prices. 136 Whilst I would infer that the Games-time credit issue would have been resolved if the issue of price had been resolved, by mid April of 2005, it was clear that F5 was outraged by the pricing being offered by Playcorp. 137 Although concern about price had been expressed at an earlier time, by late April 2005 price had become a matter of substantial dispute between Playcorp and F5. Playcorp had provided an update on its proposed pricing on 8 April 2005. Glover arranged for an apparel manufacturer called International Sports Clothing ("ISC") to provide him with a quote for the supply of apparel. That quote was supplied on 26 April 2005. A witness in the proceeding, Brett Corrick of ISC, provided the quote. On receiving the quote, Glover prepared a spreadsheet comparing the prices offered by ISC and those offered by Playcorp. Glover's view was that the comparison showed that ISC's prices were significantly less than those offered by Playcorp. The comparison he made in relation to the initial order of stock showed that ISC's prices were over $700,000 cheaper than those offered by Playcorp. Glover had confidence in ISC as a supplier. He had used them in the past and felt that they had promptly provided products of excellent quality. ISC had never let him down. Glover was keen for ISC to be appointed an alternative licensee for apparel. 138 The price comparison prepared by Glover was provided to M2006 at a meeting on 27 April 2005 attended by Cohen, Mair, Jenkins, Speer, Strapp, Hilton and Glover. Cohen stated that ISC had previously applied to be appointed as the official licensee for apparel but was unsuccessful. It was pointed out that Playcorp had been appointed based on its performance over a number of stringent criteria. Cohen emphasised that it was not simply about the lowest price. Cohen indicated her concern about the quality of ISC's product and said that it was not comparable to Playcorp's product. Glover asserted that ISC produced apparel which was as good as if not better than Playcorp and handed around some samples. Other difficulties were raised in relation to Playcorp, including F5's concerns about its capacity to deliver product when required. 139 On 29 April 2005, Cohen wrote to F5 seeking information in order to prepare an analysis of the gross margin that F5 anticipated in relation to the sale of Games apparel. Whilst Cohen gave other reasons for this request, her intent was to obtain this information for the purpose of trying to resolve the dispute over whether Playcorp's pricing was reasonable. Cohen's request was resisted by Glover on the basis that a margins analysis was not applicable or necessary for M2006 and that competitive prices for apparel was what F5 required. Glover also suggested that competitive pricing from manufacturers of apparel could be facilitated by obtaining quotes from two further manufacturers. Cohen insisted on information which would enable her to calculate the average gross margin that F5 was seeking for apparel. There was further resistance from Glover who continued to emphasise to Cohen that Playcorp was overpriced and that price and not F5's margin was the most important factor in determining if Playcorp was being reasonable. On 12 May 2005 Strapp provided to Cohen the margins analysis which she had requested. On the basis of that information, Cohen informed M2006 that F5 was seeking an average margin of 86.3%. She advised that this was very high and that in respect of apparel was outrageous. She further advised that based on her experience of other major events, average margins were generally in the range of 60% to 70%. She noted that in the response to the RFP, the incorporators of F5 had sought a margin of 64%. 140 Shortly before Cohen prepared the margin analysis, F5's lawyers provided advice in relation to the wording of the draft LFA. In relation to the clause dealing with the concessionaire as manufacturer issue, F5's lawyers raised a concern about the use of the expression "reasonable commercial terms". F5 began pressing M2006 to agree to a definition of that phrase. On 16 March 2005, Glover had a discussion with Cohen about that issue. He said the phrase "reasonable commercial terms" in the draft LFA wasn't clear enough. He said that F5 requested that "reasonable commercial terms" should require the licensee to match or better the terms obtained through three quotes from other suppliers adjusted to take into account royalties paid by the licensee to M2006. Cohen had other ideas. After preparing her margins analysis, Cohen advised M2006 that "commercial terms" should be based on F5's margin and that a margin in the range of 60-70% should be regarded as fair commercial terms for the purpose of M2006 deciding whether a licensee was offering F5 reasonable commercial terms. 141 On 18 May 2005, Glover attended a meeting with Mair and Lew. At that meeting, prices were discussed again. Glover complained that Playcorp's prices were commercially unreasonable, and that if Playcorp couldn't work within F5's price range, F5 will not be able to purchase products from it. Glover asserted that F5's agreement with M2006 called for the licensee to be able to deliver commercial pricing and that that was clearly not the case in relation to Playcorp. 142 On the same day, Glover spoke with Cohen. Cohen told him that Playcorp was offering F5 margins of 65%-77%, and that that was commercially reasonable. She pointed to the fact that Factory 5's response to the RFP proposed an average cost of product of 32.5% or a 64% gross margin. She asserted that Playcorp's offer exceeded Factory 5's proposal when it tendered for the concessionaire contract. Glover responded by asserting that the 32.5% cost of goods sold in F5's response to the RFP was based upon acceptance of certain trading terms, and that it was no longer applicable because Playcorp was not prepared to offer those trading terms, including by requiring a letter of credit and denying credit on Games-time orders. He asserted that by reason of the trading terms demanded by Playcorp, the margin now required by F5 was significantly higher than earlier anticipated, given the level of risk F5 was taking with the venture. 143 On 19 May 2005, Glover wrote to Cohen, stating that F5 felt that they had reached a state with Playcorp where they were going nowhere fast and that their operations were stalling. He noted the need to raise orders for infrastructure immediately, and the need for other items such as fixtures, IT, management staff and other licensee's products to be dealt with. He complained about Playcorp's prices, suggesting that its revised prices had actually gone up. He said that Playcorp's prices could not be viewed as commercially reasonable, and that unless Playcorp could work within F5's commercially quoted price range, F5 would not be able to purchase product through Playcorp. He asserted that F5's agreement with M2006 called for the licensee to be able to deliver commercial pricing, and that that was clearly not the case in relation to Playcorp. He enclosed a price structure which he asserted to be commercially reasonable, and said that should Playcorp not accept those prices, F5 proposes that M2006 appoint F5 as manufacturer in accordance with the terms of F5's agreement with M2006. In the alternative, he suggested that M2006 appoint TPF as an apparel licensee. He said that F5 had had enough of the issue, and that it must be brought to an end immediately in order to deliver the best possible outcome for M2006 while minimising F5's "huge risk in taking on this massive project". He closed by stressing again that F5 must buy products at commercial pricing from all licensees and that F5 cannot be cornered by there being no other manufacturer available. 144 On 19 May 2005, Playcorp confirmed to Mair that it was comfortable with a pricing structure which would provide an average apparel margin to F5 of between 64% and 71%. 145 On 20 May 2005, Cohen wrote to Glover. She again asserted that the margins of approximately 65%-77% offered by Playcorp were commercially reasonable. She set out her reasons including her view that the trading terms being offered by Playcorp did not significantly impact on the prices proposed by Playcorp, and that those prices were competitive regardless. She told Glover that she would not recommend to M2006 that it should regard Playcorp as uncommercial. She asked Glover to proceed and finalise F5's orders with Playcorp. 146 On 25 May 2005, a teleconference between Speer, Cohen and Jenkins took place, in which the problems between F5 and Playcorp were further discussed. Speer was of the view that the key issue which was causing the difficulties was F5's position that Playcorp's pricing was unreasonable and uncommercial. His view was that F5 was simply wrong on that point, and that the margins which Playcorp was prepared to offer F5 were commercial and reasonable. He based that view on the information which Cohen had provided including as to the average margins which had been achieved by concessionaires at other major sporting events and also the margins which both F5 and its competitor on the tender for the concessionaire contract had specified in their initial proposals in response to the RFP. The consensus of the meeting was that the terms being offered by Playcorp were reasonable and commercial and that M2006 should confirm that position to F5. 147 On 26 May 2005, Jenkins e-mailed Strapp, Hilton and Glover. In relation to F5's concern as to the cost of items obtained from official licensees, Jenkins stated that M2006 had revisited the original RFP response submitted by F5, which he asserted was part of the basis of negotiations leading to the signing of the "Heads of Agreement". Jenkins pointed out that in that response, F5 stated that its budget was based on a cost of goods sold not exceeding 32.5%. He said that in considering whether the commercial terms as proposed by an official licensee were reasonable, M2006 would have regard to whether F5's average cost of goods sold exceeded 32.5%. He identified cost of goods sold as a key element in M2006's considerations as to whether the commercial terms proposed by a licensee to F5 were reasonable and whether those commercial terms would justify the appointment by M2006 of a further official licensee or allow F5 to manufacture. Jenkins also noted F5's concern about payment terms. He wrongly asserted that F5 and Playcorp had agreed on the provision of letters of credit and credit for Games-time orders. He noted F5's claim that those factors were relevant and changed the basis as to whether other aspects of the terms offered were reasonable, but rejected that position. Jenkins said that M2006 considered those factors to be part of the ordinary course of business. 148 On that day, Strapp phoned Jenkins and said in substance that F5 did not agree with M2006's definition of "commercial terms". He said that F5 maintained the view that Playcorp's pricing was uncommercial and unreasonable. Strapp asked Jenkins to arrange a meeting between F5 and Harnden to try and resolve the matter. 149 A meeting was arranged for 3 June 2005 at which Harnden and Jenkins met with Strapp and Hilton. Strapp and Hilton came with a written paper setting out F5's position. That paper was distributed at the meeting but was not dealt with in any detail. Strapp and Hilton identified F5's concerns about Playcorp's trading terms, and in particular its requirement for a bank guarantee to secure its orders with Playcorp. Harnden responded with a statement that he did not think it was unreasonable for Playcorp to require the provision of some security, given the likely size of F5's orders and its lack of any trading history. Strapp and Hilton then said that they understood that some sort of security was necessary, and that if the other issue (price) could be sorted out, F5 could sort something out on the security issue. They identified the real issue for F5 as being that Playcorp was greedy, asserting that Playcorp was trying to make too much money out of the Games and was being totally unreasonable. 150 Strapp and Hilton referred to a quote that F5 had received from ISC. They noted that for the provision of T-shirts, ISC had quoted $5.50 whereas Playcorp was seeking to charge around $9.00 for what they asserted to be the same T-shirt. I accept Harnden's evidence that he said that if the disparity in price was correct, it would be a matter of concern to him, and that he would go back to Playcorp and have a discussion with them about their pricing. Harnden, however, raised whether F5 was comparing 'apples and apples'. There are differences in the accounts given of this conversation by Harnden and Jenkins on the one hand, and Strapp and Hilton on the other. All concerned accept that Harnden raised whether a proper comparison between T-shirts was being made, and that the meeting ended on the basis that further investigations about that issue were necessary in order for Harnden to be satisfied that this was indeed an 'apples and apples' comparison. Where the evidence differs is that Harnden and Jenkins claim that Harnden put the onus on F5 to come back to him and prove on an 'apples and apples' comparison that Playcorp was overcharging; whereas Strapp and Hilton claim that at the end of the meeting, Harnden said that he needed to investigate whether this was an 'apples and apples' comparison, and that he would let F5 know the outcome as soon as possible. I need not resolve that dispute in the evidence. I am satisfied that after the meeting, Harnden was of the view that F5 would come back to him in relation to his query and that Strapp and Hilton believed that Harnden was to investigate for himself whether the prices quoted were based on an 'apples and apples' comparison. 151 The paper prepared by F5 and distributed at the meeting is relevant. It commenced by giving a background of events in relation to the pre-contractual discussions and negotiations. F5's paper concluded with assertions that both the terms and the pricing offered by Playcorp were unacceptable from a commercial point of view. F5 said that it had obtained independent advice that the pricing and terms offered by Playcorp were not commercial. The paper emphasised that this was particularly so given the terms of the agreement signed in December 2004. F5 further advised that its advice was that M2006 was anticompetitive and in breach of the Trade Practices Act. F5 requested that either it be appointed as an alternative apparel licensee, or that TPF be appointed instead. The paper concluded with the following paragraph: We clearly flagged the likelihood of this situation occurring with M2006 prior to signing the agreement. We were repeatedly reassured that if at any time the licensee was not commercial in their dealings, then F5 or an alternate licensee would be appointed. We feel M2006 have not complied with the Agreement. We need closure on this issue immediately and trust that M2006 will take the necessary action. 152 By letter of 7 June 2005, Cohen wrote to Speer to express MTM's serious concerns with regard to the protracted delay in ending the debate concerning reasonable commercial terms. The letter gave a history of events, set out Cohen's views, and concluded that MTM was extremely concerned that, given the extended duration of the debate, a point had been reached where Playcorp and F5 may proceed to take legal action against M2006. Cohen demanded that M2006 fully indemnify MTM for any legal issues that may arise from the dealings between F5 and Playcorp. I infer from the contents of this letter and from the evidence of earlier communications between Cohen and Glover that relations between the two were extremely strained. 153 On 10 June 2005, Strapp e-mailed Jenkins, Speer and Harnden, referring to their meeting the previous Friday and asking that F5 be advised of M2006's decision regarding F5's repeated requests to appoint another apparel licensee. The email sought a response as soon as possible, but no later than 14 June 2005. 154 On 14 June 2005, Strapp called Speer and pressed for a response to his e-mail. Speer told Strapp that Playcorp was prepared to provide F5 a minimum gross margin of 70% and in many instances the margin would be greater. Speer advised that M2006's position had not changed, and that it did not intend to appoint another official licensee for apparel. 155 On 16 June 2005, Strapp emailed Harnden. He complained that F5 had heard nothing from him following on from their meeting of 3 June. He said that he had spoken to Speer on 14 June and that Speer had advised that M2006's position had not changed and that M2006 considered the terms of trade being offered by Playcorp were commercial. Strapp claimed that to be a clear breach of the agreement signed on 23 December 2004, and a reversal of the many assurances that were provided by both Mair and Cohen in the negotiation of the agreement. Strapp urged Harnden to read the agreement again, and the paper provided at the meeting of 3 June. He asserted that M2006 had both a moral and legal obligation to F5. He said that F5 expected M2006 to live up to the morality of the agreement, however in the event that it did not, that F5 would protect its position legally. He said that was not the way F5 wanted to resolve the matter, but that F5 was seemingly left with no alternative. 156 Strapp's email was discussed by Speer, Jenkins and Harnden on the same day it was received. Harnden decided that M2006 would not appoint another licensee for apparel, and suggested that M2006 respond to Strapp setting out its position. 157 On 17 June 2005, Glover had a telephone conversation with Cohen in which he said that he had asked F5's legal team to hold off sending M2006 a letter, and that he was frustrated at not being able to speak with Speer. He said M2006 had not listened to F5. Cohen responded that F5 was being unreasonable in not dealing with Playcorp. 158 Jenkins prepared a letter to Strapp which was approved and signed by Harnden on 17 June 2005, and sent by facsimile that day. The letter referred to recent discussions and to Strapp's e-mail. It denied that M2006 was in breach of any agreement with F5. It said that, as had been communicated to F5 on numerous occasions, M2006 was becoming increasingly concerned at the continued delay in relation to the issues surrounding reasonable commercial terms. That was impacting on the finalisation of the legally binding LFA between M2006 and F5, and on F5 agreeing to trading terms with Playcorp. The letter confirmed that M2006 did not propose to exercise its discretion to appoint a further licensee in the apparel category or to appoint F5 or one of its associated companies to manufacture apparel itself. The letter warned that, should M2006 come to the conclusion that as a result of these issues the concessions business was imperilled, then M2006 would need to take whatever action was necessary to safeguard the success of that aspect of the Games. The letter concluded with the following paragraph: In conclusion, M2006 has stated its position clearly regarding the commercial terms issue and considers that it is complying with both its legal and moral obligations to F5. We require F5 to revert urgently to confirm F5's commitment to moving forward on the above basis and to delivering on the concessions program for the Games. Evidence of F5's commitment is expected within two business days of receiving this letter, in the form of an executed long form agreement and placement of firm orders with Playcorp. M2006 will make itself available to meet this timeframe. 159 At the time the letter of 17 June 2005 was written, a number of drafts of the LFA had been exchanged, but the terms of the LFA had not been finalised. On 22 April 2005, M2006 e-mailed Strapp setting out a number of comments responding to comments made by F5's lawyers in relation to a draft of the LFA. Many points previously raised were agreed, other matters were not. F5's lawyers provided further comments on the draft LFA on 3 May 2005 and these were relayed to M2006 on 4 May 2005. There were 4 matters of concern identified by F5's lawyers including the expression 'reasonable commercial terms' in the clause to deal with the capacity of F5 to manufacture. Beyond that point, no further progress appears to have been made in relation to the draft LFA. I would infer that that was so because of the dispute between F5 and M2006 as to how the concessionaire as manufacturer clause should be worded. 160 On 21 June 2005, Harnden received a letter from Fetter Gdanski Solicitors acting on behalf of F5. The letter set out a history of the dispute as asserted by F5. It began by stating that M2006 had on numerous occasions represented to F5 that it ought not to worry about the fact that only one apparel licensee had been appointed, because Playcorp was not exclusive and that if Playcorp proved not to be commercial, M2006 would appoint another licensee. The solicitors stated that if F5 had understood that M2006 would back away from those representations in the manner that it had, F5 would not have tendered for the concessions contract. The letter made further reference to what it asserted were representations made by M2006 that it would take a commercial view, and that a new apparel licensee would be appointed (or F5 itself would be appointed) if Playcorp proved to be difficult. The letter then referred to the various communications specified in the letter of 23 December 2004, and stated that F5 had executed the Concessionaire Agreement dated 23 December 2004 on the basis of those communications. Reference was then made to difficulties with Playcorp and in particular its pricing. The solicitor's letter claimed that by forcing F5 to deal with Playcorp and only Playcorp, M2006 was engaging in the practice of exclusive dealing, and was in breach of s 47 of the Trade Practices Act. The letter referred to previous demands made on numerous occasions that F5 be appointed as the apparel licensee or that an alternative licensee be appointed immediately. It repeated that demand. The letter asserted that F5 was now under time constraints. It concluded: Our client will sign the Long Form Concessionaire Agreement when you adhere to the representations that you have made and to the terms of the Heads of Agreement. Our client does not have to place firm apparel orders within two days pursuant to the Heads of Agreement or the Long Form agreement. On what basis do you make such a demand now? Our client is keen to continue with M2006 in accordance with terms of the Agreement signed on 23 December 2004. If you are not prepared to appoint our client as an apparel licensee or appoint another independent apparel licensee within 24 hours, our client reserves all its rights, including seeking injunctive relief. 161 The letter from Fetter Gdanski was discussed by Harnden, Speer and Jenkins. Harnden requested that Cohen prepare a memorandum setting out a response to Fetter Gdanski's letter for the purposes of further discussion. The memorandum provided by Cohen on 22 June 2005 made detailed comments over a range of matters relevant to the dispute between F5, Playcorp and M2006. Much of the report is reflective of Cohen's views earlier set out. In particular, Cohen emphasised that F5 had provided its RFP response on the basis that it would work to a cost of goods sold of 32.5%, and that Playcorp's pricing was more competitive than that stated requirement. Cohen asserted that both MTM and Speer had made enquiries with industry experts who had confirmed that a gross margin of about 65% is industry standard for a business of the kind that F5 was operating. Cohen advised that based on a conversation she had had with Playcorp that morning, Playcorp were moments away from walking away from their decision to be a M2006 licensee and that that would be an unmitigated disaster for M2006's licensing programs. 162 Harnden took into account Cohen's memorandum and was of the view that the information therein contained was consistent with and reinforced by his own view of the situation. He said it was critical for him that F5 had still not put before him information about the price at which ISC could produce the same T-shirts as those produced by Playcorp. Harnden discussed with Speer and Jenkins a number of options to try and resolve the dispute, however in the light of the information about margins and pricing set out in Cohen's memorandum and his own experience, he could see no basis for concluding that Playcorp's pricing and terms were uncommercial or unreasonable. Harnden was of the view that Playcorp's pricing and terms were commercial or reasonable. Late on 23 June 2005, Harnden formed the view that M2006 should terminate its negotiations with F5 and look to appoint another company or companies as concessionaire. 163 He discussed the matter with Speer, and they both agreed that M2006 should terminate negotiations. Speer's evidence was that he too had given considerable thought to the difficulties with F5. Based on his knowledge, he was satisfied that the terms being offered by Playcorp to F5 were both reasonable and commercial. His evidence was that in coming to that view, he relied on the advice of Cohen and Mair about the average margins which had been achieved in other major sporting events, and the margins which the incorporators of F5 had specified in their response to the RFP. He also relied on his own experience, Harnden's experience, and comments made to him by other licensing consultants whom he had spoken to about the issue. 164 On the afternoon of 23 June 2005, Jenkins had a telephone discussion with Strapp. He referred to the Fetter Gdanski letter and said that M2006 and F5 were clearly at opposite ends. Strapp said, in substance, that he expected that M2006 would need to appoint someone else as concessionaire. 165 By letter of 24 June 2005 from Speer to Strapp, M2006 referred to its previous letter of 17 June 2005 and acknowledged receipt of the Fetter Gdanski letter of 21 June 2005. The letter asserted that since December 2004, M2006 had sought in good faith to negotiate the terms of a legally binding LFA. It asserted that the delay in finalising that agreement had put in jeopardy the success of the concessions business. Speer noted that in his letter of 17 June, he had requested F5 to execute the LFA within two business days. The letter concluded: As this time period has now elapsed and F5 has not executed the Concessionaire Agreement and provided it to M2006, M2006's position is that it is no longer prepared to continue negotiations with F5. Accordingly, this letter is notice that, with immediate effect, M2006 has terminated negotiations with F5. M2006 will now take appropriate steps to protect its commercial interests in relation to the concessions business.

166 On the same day, M2006 communicated to its licensees that it was no longer negotiating with F5 and that it had recommenced discussions with suitable operators and was working towards appointing a concessionaire as a matter of priority. I infer that from 24 June 2005, M2006 began to take steps to appoint another concessionaire. 167 No response to Speer's letter of 24 June was made by F5 until 16 August 2005. On that day, Fetter Gdanski responded by a letter addressed to the solicitors for M2006. The letter stated that F5 was bemused by M2006's letter given that F5 had never received a final copy of the LFA that F5 was supposed to have signed. The letter then noted that no response had been made to the issue raised relating to s 47 of the Trade Practices Act. The letter concluded: We advise that our clients reserves its rights in relation to the Heads of Agreement. It regards your client as being in breach of its obligations and is of the view that it has acted in a misleading and deceptive manner. Our client has further taken its concerns about your client's apparent breach if [sic] s 47 to the ACCC. 168 There were no further dealings between F5 and M2006, although both Strapp and Hilton continued to work closely with M2006, Mair and Cohen in relation to TPF's contract with M2006. 169 On 1 November 2005, F5 was placed into liquidation. 170 On 16 November 2006, F5 commenced its application in this Court.

was m2006 in breach of the concessionaire as manufacturer clause? 171 F5's case that M2006 breached the contract must fail. F5's case at trial relied upon F5 succeeding on the construction of the concessionaire as manufacturer clause for which it contended. 172 Its case was that Playcorp was uncommercial and unreasonable because its prices were not to market. It contended that its right to manufacture was enlivened by the fact that Playcorp was being unreasonable as to its prices. It sought a finding that Playcorp's pricing was unreasonable. It resisted a construction of the concessionaire as manufacturer clause which placed the reasonableness of a licensee in relation to its prices within the discretion conferred on M2006 by the clause. 173 F5 did not plead nor put a case at trial that M2006 failed properly to exercise or wrongfully exercised the discretion given to it in the concessionaire as manufacturer clause: Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439 at 450 and 452. Although F5 pleaded a breach of an implied duty of good faith, it did not press that at trial. Its case on whether M2006 was in breach stood or fell upon the construction of the concessionaire as manufacturer clause for which it contended. 174 Having rejected F5's construction of the concessionaire as manufacturer clause, I must also reject F5's case as to breach. 175 For the sake of completeness, I should add that even if F5 had put a case based on M2006 having failed properly to exercise its discretion, that case would not have been sustained on the evidence. The concessionaire as manufacturer clause is a type of provision which confers a power upon the donee of the power which is exercisable by the donee where the donee considers that a certain state of affairs or condition exists. In this case, the power was to be exercised where M2006 considered that a licensed manufacturer of Games product was either not willing to provide product to F5 on reasonable commercial terms or was unable to deliver. As Tennent J, Buchanan JA and Mandie J said in Tote v Garrott (2008) 17 Tas R 320 at 326-327 in relation to such a case, "a court may well hold that the power can only be exercised by an honest decision that the state of affairs or condition does exist, but the honest exercise of the power will not be reviewed by the court". There is no evidence suggesting that the decision made by M2006 to refuse to exercise the power to allow F5 to manufacture or to appoint an alternative manufacturer was a power exercised other than honestly.

repudiation, acceptance and ABANDONMENT 176 Repudiation of a contract by a party to it is manifested by an unwillingness or inability by that party to perform the contract, in substance or at all, before or at the time when performance is due. The principles governing repudiation of a contract were shortly stated by Finn and Sundberg JJ in Pacific Brands v Underworks (2006) 149 FCR 395 at [102] as follows: (i) A party will have repudiated a contract if, by words or conduct, it evinces an intention no longer to be bound by it or if that party shows it intends to fulfil the contract only in a manner substantially inconsistent with its obligations and not in any other way: Shevill v Builders Licensing Board (1982) 149 CLR 620 at 625-626[PDF]; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623[PDF]. (ii) The party's conduct is to be judged objectively by reference to the effect it would be reasonably calculated to have upon a reasonable person: Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd at 658; Satellite Estate Pty Ltd v Jaquet (1968) 71 SR (NSW) 126 at 150. (iii) A party that acts on a genuine but erroneous view of its obligations under the contract will not for that reason alone have repudiated it. That party may still be willing to perform the contract according to its tenor: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 431-432[PDF]; Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277. But persistence in an untenable construction will ordinarily be regarded as repudiatory: Summers v Commonwealth (1918) 25 CLR 144 at 152[PDF]; and see Chitty on Contracts, [25-018]. 177 Whilst M2006 and F5 may have conducted themselves on the basis of their own perceptions of whether a contract existed and, if so, what the terms were of the concessionaire as manufacturer clause, for the purpose of determining the legal significance of their conduct, that conduct is now to be considered in the light of the true interpretation of the contract as determined by my earlier findings: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at [433]. 178 There are claims of repudiation going both ways that I must resolve. The relevant question is whether the events which I have recounted evince an intention on the part of F5 or alternatively M2006 to repudiate or renounce the concessionaire contract which was made on 23 December 2004. 179 The clearest example of repudiation arising out of the conduct of the parties is M2006's renunciation of the contract by its letter of 24 June 2005. That letter advised F5 that M2006 was no longer prepared to continue to negotiate with F5, that negotiations were terminated and suggested that M2006 would take immediate steps to negotiate with others in relation to the concessionaire business. That letter was a response to the Fetter Gdanski letter of 21 June 2005 which had asserted both the existence of the contract and the breach of it by M2006. Considered in the context of that letter and in the light of the contract that I have determined was made, M2006's letter of 24 June 2005 can only be read as denying the existence of the contract and abandoning it. To do that is to evince an intention not to be bound by the contract: Woodar Limited v Wimpey Limited [1980] 1 WLR 277 at 283 and Australian Coarse Grain Pool Pty Ltd v Barley Marketing Board (1989) 1 QdR 499 per Connolly J at 505 and per Ryan J at 513. Further and in any event, by moving to appoint another concessionaire on and from 24 June 2006, M2006 evinced a repudiatory intent. 180 There are, however, a number of potential barriers to F5 succeeding on its claim for damages based on the repudiation of the contract by M2006 on 24 July 2005. First, on the assumption that it repudiated on 24 June 2005, M2006 contends that prior to any such repudiation by it, the contract had already come to an end. In that regard it asserts that F5 had earlier repudiated and that such repudiation had been accepted by M2006. Second, if that were not so, M2006 contends that F5 is unable to take advantage of any repudiation by M2006, because F5 was not itself ready and willing to perform the contract and in any event did not accept any repudiation by M2006. 181 F5 is said to have repudiated the contract by reason for its insistence on being appointed as manufacturer or that another licensee be appointed in lieu of Playcorp, together with its insistence upon an incorrect interpretation of the concessionaire as manufacturer clause of the contract and as a result its refusal to execute the LFA. 182 There is merit in this contention. However, a finding of repudiation by F5 is of no benefit to M2006 unless it can demonstrate that it was both ready and willing to perform the contract and that it accepted F5's repudiation. 183 Where a party claims to be entitled to rescind on account of the other party's repudiation, that party must show not only the other party's repudiation but also its own readiness and willingness to perform its essential obligations under the contract: Foran v Wight (1989) 168 CLR 385 at 424; DTR Nominees at [433]. This requirement is premised on the rationale that a party should not be able to sue for breach if it is unable or unwilling to carry out its part of the bargain: Foran v Wight at 452. Whether the repudiation is based on actual or anticipatory breach, readiness and willingness is an element of the cause of an action of the party who claims it was entitled to rescind, and the burden of proving readiness and willingness rests upon that party: Foran v Wight at 452 and also at 402, 406. A substantial incapacity or definitive resolve or decision against doing in the future what the contract requires, evinces an absence of readiness and willingness: Rawson v Hobbs (1961) 107 CLR 466, 481 per Dixon CJ; Foran v Wight at 425 and 453. 184 A contract remains on foot until acceptance of the repudiation: Foran v Wight at 416. Whilst the communication of an election to terminate is essential, that communication may occur by words or conduct so long as the election is made manifest: Holland v Wiltshire (1954) 90 CLR 409 at 416 per Dixon CJ, and at 423 by Taylor J. 185 The events I have recounted, and in particular the letter of 24 June 2005, deny to M2006 the capacity to demonstrate either readiness and willingness to perform or the acceptance by it of any repudiation by F5. 186 M2006 contends that it accepted the repudiatory conduct of F5 by its letter of 24 June 2005 and by reason of the fact that dealings between M2006 and F5 ceased thereafter. As I have found, that letter is to be objectively understood as communicating a denial by M2006 of the existence of the contract. The fact that there were no further dealings between M2006 and F5 is consistent with that denial. The denial by M2006 of the very existence of the contract, and its abandonment of it, evinced its intention not to be bound by the contract and a definitive resolve or decision against doing in the future what the contract required. I am satisfied that at the time of the rescission which M2006 relies upon, M2006 was not ready and willing to perform the contract and was not entitled to rescind. Nor are the letter of 24 June 2005 and the absence of any further dealings between the parties based upon M2006's denial of the existence of the contract capable of being characterised as the communication by M2006 of its election to terminate the contract: Lennon v Scarlett & Co (1921) 29 CLR 499 at 510. 187 Accordingly, assuming in favour of M2006 that F5 had by 24 June 2005 repudiated the contract, I find that the contract was not validly rescinded by M2006 as at that date or at all. It follows that the repudiation by M2006 of 24 June 2005 occurred at a time when the contract remained on foot and provided a basis upon which F5 could have validly rescinded the contract and sued for damages. That, however, leaves for consideration what I regard as the critical question - whether F5 was ready and willing to perform its part of the bargain and complete the contract had M2006 not repudiated. 188 By its claim, F5 pleaded that during the period from 23 December 2004 until 24 June 2005 it performed its obligations pursuant to the contract and evinced a willingness to be bound. In support of that pleading F5 referred to its conduct in engaging employees, negotiating with licensees, commissioning drawings and its negotiations with M2006 regarding the form of the LFA. However F5's readiness and willingness was not challenged by reference to those circumstances. In substance, the challenge made by M2006 was that the absence of F5's readiness and willingness was evinced by F5's persistence with an incorrect interpretation of an essential part of the contract for over 4 months and as a result, its refusal to place orders with Playcorp and its refusal to execute the LFA. That conduct is asserted by M2006 to objectively evince a "definitive resolve or decision against doing in the future what the contract required": Rawson v Hobbs at 481. 189 I do not regard F5's failure to execute the LFA as evincing a lack of readiness and willingness to perform the contract. As the content of the letter of 23 December 2004 shows, it was a term of the contract made that the parties execute the LFA. The time for the execution of the LFA was not specified and in those circumstances it is appropriate to construe the contract as requiring the execution of the LFA within a reasonable time. It is unnecessary for me to make a finding as to what would have constituted a reasonable time because it is clear from the conduct of the parties that whenever the time for performance may have been due, at least until 17 June 2005 neither had insisted upon performance and both should be regarded as having agreed to extend the time for performance at least until the expiry of two business days following the receipt of M2006's letter of 17 June 2005. By that letter, M2006 demanded performance by the execution of the LFA. However, in circumstances where M2006 failed to accompany the demand with a draft of the LFA in terms which it itself regarded as finalised, the demand was hollow. In those circumstances, I do not regard F5 as having breached the condition that the LFA be executed, and I do not, by reason of that conduct, regard F5 as having evinced a definitive resolve or decision against doing what the contract required. Furthermore, in the context of the parties having made a legally binding contract, the condition that an LFA be executed is not to be objectively understood as constituting an essential term of the contract. 190 An essential term of the contract made between M2006 and F5 was that, as concessionaire, F5 would purchase Games products from licensees and then sell that product to the public. That requirement was at the heart of the contract with the obligation to purchase from licensees conditioned by the concessionaire as manufacturer clause. The placement of orders by F5 with licensees was a necessary step in F5 meeting its obligations under the contract. Given the terms of the letter of 16 December 2004, the latest date for placement of initial orders under the contract was 1 September 2005. Thus, whilst I accept that the date for placement of orders had not expired as at June or July 2005, I infer from the evidence that by that time the need for F5 to have resolved its terms of trade with licensees including the pricing of product and the need for F5 to place orders for product was urgent and imperative to F5 having the practical capacity to meet its obligations under the contract. So much is evident from a number of statements made by F5 to M2006, commencing from 19 May 2005, to the effect that the need to resolve the dispute between F5 and Playcorp was immediate and was having a detrimental effect on the ability to run the concession business to its maximum potential. 191 I would further infer from the evidence that by June and July 2005, the inability of F5 and Playcorp to resolve the dispute between them had, as M2006 asserted in its letter of 24 June 2005, put in jeopardy the success of the concessions business. In that regard, it is to be recalled that about 70% of F5's expected sales was the sale of Games apparel and that Playcorp was the only licensee for apparel. It is in that context that the demand made by M2006 in Harnden's letter of 17 June 2005 and the response thereto must be evaluated in determining whether F5 evinced a definitive resolve against doing in the future what its contract required. 192 The final paragraph of that letter is to be understood as a demand by M2006 that F5 indicate its commitment to the contract, given that (as the letter confirmed), M2006 did not propose to exercise its discretion to appoint a different licensee for apparel or to allow F5 to manufacture. Evidence of that commitment was sought including by a demand that F5 place firm orders with Playcorp. By the Fetter Gdanski letter of 21 June 2005, that demand was rejected, and in substance M2006 was told that F5 would continue with the contract but only in accordance with F5's view of what the terms of the contract required in relation to the concessionaire as manufacturer clause. 193 By the letter of 21 June 2005, F5 was asserting that the contract made required the appointment of an alternative licensee or that F5 be appointed manufacturer where a licensee was not commercial. In terms of its contractual obligation to purchase product from licensees, F5 is to be understood as asserting that it was not required to purchase product from a licensee whose terms of trade included prices that were not commercial. That interpretation of the contract is inconsistent with the terms of the contract made. F5's interpretation of the contract was incorrect because its interpretation excludes M2006's discretion to grant permission and instead enlivens F5's right to manufacture or the requirement for the appointment of another licensee where, as an objective fact, a licensee is not willing to provide product to F5 on reasonable commercial terms. The interpretation insisted upon by F5 was clearly incorrect, as was F5's earlier insistence that "reasonable commercial terms" be benchmarked in relation to price by reference to three competitive quotes. 194 In DTR Nominees, Stephen, Mason and Jacobs JJ (with whom Aicken J agreed) said: No doubt there are cases in which a party, by insisting on an incorrect interpretation of a contract, evinces an intention that he will not perform the contract according to its terms. But there are other cases in which a party, though asserting a wrong view of a contract because he believes it to be correct, is willing to perform the contract according to its tenor. He may be willing to recognize his heresy once the true doctrine is enunciated or he may be willing to accept an authoritative exposition of the correct interpretation. In either event an intention to repudiate the contract could not be attributed to him. As Pearson L.J. observed in Sweet & Maxwell Ltd. v. Universal News Services Ltd.10: '"In the last resort, if the parties cannot agree, the true construction will have to be determined by the court. A party should not too readily be found to have refused to perform the agreement by contentious observations in the course of discussions or arguments ..." 195 Stephen, Mason and Jacobs JJ regarded the facts of that case as demonstrating a case of a bona fide dispute as to the true construction of a contract expressed in terms which were by no means clear. In that case, the appellant had a bona fide but incorrect view that the contract called for a particular plan of subdivision to be lodged. It lodged a plan in accordance with its interpretation of the contract. The respondent purported to rescind on the basis that a plan in accordance with the plan of subdivision required by the contract had not been lodged. 196 As Stephen, Mason and Jacobs JJ said: In this case the appellant acted on its view of the contract without realizing that the respondents were insisting upon a different view until such time as they purported to rescind. It was not a case in which any attempt was made to persuade the appellant of the error of its ways or indeed to give it any opportunity to reconsider its position in the light of an assertion of the correct interpretation. There is therefore no basis on which one can infer that the appellant was persisting in its interpretation willy nilly in the face of a clear enunciation of the true agreement. 197 Stephen, Mason and Jacobs JJ held that in those circumstances, the court would not be justified in drawing an inference that the appellant intended not to perform the contract according to its terms or that it had repudiated the contract. That being so, the respondent was held not to have been entitled to rescind the contract. 198 At that point, their Honours needed to deal with a further issue concerning the readiness and willingness of the appellant, not in the context of repudiation but in the context of the appellant satisfying the court that it had validly rescinded the contract. The additional relevant facts of that case were that after the respondent had invalidly rescinded, the applicant rescinded on the basis that the respondent's purported rescission amounted to a repudiation. Relevantly and in relation to the appellant's readiness and willingness to perform the contract their Honours said: A party in order to be entitled to rescind for anticipatory breach must at the time of rescission himself be willing to perform the contract on its proper interpretation. Otherwise he is not an innocent party, the common description of a party entitled to rescind for anticipatory breach, and indeed could profit from his misinterpretation of the contract, as the appellant seeks to do in this case when it claims forfeiture of the deposit and damages. By insisting on its incorrect interpretation of the contract to the point of claiming to rescind because the respondents were relying on the different but correction [sic] interpretation, the appellant by that stage showed that "definitive resolve or decision against doing in the future what the contract" [required] which is referred to by Dixon C.J. in Rawson v. Hobbs. Whether or not the respondents could by then have rescinded certainly the appellant could not do so. 199 It can be seen from the facts of that case that the court's initial preparedness (when considering repudiation) to draw an inference that the appellant did intend to perform the contract was altered (when considering the appellant's entitlement to rescind) by the additional fact of the appellant insisting on its incorrect interpretation of the contract to the point of claiming to rescind because the respondent was relying on a different but correct interpretation. 200 It is apparent then that even where there is a bona fide dispute as to the true construction of a contract expressed in terms which are by no means clear, whether or not an inference should be drawn that a party asserting a wrong view of a contract did not intend to perform the contract may depend upon the nature and extent of that party's insistence upon an incorrect interpretation of the contract. Such an assessment will need to take into account the nature of that party's conduct in pursuance of its insistence upon its incorrect view of the contract and whether the conduct is inconsistent with the continuance of the contract. 201 The capacity of conduct to override what might otherwise have been a non-repudiatory bona fide or genuine but misconceived view of the effect of the contract is demonstrated in the decision of the Privy Council in Vaswani v Italian Motors Ltd [1996] 1 WLR 270 where at 276, their Lordships said: …if the conduct relied on went beyond the assertion of a genuinely held view of the effect of the contract, the conduct could amount to a repudiation. This is the position if the conduct is inconsistent with the continuance of the contract. Then the bona fide motives of the party responsible do not prevent the conduct being repudiatory. 202 There is a further element of relevance which arises from the analysis in DTR Nominees to which I have referred. In that decision, Stephen, Mason and Jacobs JJ referred to the common description of a party entitled to rescind as the "innocent party". Their Honours connected the innocence of the party to the entitlement to rescind and made the point that if that were otherwise, a party could profit from its own misinterpretation of the contract, as the appellant in that case sought to do. Those observations are consistent with what Mason J said in Green v Sommerville (1979) 141 CLR 594 that: The concept of readiness and willingness is an exemplification of the maxim "He who comes to equity must come with clean hands". 203 Keane JJA dealt with the entitlement of the party to rescind for repudiation in Highmist Pty Ltd v Tricare Ltd [2005] QCA 357. His Honour suggested that statements in the authorities which lend support for the proposition that only a party ready, willing and able to perform its contractual obligations is entitled to rescind when the other side has repudiated the contract: [60]…should be understood as operating only to confine the availability of damages for the loss of bargain to the case of rescission by an innocent party, rather than denying a party who is not ready willing and able to perform its contract the ability to bring the contract to an end where the other party has manifested an intention not to perform the contact. [61] It makes commercial sense to allow a party to recover damages for loss of bargain only where that party was itself in a position to perform its side of the bargain. If it were otherwise, it could not sensibly be said that it was the other side's conduct which caused the loss of the profit involved in the bargain. That advantage could not have been obtained even if the other side had fulfilled its obligations. 204 I agree with the analysis of Keane JJA. The availability of damages for the loss of bargain is to be confined to the case of rescission by an innocent party. If it were otherwise, it could not be said that it was the conduct of the party who had repudiated which caused the loss. 205 I am not satisfied that F5 has discharged its onus of establishing that it was ready and willing to perform the contract. The nature and extent of F5's insistence upon its incorrect interpretation of the contract together with its conduct in pursuance thereof, evinced a definitive resolve against doing in the future what the contract required of F5 in relation to the essential term that it purchase Games product from a licensed manufacturer. F5 has not satisfied me that, within the time necessary to avoid prejudice, loss or damage to M2006's interests, it would have placed orders for apparel with Playcorp, where the contract so required. 206 F5's insistence on an incorrect interpretation of the contract began in earnest at least by 16 March 2005 when it insisted that the draft LFA be amended to reflect F5's position that whether a licensee was providing reasonable commercial terms should be assessed by reference to three quotes obtained from other suppliers. Arguably, that insistence still recognised M2006's discretion but sought to attach to it a benchmark not agreed to. However, on 19 May 2005, F5's position hardened when it asserted that the contract called for licensees to deliver commercial pricing. This approach excluded the discretion which the contract had reposed in M2006. That position continued to be pursued by F5 to the point where I would infer that its position was entrenched. 207 I infer that F5 genuinely believed that unequivocal representations had been made to it by representatives of M2006, and in particular Cohen, to the effect that it would not have to deal with a licensee whose terms and in particular whose price was not competitive. I have little doubt that Strapp, Hilton and most particularly Glover were genuine in their outrage that they should be forced to deal with a licensee like Playcorp whom they regarded as offering highly uncompetitive terms and conditions of trade and inflated prices. I accept the evidence that F5 prepared its forecasts when tendering for the concessionaire contract on the basis of margins which had not taken into account the financial disadvantage to F5 involved in a licensee insisting on security and refusing Games-time credit. But all of that goes to show the depth of disappointment and unforseen disadvantage which manifested itself in a firm and unwavering insistence by F5 on its (incorrect) view of the contract. 208 The depth of F5's resistance and the extent of its insistence is also demonstrated by the extent to which F5 believed its position would be enhanced if it could maintain its view of the contract. In that regard, F5 was of the view that it could achieve a $700,000 improvement on prices in relation to the initial order of stock if it could use ISC instead of Playcorp. 209 F5 expressed the depth of its resolve on a number of occasions. On 18 May 2005, Glover said that if Playcorp couldn't work within F5's price range, F5 would not be able to purchase products from Playcorp. Glover wrote to Cohen on 19 May 2005 and again told M2006 that unless Playcorp could work within F5's commercially quoted price range, F5 will not be able to purchase product through Playcorp. Glover stressed that F5 must buy products at commercial pricing from all licensees, and that F5 could not be cornered by the absence of an alternate manufacturer. Those comments were made by Glover in the context of Glover asserting his view, the genuineness of which I have no reason to doubt, that it was necessary to address the issue in order to minimise F5's "huge risk in taking on this massive project". 210 By the time that F5 delivered its paper at the meeting of 3 June 2005, the depth of its resolve was being expressed in terms of allegations of a failure by M2006 to comply with the agreement, and a reneging from repeated assurances that at any time a licensee was not commercial in its dealings, F5 or an alternate licensee would be appointed. Assertions of that kind were repeated on 16 June 2005 and then most strongly asserted in the letter from F5's solicitors of 21 June 2005. That letter included the assertion that if F5 had understood that M2006 would back away from representations that F5 believed were made, F5 would not have tendered for the concessions contract. Legal proceedings were threatened and it was asserted that M2006 was also in breach of the Trade Practices Act. Importantly, the letter concluded by saying that F5 would sign the LFA when M2006 adhered to the representations which F5 asserted had been made, and adhered to the terms of the contract (as F5 interpreted it). In the context that the letter of 21 June 2005 was responding to a demand by M2006 (at least as F5 must have perceived it) that F5 show its commitment to the contract, F5's response, consistently with its prior conduct, demonstrated that whilst F5 was committed to a contract in the terms for which it contended, it was not committed to the contract actually made and contrary to what the contract required, it was not prepared to place orders with Playcorp unless its position was accepted. By this time, F5 had evinced an intention to perform the contract only in a manner substantially inconsistent with its terms: Dainford Ltd v Smith (1985) 155 CLR 342 at 365. F5's non-performance and persistence with its demands would have conveyed to the reasonable person in the situation of M2006 a disavowal either of the contract or of a fundamental obligation under it: Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 658-659. 211 F5's interpretation of the contract was based upon a genuine view that, as a matter of fairness to it and as a matter of commercial good sense, it should have had what it insisted upon. That view was influenced by representations made by Cohen prior to the making of the contract which Glover, Hilton and Strapp believed supported F5's position. Whatever representations Cohen made, those representations were overtaken by the terms of the contract. In the running of this case, F5 accepted as much. However, at the time F5 paid insufficient attention to the terms of the concessionaire as manufacturer clause actually agreed to. 212 Unlike DTR Nominees, this is not a case in which no attempt was made to persuade the party misconstruing the contract of the error of its ways or where no opportunity was given for that party to reconsider its position. Whilst a clear enunciation of the true nature of the concessionaire as manufacturer clause was not provided by M2006, it nevertheless did maintain throughout that whether an alternative manufacturer would be permitted or F5 allowed to manufacture was a matter subject to its discretion. 213 Whilst F5's view was wrong, it was not tainted by mala fides and it was not untenable. However F5's persistence with its erroneous view was unwavering. Objectively assessed, F5's conduct indicated that it was not open to reasonable persuasion as to the true construction. Whilst F5 threatened legal proceedings, it did not indicate a preparedness to have the construction issue determined by a court or in some other authoritative way. In the words of the High Court in DTR Nominees, F5 has not satisfied me that its persistence was not "willy nilly" or without regard to the true intent of the contract. In reaching that conclusion I have not taken into account evidence of F5's subjective intent not communicated to M2006. If it were permissible to take into account uncommunicated subjective intent for this purpose, both Glover and Hilton conceded that F5 was not prepared to execute the LFA unless it accorded with its position on the concessionaire as manufacturer clause. 214 The conclusion that F5 was not ready and willing to perform the contract (or a fundamental obligation under it) is fortified by F5's conduct after the repudiation by M2006 on 24 June 2005. It took nearly 2 months for F5 to provide a response to M2006's letter of 24 June 2005. The absence of a timely response by F5 was not explained. The response did little more than advise that F5 reserved its rights in relation to the contract. There were no further dealings between F5 and M2006. F5's inaction is suggestive of a longstanding resolve to walk away from the contract if it could not convince M2006 of its interpretation of the contract and of its imperative to purchase product through Playcorp at, and only at, prices which were (as Glover put it in his email to Cohen of 19 May 2005) "within our commercially quoted price range". The strained personal relations between Glover and Playcorp and Glover and Cohen would have also provided an incentive for F5 to walk away if it could not get what it believed it was rightly entitled to. 215 As a party to the contract who was not ready and willing to perform, F5 was not an innocent party. It is not entitled to claim damages for lost profits. If it were, there would be a danger that it would, like the appellant in DTR Nominees, profit from its own misinterpretation of the contract. 216 F5's capacity to claim loss and damage is also precluded by its failure to show that it accepted M2006's repudiation. The conduct of F5 through to its liquidation in November of 2005 is characterised by inaction rather than by conduct communicating an election to accept the repudiation of M2006 and sue for damages. The reservation of its legal position communicated by F5 in its letter of 16 August was equivocal. The letter did not assert that the contract was at an end, and its reservation of F5's legal rights, without more, is equivocal as to which of the two alternate rights was being reserved. Rather than communicating an election between the two competing rights, the letter simply reserved both. That F5 did not thereafter move for specific performance of the contract is not to be regarded as communicative of an election to sue for damages. Those circumstances are equally able to be understood as manifesting F5's intent to walk away from and not pursue any legal rights it had at all. 217 That is, in the end, how I would characterise F5's intent. This is a case where both parties have communicated an intent not to perform the contract, "not because one or other has exercised a right conferred by law unilaterally to terminate the contract, but because the original consensus by which the bargain was created has been replaced by a new consensus - that the bargain should be terminated": Highmist at [62] per Keane JA; and see Summers v Commonwealth (1919) 26 CLR 180 at 151 and DTR Nominees at 434.

disposition 218 F5 has succeeded in establishing that a legally binding contract was made between it and M2006. However F5 has failed on its construction of the concessionaire as manufacturer clause. Consequently, F5 failed to establish a breach of that clause by M2006. Whilst F5 has established that M2006 repudiated the contract, F5 has failed to establish that it is entitled to claim loss and damage. 219 In those circumstances, F5's application should be dismissed. I will give the parties an opportunity to make submissions on the question of costs and will determine that matter at a later time. I certify that the preceding two hundred and nineteen (219) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bromberg.