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[2021] VSC 75
Supreme Court of Victoria
2021-02-25
McDonald, J
Original judgment source is linked above.
CONTRACT - Construction - Exclusive licence granted to plaintiffs to use defendant's registered trade marks on prescribed cheese and butter products - Whether defendant prohibited from using the trade marks on any products - Whether prohibition on defendant's use of trade marks limited to products as defined in Agreements - Prohibition on defendant's use of trade marks limited to products as defined.
RECTIFICATION - Unilateral and common mistake - Claim for rectification of Agreements to insert the words 'on or in relation to any product or otherwise whatsoever' - Whether at the time of executing agreements plaintiffs misapprehended that the defendant would be prohibited from using the trade marks on or in connection with any product whatsoever - Plaintiffs failed to establish misapprehension by clear and convincing proof - Claim for rectification dismissed.
RESTRAINT OF TRADE - Whether restraint of trade doctrine applicable to clause 3.2 of agreements if defendants prohibited from using trade marks on or in connection with any products - Whether restraint ancillary to licence to use trade marks - Restraint of trade doctrine applicable - Whether clause 3.2 of agreements invalid as an unreasonable restraint of trade if defendant prohibited from using trade marks on any products - Clause 3.2 not invalid as an unreasonable restraint of trade.
CONTRACT - Construction - Whether plaintiffs subject to contractual obligation to engage in above the line advertising and new product development - Whether plaintiffs required to effectively promote and develop sales of Bega branded products - Whether plaintiffs required to promote and develop sales of Bega branded products in foodservices sector - Whether plaintiffs required to position Bega cheese as a premium brand.
CONTRACT - Implied term - Whether agreements contain an implied term that plaintiffs would not give undue preference to the promotion and development of their own brands compared to the promotion and development of Bega branded products - Term not necessary to give business efficacy to agreements - Term not capable of clear expression - Term not reasonable or equitable.
CONTRACT - Plaintiffs solely responsible for ensuring compliance with legal and regulatory requirements relating to labelling, packaging and advertising of Bega branded products - Whether plaintiffs misrepresented origin of Bega branded products to consumers - Whether plaintiffs contravened ss 18 and 29(1)(k) of Australian Consumer Law - Whether impugned conduct conveyed pleaded representation.
CONTRACT - Whether common law rights of termination excluded by express contractual rights of termination.
CONTRACT - Whether notices of termination invalid because of failure to specify remedy - Whether notices invalid because of failure to identify breaches with sufficient specificity.
ELECTION - Whether defendant precluded from relying on notices of termination as a result of the service of subsequent notices after rights of termination under earlier notices had crystallised.
REMEDIES - Whether appropriate to grant declaration that defendant entitled to terminate agreements.
Evidence Act 2008 (Vic) s 140, Civil Procedure Act 2010 s 7, Australian Consumer Law (Cth) ss 18, 29(1)(k), Trade Marks Act 1955 (Cth) s 19(3), Competition and Consumer Act (Cth) pt VIIA, Trade Mark Regulations 1955 (Cth) reg 3.1.
Dr C Button QC, Mr J Davis QC, Mr B Holmes and Ms X Teo
(i) Construction of clauses 3.1 and 3.2 of the Trade Mark and Licensing Agreements ('TMLAs')
The prohibition on Bega's use of the Trade Marks or similar trade marks is limited to Products as defined. I reject the plaintiffs' contention that Bega is precluded from using the Trade Marks or similar trade marks on any products, save as expressly permitted by clauses 3.5 to 3.8 of the TMLAs.
(ii) Rectification for unilateral and common mistake
I reject the plaintiffs' contention that sub-paragraphs (a) and (b) of clause 3.2 of each of the TMLAs should be rectified by adding the words 'on or in relation to any product whatsoever'. The plaintiffs have failed to establish that when the TMLAs were signed on 8 May 2001 they misapprehended that clauses 3.1 and 3.2 restricted Bega from using the Trade Marks or trade marks similar to the Trade Marks on or in connection with any products without the plaintiffs' consent unless expressly permitted by the Agreements.
I reject Bega's contention (advanced in the alternative) that if clause 3.2 of the TMLAs prohibits Bega from using the trade marks on any products, the clause is invalid as an unreasonable restraint of trade. However, as I have rejected the plaintiffs' construction of clauses 3.1 and 3.2 and the plaintiffs' claim for rectification of clause 3.2, my conclusion that clause 3.2 as construed by the plaintiffs is valid and enforceable does not affect my primary findings.
I reject Bega's contention that the plaintiffs breached express and implied contractual obligations by failing to effectively market and promote Bega branded products and the Bega brand. The TMLAs do not impose any contractual obligation on the plaintiffs:
(a) to engage in any particular type of marketing activity;
(c) to effectively promote and develop sales of Bega branded products;
(d) to promote and develop sales of Bega branded products in the foodservices sector.
Bega's claim that the plaintiffs breached clause 8.1 of the TMLAs and clause 13.7 of the Product Supply Agreement by supplying cheese the subject of the first cheese quality notice dated 16 March 2018 is rejected. Bega has failed to establish that the RF15% cheese the subject of the claim was of poor quality. The claim based on the second cheese quality notice dated 20 September 2018 is rejected. The grading results produced by the grading system introduced by Bega in July 2018 do not establish that the cheese which is the subject of the second cheese quality notice was of poor quality. Further, Bega has failed to establish that it suffered any material adverse effect as a consequence of the plaintiffs supplying it with cheese which is the subject of the first and second cheese quality notice, thereby enlivening a right of termination under clause 16.1(a) of the TMLAs.
I reject Bega's contention that the plaintiffs breached clauses 7.3, 6.1(b) and/or 6.3 of the TMLAs by misrepresenting to consumers that all cheese in Bega branded products is made in the Bega Valley. Bega has failed to establish that the plaintiffs breached ss 18 and/or 29(1)(k) of the Australian Consumer Law ('ACL') which is a necessary pre-condition to establishing a breach of clause 7.3. Bega has failed to establish that any breach of clause 7.3 has had a material adverse effect upon it. Bega's claim for breach of clause 6.1(b) is rejected because it has failed to establish that the good name and image of the Trade Marks was harmed by the impugned conduct. The claim for breach of clause 6.3 is rejected because Bega has failed to establish that the value of the Trade Marks has been damaged by the impugned conduct.
1 The trial of this proceeding was heard on 39 days between 18 November 2019 and 26 March 2020. The conduct of the proceedings was impacted by the spread of coronavirus (COVID-19) in Victoria. On 26 March 2020 Victoria recorded its first deaths related to COVID-19. On 26 March 2020 there were 520 active COVID-19 cases in Victoria, more than a threefold increase on the 150 active cases on 19 March 2020. Due to the uncertainty caused by the spread of COVID-19 I directed that there would be no further hearings subsequent to 26 March 2020 for the purpose of final submissions. I directed the parties to reduce their final submissions to writing. I informed the parties that if there were any aspects of the written submissions in respect of which I required clarification I would afford the parties an opportunity to file supplementary submissions. In recognition of the fact that there were to be no further hearings subsequent to 26 March 2020 I placed no restrictions on the length of the written submissions to be filed by the parties. The submissions filed by the parties subsequent to 26 March 2020 were extensive. The plaintiffs' submissions on the claim and Bega's counterclaim ran to 932 pages. Bega's submissions on the plaintiffs' claim and its counterclaim ran to 1,149 pages. I have read these submissions carefully. In this judgment I have not addressed each and every submission advanced by the parties. Rather, I have addressed what I have determined to be the real issues in dispute.
2 On 8 May 2001 the first plaintiff ('Fonterra') and the second plaintiff ('Bonland') each executed a trade mark and licensing agreement ('TMLA') with the defendant ('Bega'). The TMLA executed by Bonland operates in NSW and the ACT ('Bonland TMLA'). The TMLA executed by Fonterra operates in the rest of Australia ('Fonterra TMLA'). For the purposes of the issues which fall for determination in this judgment, absent specific reference to the terms of the Bonland TMLA or the Fonterra TMLA, the terms of the TMLAs are identical.
3 Pursuant to the TMLAs, Bega granted the plaintiffs a 'sole and exclusive licence' to use the Trade Marks as defined in the TMLAs. These Trade Marks consist of various 'Bega' Trade Marks. Bega granted the plaintiffs a sole and exclusive licence to use the trade marks in Australia on, or in relation to certain cheese and butter products ('Products'). The initial term of the TMLAs is 25 years with the plaintiffs having a conditional right to extend for successive periods of 25 years. In theory, the TMLAs can operate in perpetuity.
4 Prior to the execution of the TMLAs, the promotion and sale of Bega branded cheese in Australia was conducted by Bega Cheese Trading Pty Ltd ('BCT') in New South Wales and the ACT and by Bonlac Food Ltd ('Bonlac') in the rest of Australia. BCT is the second plaintiff Bonland. It was a wholly owned subsidiary of Bega until Fonterra acquired all of its shares on 8 May 2001 as part of a suite of transactions which included the execution of the TMLAs.
5 Prior to the execution of the TMLAs, Bonlac held a perpetual licence from Bega to use the Bega brand to market natural and processed cheddar cheese in Australia (other than in NSW and the ACT) under the terms of a franchise deed dated 1 December 1983.[1]
6 In April 2000 Bonlac entered into heads of agreement with the New Zealand Dairy Board ('NZDB') pursuant to which it was agreed, inter alia, that there would be a corporate restructure under which NZDB would take a 25 per cent equity in Bonlac and a new 50/50 joint venture consumer products company, ConsumerCo Pty Ltd (later renamed Fonterra) would be established.[2] ConsumerCo was incorporated on 26 February 2001.[3] By this time the negotiation of the provisions of the TMLAs relevant to this proceeding had been concluded. Those negotiations, which were conducted by representatives of each of Bonlac and NZDB and Bega were concluded on 23 January 2001.[4]
7 From May 2001 until about September 2017, the plaintiffs were the only suppliers to grocery retailers and the foodservices industry in Australia of products bearing Bega trade marks. In mid-2017 Bega acquired Mondelez International's Australian and New Zealand grocery and cheese business ('MDLZ') and notified the plaintiffs that it intended to launch its own products (which had been acquired from MDLZ) under the Bega trade mark.[5]
8 From late 2017 Bega manufactured and offered for sale in Australia peanut butter products, nut spread products, macaroni and cheese products and ambient parmesan and cream cheese products bearing a stylised Bega mark similar to some of the Trade Marks.[6] Bega also published material in relation to a range of other products (such as its 'Dairymont' range of cheese products, its 'ZoOSh' range of condiments and Vegemite), and displayed promotional signage, on which, or alongside which, it has used a stylised Bega mark similar to some of the Trade Marks.[7]
9 The plaintiffs claim that by engaging in this conduct Bega breached clauses 3.1 and 3.2 of the TMLAs.[8] The plaintiffs seek declarations to that effect and an injunction to restrain Bega from using the Trade Marks, save in respect of Products as defined. In the alternative, the plaintiffs seek rectification of clause 3.2 by the addition of words which would restrict Bega's right to use the Trade Marks, or any similar trade mark 'on or in relation to any product or otherwise whatsoever'.[9]
10 Bega submits that if clauses 3.1 and 3.2 are construed in the manner for which the plaintiffs contend the clauses are unenforceable as an unreasonable restraint of trade.[10] Alternatively, Bega submits that if clause 3.2 is rectified in the terms sought by the plaintiffs, clause 3.2 is unenforceable as an unreasonable restraint of trade.[11]
THE CONSTRUCTION OF CLAUSES 3.1 AND 3.2 OF THE TMLAs
11 The issue for determination is whether clauses 3.1 and 3.2 prohibit Bega from using the Trade Marks or similar trade marks:
(i) as the plaintiffs contend, on any products, save as expressly provided by clauses 3.5 to 3.8; or
(ii) as Bega contends, only on Products, as defined.
3.1 Licence
Subject to clauses 3.5, 3.6, 3.7 and 3.8, Bega hereby grants to the Licensee, during the Term, the sole and exclusive:
(a) licence of the Trade Marks; and
(b) licence of any copyright owned by Bega or a Related Body Corporate of Bega in any Display Material,
in the Territory on or in relation to Products for sale in the Territory.
3.2 Exclusivity
For the purpose of clause 3.1, 'sole and exclusive licence' means that during the Term Bega agrees, subject to clauses 3.5, 3.6, 3.7 and 3.8:
(a) not to grant to any other person (including any Related Body Corporate of Bega), the right to use the Trade Marks (or any trade mark which is similar to any Trade Mark) in the Territory; and
(b) not to use, or permit the use by any other person (including any Related Body Corporate of Bega) of, the Trade Marks (or any trade mark which is similar to any Trade Mark) in the Territory,
without the consent of the Licensee. The Licensee consents to Bega using the Trade Marks specified in Schedule 5 for the purposes set out in the Schedule.
13 Clauses 3.1 and 3.2 include the following terms which are defined in clause 1.1 of the TMLAs: Licensee, Term, Trade Mark, Related Body Corporate, Display Material, Products and Territory. 'Trade Marks' is defined as:
'Trade Marks' means the trade marks more particularly described in Schedule 1 (as may be amended by the parties from time to time by agreement in writing) and 'Trade Mark' means any one of those marks.[12]
14 There are 22 trade marks listed in Schedule 1. Twenty-one of the trade marks are identified as 'class 29'. Section 19(3) of the Trade Marks Act 1995 (Cth) states:
The regulations may provide for the classes into which goods and services are to be divided for the purposes of this Act.
15 Regulation 3.1(1)(a) of the Trade Marks Regulations 1995 (Cth) provides that for the purposes of s 19(3) 'goods are divided into the classes of goods described in column 2 of Part 1 of Schedule 1'. The class of goods in class 29 includes 'milk and milk products'.[13]
16 Schedule 1 of the TMLAs includes a 'specification of goods' in respect of each of the 22 trade marks. Save for the 'Kameruka' trade mark in class 30, the specification of goods for all of the remaining 21 trade marks is one or more of cheese, cheese slices, milk, cream, dairy products, butter, or yoghurt.
'Products' means any one or more of the following products:
(a) Cheese Products;
(b) butter; and
(c) any other products from time to time agreed by the parties in writing ...[14]
'Cheese Products' means:
(a) all natural and processed cheddar cheese products;
(b) String Cheese; and
(c) any other varieties of cheese or cheese products which the parties, from time to time, agree in writing should be included in this definition ...[15]
'String Cheese' means the variety of cheese which constitutes Stringers ...[16]
'Stringers' means the cheese stick product known as 'Bega Stringers' ...[17]
21 When the TMLAs were executed on 8 May 2001 Bega's core business was the manufacture and sale of natural and processed cheddar cheese.[18] Bega did not manufacture other cheese varieties such as mozzarella, parmesan, edam and gouda. The products licensed to the plaintiffs under the TMLAs represented, in effect, the total range of cheese products manufactured by Bega as at May 2001.
22 The licence of Bega's Trade Marks granted to the plaintiffs by clause 3.1 subsists 'in the Territory' on or in relation to Products for sale in the Territory. Absent any other relevant qualification, clause 3.1 does not restrict Bega from using its Trade Marks on any product for sale in Australia that is not a Product, as defined. Clause 3.1 does not prevent Bega from applying its Trade Marks to mozzarella, parmesan, edam and gouda, if Bega had commenced the production and marketing of these cheese varieties post-May 2001. However, the plaintiffs submit that, properly construed, the effect of clause 3.2 is that 'during the Term Bega agrees not to use the Trade Marks (or any trade mark which is similar to any Trade Mark), in the Territory without the consent of the licensee'.[19] As such, the plaintiffs submit that the restriction on Bega's right to use its Trade Marks extends to any product whatsoever.
23 Before addressing the parties' competing contentions it is necessary to set out the legal principles which govern the construction of commercial contracts. These were summarised by French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd:[20]
The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.
Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.
Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption 'that the parties ... intended to produce a commercial result'. Put another way, a commercial contract should be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'.
These observations are not intended to state any departure from the law as set out in Codelfa Construction Pty Ltd v State Rail Authority (NSW) and Electricity Generation Corporation v Woodside Energy Ltd. We agree with the observations of Kiefel and Keane JJ with respect to Western Export Services Inc v Jireh International Pty Ltd.[21]
When stripped of its subordinate phrases, the operative sentence of clause 3.2 simply says, 'Bega agrees ... (b) not to use ... the Trade Marks (or any trade mark which is similar to any Trade Mark) in the Territory, without the consent of the Licensee.'
25 The plaintiffs submit that the opening words of clause 3.2, '[f]or the purpose of clause 3.1, "sole and exclusive licence" means ...', are not words of limitation which confine the restriction imposed upon Bega by clause 3.2 to 'Products', as defined.[23]
26 I reject this submission. Clauses 3.1 and 3.2 are to be read together. The combined effect of the phrases:
is to define the meaning of the sole and exclusive licence granted to the plaintiffs by clause 3.1. The sole and exclusive licence granted by clause 3.1 is a licence 'on or in relation to Products'. The fact that the phrase 'sole and exclusive licence' appears in clause 3.2 in quotation marks is a strong textual indicator that clause 3.2 defines the meaning of the sole and exclusive licence granted by clause 3.1 in relation to Products. The definitional nature of clause 3.2 flows from the use of the word 'means', which also appears in every defined term in clause 1.1 of the TMLAs.
27 The plaintiffs submit there is nothing in the text or context of clause 3.2, or the TMLAs as a whole, to suggest that Bega's express promise not to use or permit the use of the Trade Marks without the plaintiffs' consent, should be read as limited to a promise not to use, or permit the use of the Trade Marks on or in relation to Products. I reject this submission. The plain meaning of the opening words of clause 3.2 is that the restriction prescribed by clause 3.2 is for the purpose of the licence granted by clause 3.1, which is a licence 'on or in relation to Products'.
28 The plaintiffs submit that the expression '[f]or the purpose of' in the opening line of clause 3.2 indicates that the words that follow apply to, rather than 'are limited by', the identified purpose.[24] In support of this submission the plaintiffs cite the observations of Fullagar J in Fisher v Hebburn Ltd ('Fisher'):[25]
The expression 'for the purposes of' is a loose and vague expression. 'For the purposes of sub-s. (4)' is not an expression adapted to having any limiting effect on the operation of the substantive provision which follows.[26]
29 The passage relied upon by the plaintiffs from Fisher is readily distinguishable. First, Fullagar J was considering the construction of beneficial legislation, the Workers Compensation Act 1926 (NSW). Second, the phrase considered by Fullagar J does not include the definitional term 'means'.
30 In PTTEP Australasia (Ashmore Cartier) Pty Ltd v Commissioner of Taxation[27] Gordon J considered a contract containing the following clauses:
Price
4.1 The buyer shall pay to the seller for each barrel of crude delivered in accordance with this agreement and in the final inventory the price calculated as follows: Price = APPIT + P + D
Variables/rounding off
4.2 For the purposes of cl 4.1:
(a) P means the average of all of the mean of premium/discount quotations for Tapis crude oil as published in the Platt's Pacific Rim Spot Crude Assessments for the 30 days commencing 60 days prior to the bill of lading date;
(b) D means:
(i) in relation to Jabiru Crude that is produced and available for lifting during the term, US $0.35;
(ii) in relation to Challis Crude that is produced and available for lifting during the term, US $0.35.[28]
32 In Cambridge Credit Corporation Ltd v Parkes Developments Pty Ltd[31] Hope JA (Glass JA agreeing) considered that the term 'profits and losses' was defined by a clause stating:
For the purposes of Clause 5.1 hereof the words 'profits or losses' shall mean the difference between the sum of ...[32]
33 In addition to the authorities referred to above, there are other instances where courts have treated the phrase 'for the purpose of' as being definitional in nature: TCP Europe Ltd v Perry [2012] EWHC 1940 (QB), [55] (Seymour J); Little Images Pty Ltd v Fresh View Venture Pty Ltd [2011] QSC 402, [73] (McMurdo J); Re Lindholm; Re Opes Prime Stockbroking Ltd (admins apptd) (rec and mgr apptd) [2008] FCA 1425; (2008) 171 FCR 473, 480 [31] (Finkelstein J); Commonwealth v Byrnes [2018] VSCA 41; (2018) 54 VR 230, 304-5 [335]-[336].
34 The plaintiffs submit that the phrase 'for the purpose of clause 3.1' in the opening line of clause 3.2 is not a reference to the conferral and limitation of the plaintiffs' rights to use the Trade Marks under clause 3.1. Instead, the plaintiffs submit that the 'purpose of clause 3.1' to which clause 3.2 is directed is the limitation of Bega's ongoing right to use the Trade Marks, which is inherent in the grant of the sole and exclusive licence conferred by clause 3.1.[33]
35 I accept the plaintiffs' contention that clause 3.2 imposes obligations upon Bega. Nevertheless, it is clear from the opening words of clause 3.2 that those obligations are contingent upon and co-extensive with the rights conferred upon the plaintiffs in relation to Products. When clauses 3.1 and 3.2 are read together, the sole and exclusive licence granted to the plaintiffs to use the Bega Trade Marks means that Bega will not use or permit the use by any other person of the Trade Marks, or any similar trade mark, on or in relation to Products for sale in the Territory.
36 The plaintiffs submit that their construction of clause 3.2 is supported by the final sentence thereof which reads:
The Licensee consents to Bega using the Trade Marks specified in Schedule 5 for the purposes set out in the Schedule.
The plaintiffs submit that the majority of products listed in Schedule 5 are not Products, as defined, including whey powder, chocolate topping, Bega fudge, ricotta, shirts, caps and other items of clothing. They submit that if Bega's construction of clauses 3.1 and 3.2 is correct, the plaintiffs' consent to Bega's use of the Trade Marks on these products, as recorded in the final sentence of clause 3.2, would be unnecessary.[34]
37 I reject this submission. Schedule 5 includes both Products (20 kg bulk cheddar cheese, bulk butter, string cheese) and products. To the extent that Schedule 5 includes Products as defined, the plaintiffs' consent to Bega using the Trade Marks on these Products, recorded in the final sentence of clause 3.2, is consistent with Bega being restrained from applying its Trade Marks to Products. Insofar as Schedule 5 lists products falling outside the definition of Products, the final sentence of clause 3.2 is consistent with the parties, for the avoidance of doubt, listing all the products manufactured by Bega in 2001, upon which Bega would be permitted to apply its Trade Marks.
38 I accept the plaintiffs' submission that if the restriction imposed upon Bega by clause 3.2 is confined to Products it would have been unnecessary for the parties to have listed in Schedule 5 products falling outside the definition of Products in clause 1.1. However, the unambiguous opening words of clause 3.2 cannot be disregarded. To do so on the basis that some of the products listed in Schedule 5 fall outside the definition in clause 1.1, would be to construe clause 3.2 by reference to 'the tail wagging the dog'.
39 Bega submits that insofar as there is any conflict between clause 3.2 and Schedule 5, clause 18.9 is engaged.[35] This clause provides:
If there is any conflict between the main body of this Agreement and any schedules or annexures comprising it, then the provisions of the main body of this Agreement prevail.
40 I do not consider that there is any conflict between clause 3.2 and Schedule 5. On its proper construction, clause 3.2 requires Bega to seek the plaintiffs' consent to apply its Trade Marks to Products as defined. Insofar as Schedule 5 lists Products, the consent recorded in the final sentence of clause 3.2 is consistent with this construction. Insofar as some of the products listed in Schedule 5 are not Products, the plaintiffs have agreed to Bega acting in a way which was permitted by clause 3.2. If I am wrong in concluding that there is no conflict between clause 3.2 and Schedule 5, then recourse can be had to clause 18.9 to support a construction of clause 3.2 whereby the restrictions imposed upon Bega's use of its Trade Marks is confined to Products.
41 The plaintiffs submit that if the parties had intended that Bega could sell in Australia any products under its Trade Marks, that intention would have been expressly recorded in clauses 3.1 and 3.2.[36] The plaintiffs submit that there is no basis for reading the words 'on or in relation to Products' into clause 3.2 when they have obviously been deliberately disregarded.[37] I reject this submission. It ignores the opening words of clause 3.2. By reason of the opening words, it is unnecessary for the phrase 'on or in relation to Products' to be read in to clause 3.2. The opening words of clause 3.2 confine the restrictions imposed upon Bega's right to use its Trade Marks to Products. This conclusion is not altered by clauses 3.5 to 3.8 which govern Bega's right to use its Trade Marks in certain prescribed circumstances, namely:
42 In clauses 3.5 to 3.8 the plaintiffs and Bega have expressly recorded Bega's permitted use of its Trade Marks. Clause 3.5 commences with the phrase '[t]he Licensee acknowledges ... '. Clause 3.6 commences with the words '[f]or the avoidance of doubt ... '. Contrary to the plaintiffs' submission, the parties' agreement to make express provision as set out in clauses 3.5 to 3.8 does not '[tell] strongly against construing clauses 3.1 and 3.2 as having [the] effect' that Bega has 'the right to sell all products other than Products in Australia under the Trade Marks'.[38]
43 The plaintiffs submit that on Bega's construction, clause 3.2 is 'unnecessary and of no effect' because it effects no change to the ordinary meaning of 'sole and exclusive licence'.[39] I reject this submission. Objectively construed, in clause 3.2 the plaintiffs and Bega have defined the meaning of the sole and exclusive licence granted to the plaintiffs under clause 3.1. Of itself, this is sufficient to reject the plaintiffs' contention. Further, I reject the plaintiffs' contention that on Bega's construction clause 3.2 effects no change to the ordinary meaning of 'sole and exclusive licence'. The restrictions imposed upon Bega by clause 3.2 are not limited to Trade Marks as defined but extend to 'any trade mark which is similar to any Trade Mark' licensed under clause 3.1.
44 Schedule 4 of the TMLAs sets out a methodology for valuing the plaintiffs' rights to the Trade Marks ('the fair value') in the event that the TMLAs are terminated (other than by Bega under clause 16.1). Clause 3 of Schedule 4 is headed 'Basis of Valuation'. In calculating fair value it is assumed that Bega 'shall have to first establish and then maintain a national sales, marketing and distribution business through which the Bega Trade Marks are to be sold, marketed and distributed', and that Bega 'will need sufficient time to set up and manage the Bega Trade Marks'.[40] The plaintiffs submit that neither of these assumptions make any sense if Bega was already permitted to use its Trade Marks on products other than Products as defined.[41] In order to address this submission it is necessary to set out in full clauses 3[1], [5] and [6] of Schedule 4. These clauses provide:
[1] Value the rights in relation to all Products in relation to which the Licensee is permitted to use the Trade Marks including cheddar and string cheese.
...
[5] Assume that Bega shall have to first establish and then maintain a national sales, marketing and distribution business through which the Bega Trade Marks are to be sold, marketed and distributed, and that all reasonable expenses will be incurred in running this Branded sales, marketing and distribution business.
Assume that such reasonable sales, marketing and distribution business related expenses shall be incremental to other then existing actual business expenses of Bega.
In calculating such costs, the independent valuer will have regard to the costs incurred by the Licensee for this business, the costs proposed by Bega and the costs for a service of appropriate quality and scope which could be provided by external parties.
[6] Have regard to the future prospects of the Bega Trade Marks when used by Bega, and assume Bega will need sufficient time to set up to manage the Bega Trade Marks.
45 Clause 3[5] refers to the 'business through which the Bega Trade Marks are to be sold, marketed and distributed'. The reference to 'Bega Trade Marks' should be read consistently with clause 3[1], ie 'all Products in relation to which the Licensee is permitted to use the Trade Marks'. Products, not trade marks, are sold, marketed and distributed. When clauses 3[1] and [5] are read together the valuer is required:
(i) to value the rights in relation to Products on which the plaintiffs had been permitted prior to the termination of the TMLAs to use the Trade Marks, including cheddar and string cheese; and
(ii) set off the assumed costs of Bega selling, marketing and distributing the Products in respect of which, prior to the termination of the TMLAs, the plaintiffs had been permitted to use the Trade Marks.
46 The assumed set off costs make sense irrespective of whether, prior to the termination of the TMLAs, Bega had already been selling, marketing and distributing other products, with or without the Bega Trade Mark. I reject the plaintiffs' submission that the assumptions underpinning clauses 3[5] and [6] do not make any sense if Bega was already using the Trade Marks on products other than Products.
47 The plaintiffs submit that if Bega has the right to use its Trade Marks in relation to products other than Products as defined, this would produce a 'capricious and unreasonable result' and be 'commercial nonsense'.[42] The plaintiffs submit that if Bega retained the right to sell cheese and dairy products, other than cheddar, string cheese and butter, this would be a 'commercially absurd result'.[43] I reject these submissions. When the parties negotiated the TMLAs it would have been a very simple matter for the definition of 'Cheese Products' to have included a wide range of cheese varieties. This would have foreclosed the possibility of Bega being free to use the Trade Marks on cheese products which compete directly with, and potentially take market share from, the Branded Products (product that bears a Trade Mark) sold by the plaintiffs.[44]
48 Rather than specifying a wide range of cheese varieties, the definition of Cheese Products is confined to:
(a) all natural and processed cheddar cheese products;
(b) String Cheese; and
(c) any other varieties of cheese or cheese products which the parties, from time to time, agree in writing should be included in this definition.[45]
49 The extension of Cheese Products beyond cheddar and string cheese is conditional upon Bega's agreement. Thus, the definition contemplates that Bega might in the future develop other varieties of cheese but not agree to such cheese varieties being included in the definition of Cheese Products. Far from being a commercially absurd result, the definition of Cheese Products, read in conjunction with clause 3.1 and 3.2, expressly contemplates the potential for Bega to:
(a) develop other cheese varieties;
(b) withhold agreement as to the inclusion of those cheese varieties in the definition of Cheese Products; and
(c) market and sell those products under the Bega Trade Mark.
50 In support of their contention that Bega's retention of the right to sell cheese products such as parmesan and mozzarella under the Bega Trade Mark would be commercially absurd, the plaintiffs point to three matters:[46]
(i) Bega would be free to use the Trade Marks on cheese products which would compete with, and take market share from, the Branded Products sold by the plaintiffs;
(ii) the sale by Bega of cheese products bearing the Trade Marks would be counted within the total sales by Participating Retailers of cheese products in the Branded Cheese Category by reference to which the Agreed Minimum Payment and the Minimum Market Performance Requirement are calculated. The plaintiffs submit this would increase the minimum royalty payable to Bega and increase the risk of the plaintiffs failing to meet the Minimum Market Performance Requirement to avoid termination of the TMLAs and the Product Supply Agreement; and
(ii) Bega would be free to use the Trade Marks on dairy and other products in a manner fundamentally inconsistent with the Agreed Marketing Principles prescribed in Schedule 2 of the TMLAs.
51 In Australian Broadcasting Commission v Australasian Performing Right Association Ltd[47] Gibbs J stated:
If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust.[48]
52 The words used in clauses 3.1 and 3.2 are unambiguous. The opening words of clause 3.2: '[f]or the purpose of clause 3.1, "sole and exclusive licence" means ...' define the sole and exclusive licence granted by clause 3.1. That licence is granted in relation to 'Products' as defined. Accordingly, even if the matters relied upon by the plaintiffs do give rise to commercial anomalies, this does not justify departure from the unambiguous meaning of clauses 3.1 and 3.2. As Macfarlan JA observed in Jireh International Pty Ltd v Western Exports Services Inc:[49]
A court is not justified in disregarding unambiguous language simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted.[50]
53 Not only is the meaning of clauses 3.1 and 3.2 unambiguous, the restriction imposed upon Bega's right to use its Trade Marks works perfectly well when confined to 'Products' as defined. It is not permissible for the Court to rewrite clauses 3.1 and 3.2 to operate in what may, from the plaintiffs' perspective, be a more reasonable fashion.[53]
54 In any event, the plaintiffs have failed to establish that the sale by Bega of cheese products (other than cheddar and string cheese) would be commercially absurd by reason of such sale:
55 In response to Bega's submission that there is no proper evidentiary foundation to support such findings, the plaintiffs submit:
That is contrary to the evidence of Mr Simonovski, to the effect that Bega cheddar and Colby can be used in culinary occasions and that Perfect Italiano specialty culinary cheeses do attract consumers away from tasty cheese. It is also contrary to the way Bega conducted its M&P case as reflected, for example, in the cross-examination of Mr Dhu, which was premised on the basis that Bega natural cheddar cheese should have been promoted by Fonterra as a substitute for Mainland natural cheese varieties, including non-cheddar varieties, Egmont and Swiss. The Court should find that consumers do switch between and trade up to different cheese varieties and that the sale of Bega branded cheeses other than cheddar and Colby by Bega itself would take sales from Branded Products. In relation to the specific example given by Fonterra, the Court can and should infer from the fact that gouda, edam and Colby compete in the same category in tasting competitions that they also compete for sales.[54]
56 The evidence referred to above falls well short of establishing that the potential for Bega to compete with the plaintiffs by selling products other than cheddar cheese and string cheese would be commercially absurd.
57 Further, I reject the plaintiffs' contention that it would be anomalous if Bega was free to use the Trade Marks on dairy and other products by reason of the potential for it to do so in a manner inconsistent with the Agreed Marketing Principles. Bega retains ownership of its Trade Marks. If the TMLAs come to an end Bega will have the right to use the Trade Marks on cheddar and string cheese products. It would make no sense for Bega to market cheese products other than cheddar and string cheese, in a way which damages the value of its own Trade Marks.
58 The plaintiffs contend that the evidence of the parties' negotiations is admissible in support of their construction of clause 3.2 because it is probative of:
(i) the objective background facts known to both parties, including the purpose or aim or subject matter of clause 3.2; and
(ii) the fact that the parties united in rejecting the meaning of clause 3.2 advanced by Bega in this case.[55]
59 In Codelfa Construction Pty Ltd v State Rail Authority (NSW) ('Codelfa')[56] Mason J stated:
The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.
It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.[57]
60 Clauses 3.1 and 3.2 are not ambiguous or susceptible of more than one meaning. Evidence of pre-contractual negotiations between the parties is not admissible to contradict the plain meaning of clauses 3.1 and 3.2; ie the restriction on Bega's right to use its Trade Marks is limited to Products as defined. This construction is far removed from that for which the plaintiffs contend; ie subject to the permitted uses identified in Schedule 5 and clauses 3.5 to 3.8, Bega is restricted from using its Trade Marks in Australia without the plaintiffs' consent on or in relation to any product.
Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except insofar as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.[58]
62 These observations are apposite in the present case. Negotiations in respect of clauses 3.1 and 3.2 were concluded on 23 January 2001. The TMLAs were executed on 8 May 2001. Consumer Co Pty Ltd was incorporated on 26 February 2001.[59] Consumer Co was the corporate vehicle for a joint venture between Bonlac Foods Ltd and the NZDB. Each of these parties had their own negotiating teams and separate legal representation during the negotiations. Bega Cheese Trading Pty Ltd was a wholly owned subsidiary of Bega until immediately prior to the execution of the Bonland TMLA agreement. On 23 January 2001 when negotiations in respect of clauses 3.1 and 3.2 were concluded:
(a) ConsumerCo Pty Ltd did not exist; and
(b) Bega Cheese Trading Pty Ltd was a wholly owned subsidiary of Bega.
Bonlac and NZDB, who negotiated the terms of clauses 3.1 and 3.2 with Bega, are not parties to the TMLAs. It is 'unrewarding' to construe clauses 3.1 and 3.2 by reference to the actual intention of the negotiating parties, at the expense of the words used in clauses 3.1 and 3.2.[60]
63 The plaintiffs submit that the evidence establishes that the parties were 'united in rejecting' Bega's construction and that such evidence is admissible in support of the construction of clause 3.2 contended for by the plaintiffs. The plaintiffs submit as follows:
Third, the evidence of the parties' negotiations establishes that, in their negotiations, they 'united in rejecting' Bega's construction and mutually adopted 'a particular interpretation of [the] ... words' of clause 3.2 that is only consistent with Fonterra's construction. In particular:
(a) in his letter dated 18 December 2000, Mr Ferguson acknowledged, on behalf of Bega, that: 'At present, Clause 3.2 prevents BCS from using the Trade Marks on any products without the prior consent of ConsumerCo.'
(b) in his letter to Mr van Ryn dated 21 December 2000, Mr Sloan referred to the letter from Mr Ferguson dated 18 December 2000 and beneath the heading 'Rights to use the Bega Brand' reiterated: 'David Ferguson's letter correctly identifies this issue as a "deal breaker" for all of the reasons we have discussed'.
(c) by email dated 3 January 2001 to Mr Ferguson, Ms Wood enclosed a document headed 'Trademark Licence and Product Supply Agreement Outstanding Issues', which recorded, in relation to Bega's rights to use the Bega brand that Bonlac/NZDB '... are unable to move from the position we have previously put on this issue'.
(d) by his letter dated 23 January 2001, Mr Ferguson wrote, on behalf of Bega, that: 'while Bega Co-op remains concerned with Clause 3.2 of the Trade Mark Licence it notes the importance of this provision to ConsumerCo and, provided that the other issues raised in this letter can be adequately dealt with, Bega Co-op is prepared to accept the current wording of Clause 3.2'.[61]
This correspondence demonstrates that the parties were united, in their negotiations, that the wording of clause 3.2 meant that Bega was prevented from using the Trade Marks on any products without Fonterra's consent, amounting either to a mutual rejection of Bega's construction or a mutual adoption of Fonterra's construction. On the established principles referred to above, that evidence is admissible. It is compelling evidence as to which is the correct construction of clause 3.2.[62]
64 In support of the submissions set out above, the plaintiffs cite the judgment of Mason J in Codelfa:
There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the Court is interpreting the contract which the parties have made and in that exercise the Court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point of placing on the words of the contract the meaning which the parties have united in rejecting? It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances.[63]
65 Objectively construed, clause 3.2 restricts Bega's right to use its Trade Marks on Products; ie cheddar cheese and string cheese products. The plaintiffs do not seek to admit evidence of the parties' negotiations 'so as to negative an inference sought to be drawn from surrounding circumstances'. Rather, the plaintiffs seek to admit such evidence in aid of a construction of clause 3.2 which is inconsistent with the plain meaning of the words used therein. The evidence is not admissible for this purpose.
66 Further, and in any event, I do not accept that the matters set out above constitute persuasive evidence of mutual intention that the restriction imposed by clause 3.2 would extend beyond Products as defined. In 2000-2001 Bega did not manufacture any cheese products other than the products which were the subject of the licence granted by clause 3.1; ie cheddar cheese and string cheese. Viewed in this context, the statement by Mr Ferguson in his letter of 18 December 2000: '[c]lause 3.2 prevents BCS from using the Trade Marks on any products without the prior consent of Consumer Co',[64] is an accurate statement of the effect of clause 3.2 in respect of the of the cheese products manufactured by Bega in December 2000. The statement is not a clear acceptance that clause 3.2 prevents Bega from using its trade marks on any product whatsoever. When drafting clause 3.2 the parties chose to limit the scope of the restriction on Bega's right to use its trade marks to Products, as defined. This is the plain meaning and effect of the opening words of clause 3.2.
67 In the event, as I have determined, that clause 3.2 does not prevent Bega from using the Trade Marks in Australia on any product without the plaintiffs' consent, save in relation to Products as defined, the plaintiffs contend that clause 3.2 of each of the TMLAs should be rectified. The plaintiffs contend that the words 'on or in relation to any product or otherwise whatsoever' should be added to each of sub-paragraphs (a) and (b) of clause 3.2.[65]
The principles which govern an application for rectification of a contract on the ground of unilateral mistake can be briefly stated. If (1) one party, A, makes an agreement under a misapprehension that the agreement contains a particular provision which the agreement does not in fact contain; and (2) the other party, B, knows of the omission and that it is due to a mistake on A's part; and (3) lets A remain under the misapprehension and concludes the agreement on the mistaken basis in circumstances where equity would require B to take some step or steps, depending on those circumstances, to bring the mistake to A's attention; then (4) B will be precluded from relying upon A's execution of the agreement to resist A's claim for rectification to give effect to A's intention.[68]
69 Rectification for unilateral mistake is not confined to cases involving misapprehension that an agreement contains a particular provision which it does not in fact contain. The remedy is also available where one or both parties mistakenly thought that the words in an agreement bore a different meaning.[69]
70 Before an order for rectification can be made on the grounds of mistake, the plaintiffs must establish by convincing proof that they not only made a mistake, but that the mistake was precisely the one identified by them for the purpose of their claim for rectification.[70] The mistake identified by the plaintiffs is their misapprehension at the time of executing the TMLAs that clauses 3.1 and 3.2 restricted Bega from using the Bega Trade Marks, or trade marks similar to the Trade Marks, in each Territory, on or in connection with any products without the plaintiffs' consent unless expressly permitted by the Agreements ('the Plaintiffs' Understanding').[71]
71 The plaintiffs bear the onus of proof on the balance of probabilities in accordance with s 140(1) of the Evidence Act 2008 (Vic). However, the plaintiffs' application is also subject to s 140(2):
Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account -
(a) the nature of the cause of action or defence; and
(b) the nature of the subject-matter of the proceeding; and
(c) the gravity of the matters alleged.[72]
72 It is 'elementary' that rectification is granted only upon 'clear and convincing proof'.[73] What needs to be proved by the plaintiffs in accordance with this standard is:
(a) not only that the TMLAs do not have the legal effect which the plaintiffs intended them to have, but also what the plaintiffs' intention as to the legal effect of the TMLAs was when the TMLAs were executed (for rectification for unilateral mistake); and
(b) not only that the TMLAs do not correctly record the common intention of the parties, but also, what the common intention of the parties was when the TMLAs were executed (rectification for common mistake).[74]
73 In Franklins Pty Ltd v Metcash Trading Ltd ('Metcash'), the New South Wales Court of Appeal identified three policy reasons for requiring great care in making the factual findings of common intention that ground a rectification order for common mistake:
First, both the social institution of making contracts in writing, and the practical importance associated with it, of people ordinarily being able to rely upon a document, that is apparently regular, meaning what it says, contribute to the need for care in granting rectification ... Second, there is a 'danger of imposing on a party a contract which he did not make ...'. [Third] [w]hen an agreement is one tailored to the particular case it deals with rather than being a standard form, has been reduced to writing through a process of negotiation between solicitors over a period of months, and is clearly a matter of great commercial significance to the parties, that situation in itself is a factor that tends to make it less likely that the parties have recorded their common intention incorrectly.[75]
74 Although made in the context of rectification for common mistake, these observations apply equally to a claim based on unilateral mistake. In Leibler, which involved a claim for rectification based on unilateral mistake, Kenny JA observed:
Ordinarily, where parties enter into prolonged negotiations in which they are assisted by solicitors, the executed document will be taken to represent their real intentions and a court will not reach a contrary conclusion unless satisfied by convincing proof.[76]
75 In the present case, the parties entered into prolonged negotiations in which they were assisted by solicitors. Further, unlike Leibler, the mistake which the plaintiffs must establish does not involve a misapprehension that the TMLAs contain a particular provision which they do not in fact contain. Rather, the mistake is as to the legal effect of the words used in clause 3.2; ie that the parties have used words, which, when properly construed, do not express the plaintiffs' true intention (unilateral mistake) or alternatively, the plaintiffs' and Bega's true intention (common mistake).
76 The TMLAs were executed on 8 May 2001. In assessing the weight to be given to the evidence led in the current proceedings I have had regard to the fact that witnesses have given evidence in respect of negotiations which occurred almost 20 years ago. Further, prior to late 2017 there had never been an issue between the plaintiffs and Bega as to whether clause 3.2 prevented Bega from applying its Trade Marks to products other than Cheese Products. It was only after the passage of many years following the execution of the TMLAs that the witnesses had occasion to turn their minds to what their intention was as to the legal effect of clause 3.2 in May 2001 when the TMLAs were executed.
77 The plaintiffs submit that the attribution of state of mind to the plaintiffs and Bega is critical for the purposes of their claims for unilateral and common mistake.[77] The plaintiffs advance five propositions in respect of the identification of the individual or individuals whose state of mind is to be attributed to the plaintiffs for the purposes of establishing the Plaintiffs' Understanding.
Always, when beliefs or opinions or states of mind are attributed to a company it is necessary to specify some person or persons so closely and relevantly connected with the company that the state of mind of that person or those persons can be treated as being identified with the company so that their state of mind can be treated as being the state of mind of the company.[80]
Second, the plaintiffs submit that the state of mind of an individual can be attributed to a company even if that person was not its guiding mind and will for all purposes.[81] Third, when assessing the state of mind of a company, a company will be taken to have the 'knowledge possessed by each of' the key individuals involved in a transaction.[82] Fourth, there is no requirement, in order to establish the requisite corporate state of mind to found a claim for rectification, that the plaintiffs establish that all, or a majority, of the board of the plaintiffs or, Bonlac or NZDB, held the Plaintiffs' Understanding.[83] Fifth, there is no requirement that the plaintiffs establish that all, or a majority, of the individuals responsible for executing the TMLAs on behalf of the plaintiffs held the Plaintiffs' Understanding.[84]
79 In determining corporate state of mind, regard must be had to the particular context in which the issue of attribution arises.[85] There are many authorities which have considered the attribution of corporate state of mind in the context of claims for rectification. In Perpetual Ltd v Myer Pty Ltd ('Perpetual')[86] Croft J, in the context of a claim for rectification for common mistake, set out the following principles governing attribution of corporate state of mind:
Questions of intention when only natural persons are involved in the negotiation and execution of a contract which is sought to be rectified do not pose the same difficulties that may arise with respect to corporate parties. Thus, there is a question whether the state of mind of a natural person should be attributed to a corporate party as a matter of interpretation of the relevant substantive rule. The substantive rule here is the law of contract.
The primary rule of attribution in the case of a corporation is the corporate constitution, but further rules are required to enable the corporation to do business. The primary rule is supplemented by the general rules of attribution found in the principles of agency. The principle of agency used in contract law, particularly in cases of rectification, is that the relevant officer or employee is the person who is the 'directing mind and will' of the corporation in relation to the contract.
The cases dealing with rectification claims variously describe the relevant officer or employee whose intention is to be attributed to the corporation as the 'decision maker', the person 'whose job it was to make the required business judgment as to the terms upon which [the corporation] should contract'; and the 'decision maker' as opposed to a person conducting a 'mere negotiation'. The cases also recognise that the intentions of the negotiator will be material if the negotiator either is also the decision maker, or shares in a relevant way those intentions with the decision maker. It follows that where an organ of the corporation executes or approves a contract as a formality and the negotiator's role is critical to that organ's decision, the negotiator's intention will be attributed to the corporation. This explains why the evidence may demonstrate objectively an intention by the decision maker to enter into the contract which the negotiator had negotiated and agreed, such that the intention, and the mistake, was adopted by the decision maker. The outcome of each case necessarily depends on the particular facts.[87]
80 A subsequent appeal was dismissed, with the Court of Appeal citing the passage set out above as part of the trial judge 'set[ting] out the legal principles to be applied in a rectification claim such as the present'.[88]
81 In Thiess,[89] a claim involving rectification for common mistake, Applegarth J stated:
The parties' submissions canvass authorities that relate to the identity of the relevant decision-maker for the purpose of a claim for rectification. The authorities refer in different contexts to 'the decision-taker', the 'decision-maker', the person or persons to whom authority was delegated to negotiate and conclude an agreement and the person 'whose job it was to make the required business judgment as to the terms upon which [the party] should contract'. These and similar expressions refer to an employee or employees to whom a company has delegated authority to act on its behalf in relation to a particular transaction. If the employee acts in accordance with his or her authority, then his or her intention in doing so may, depending on the circumstances, be capable of being regarded as the intention of the company. In some circumstances the intention of the 'decision-maker' will be different to the intention of the person who negotiated the contract or the person who executes the contract. The expressed intentions of 'a mere negotiator' who is not also the 'decision-maker' and who does not share those intentions with the person who is the decision-maker on behalf of the company may be immaterial.
The application of principles in relation to the attribution of intention for the purposes of rectification depends upon context, including whether the relevant decision-maker is the person authorised to negotiate the terms of the agreement and conclude those negotiations, or is the person authorised to execute the contract that binds the parties.
The application of the principles depends on the subject matter of the claim for rectification, since a person may be authorised to make the required business judgment or decision as to certain terms but not authorised to do so in relation to other terms.[90]
82 A subsequent appeal was allowed to a limited extent but did not disturb the statement of principles set out above.[91]
83 In the context of a claim for rectification for unilateral mistake Kenny JA stated in Leibler:
The mistaken belief of Enzedair is to be found in the mind of the person entrusted with making the shareholders' agreement ... Enzedair was the subsidiary of ANZ and controlled by it. Pursuant to its articles of association, the management of ANZ lay with its board, and the board had delegated the function of negotiating and concluding the shareholders' agreement (and related agreements) to Geary. With the knowledge and consent of the board, Geary engaged Macfarlane to assist him. At the time the shareholders' agreement was executed, Geary and Macfarlane were, so the trial judge found, under the misapprehension that the agreement contained a right of pre-emption in the event that NAPL changed hands, modified to give effect to the consensus reached between Geary and Isi Leibler on 28 October 1985. This mistake is the mistake of Enzedair. I reject the submission that, in order to attribute the mistake to Enzedair, it was incumbent upon the respondents to call all, or a majority of the members of the Board of ANZ.[92]
85 In Murray Holdings Ltd v Oscatello Investments Ltd[95] Mann J, having reviewed a number of English authorities which considered the question of whether a negotiator rather than the Board (or the trustees of a trust) should be the person whose mistaken belief should be attributed to a corporation, identified the following principles for identifying the relevant 'decision maker':
(a) One is looking for the person who in reality is the decision maker in the transaction in order to find intentions in relation to rectification.
(b) In the case of the company that person will usually be the person with authority to bind the company.
(c) Someone who is not a person with power to bind can nonetheless be treated as the decision maker if that is the reality on the facts.
(d) The intention of a 'mere negotiator' may be relevant if it is shared with the actual decision maker; but, as it seems to me, that is because the intention has become that of the actual decision maker.
(e) Where a person who would normally be expected to be the decision maker (such as the board of a company) leaves it to a negotiator to negotiate a deal and produce a contract by instructing solicitors, on the understanding that the decision maker would do a deal on those terms, then the negotiator's intention is the relevant one, either because that person is the decision maker, or, if that description is not apt, because the technical decision maker has simply adopted the intentions of the negotiator.[96]
86 In the context of a claim for rectification for unilateral or common mistake, the state of mind of a corporate plaintiff is to be attributed to the 'decision maker', the person whose job it was to make the required business judgement as to the terms upon which the corporation should contract. A negotiator's state of mind may be attributed to the corporation, either because the negotiator is in fact the decision maker, by reason of having been delegated authority to conclude the terms of an agreement, or alternatively because the ultimate decision maker has simply approved the terms of the contract as a formality. The judgment of Croft J in Perpetual, approved on appeal, is authority for these propositions. I do not consider there to be any inconsistency between the judgment of Croft J and the 'so closely and relevantly connected' test in Krakowski. In the context of a claim for rectification, 'closeness' is measured by reference to the relevant decision making process. 'Relevance' is measured by reference to the transaction or conduct in issue. The concepts of 'closeness' and 'relevance' are not mutually exclusive.[97]
87 In determining whether the plaintiffs have discharged the burden of proof it is necessary to inquire as to what was the actual intention of the plaintiffs and Bega when the TMLAs were executed on 8 May 2001.[98] In a claim for rectification for unilateral mistake it is the actual intention of the party claiming to have entered the contract with a mistaken intent as to the contract's legal affect that is the subject of enquiry. In a claim for rectification for a common mistake it is the actual common intention of the parties. The question of attribution for the purposes of a claim for rectification is concerned with attribution of intent. Authorities which consider the attribution of corporate knowledge in the context of knowing receipt of trust property are apt to divert attention from the relevant question, namely, when the plaintiffs executed TMLAs did they intend clause 3.2 to have the effect of preventing Bega from applying the Trade Marks, or trade marks similar to the Trade Marks, to any product.
88 In the context of a claim for rectification 'intention' refers to that which is subjectively foreseen and intended to be effected by the document. It does not include consequences which the parties did not have in their mind when the agreement was executed even if, had they thought of them, they would have intended them.[99] If the matter that has come to be the subject of debate is a matter that was not addressed during the negotiations which preceded the execution of the agreement, so that there was no subjective intention concerning it, there is no basis for rectification.[100]
89 The actual intention equates with the subjective intention of the parties, viewed objectively from the parties' words and actions.[101] In determining whether the burden of proof is discharged the Court weighs the evidence of intention objectively, in the sense that it does not merely accept what a party says was in his or her mind. Rather, the Court must consider and weigh admissible evidence probative of intention.[102]
90 Although evidence of the parties' actual intention is viewed objectively the test for ascertaining intention does not correspond with the objective construction of a contract, which renders irrelevant the subjective intention of the contracting parties.[103]
91 The plaintiffs submit that the test for establishing the necessary intention of a party is 'what an objective observer would have thought the intention of the parties to be'.[104] The authority cited in support of this submission is the judgment of Applegarth J in Thiess.[105] Applegarth J's formulation of the test 'what an objective observer would have thought the intention of the parties to be' is based on Lord Hoffmann's formulation in Chartbrook Ltd v Persimmon Homes Ltd ('Chartbrook'):[106] 'the question is what an objective observer would have thought the intention of the parties to be'.[107]
92 Insofar as the plaintiffs submit that the test is 'what an objective observer would have thought the intentions of the parties to be', this does not reflect the common law in Australia. This formulation of the test is based on the dicta of Lord Hoffmann in Chartbrook in respect of rectification for common mistake. It was doubted by Kiefel J and rejected by French CJ in Simic.[108] The English Court of Appeal subsequently refused to follow it in FSHC Group Holdings Ltd v Glas Trust Corporation Ltd.[109] Further, in Kowloon Development Finance Ltd v Pendex Industries Ltd,[110] Lord Hoffmann, delivering the lead judgment of the Court of Final Appeal of Hong Kong, observed that rectification for unilateral mistake is distinct from rectification for common mistake, and that the former 'is very much concerned with the subjective states of mind of the parties'.[111]
93 On 10 June 2020 the Court directed the plaintiffs to file and serve a submission addressing the question of whether an objective test for ascertaining intention for the purposes of rectification for unilateral mistake represents the common law of Australia as it presently stands. The submission filed by the plaintiffs concludes as follows:
Thus, the plaintiffs contend that the test for ascertaining intention for the purpose of rectification (for both unilateral and common mistake), which represents the common law of Australia as it presently stands, is that the Court should determine the parties' subjective intention but do so 'viewed objectively' and as 'a matter of inference' from all probative evidence'.[112]
I accept this submission. The Court cannot ignore the parties' true intention and rely solely upon relevant intention being established by correspondence and conduct. The whole of the objective and subjective evidence must be considered for the purpose of determining whether the party claiming rectification has established their actual and true intention by clear and convincing proof.[113]
94 The plaintiffs' claim for rectification for unilateral mistake is pleaded as follows:
Rectification for unilateral mistake
During the negotiation of, and at the time of execution of, the Agreements, the plaintiffs considered it to be essential that, and believed that, clauses 3.1 and 3.2 of the Agreements restricted Bega from using the Bega Trade Marks, or trade marks similar to the Bega Trade Marks, in each Territory, on or in connection with any products without the plaintiffs' consent unless expressly permitted by the Agreements (the Plaintiffs' Understanding).
Particulars
The Plaintiffs' Understanding was held by the following individuals, who were so closely and relevantly connected with the plaintiffs and responsible for making the relevant commercial decisions as to the terms upon which the plaintiffs would contract with Bega under the Agreements, and whose such that one or more of their states of mind as to those terms is to be attributed to the plaintiffs:
(i) Fonterra:
(A) Mr Alex Sloan, at all relevant times, the Managing Director and Chief Executive Officer of Fonterra Australia Pty Ltd, then called Bonlac Foods Ltd (Bonlac) and, at the time of the execution of the Fonterra Agreement, a director of Fonterra;
(B) Mr David Mallinson, at all relevant times, Commercial Director of Bonlac;
(C)(B) Mr Chris Moller, the NZMP Group Managing Director and project sponsor employed by NZDB;
(ii) Bonland:
(A)(C) Mr David Mallinson, a director and secretary of Bonland at the time of execution of the Bonland Agreement, and at all relevant times, Commercial Director of Bonlac;
(B)(D) Mr Wayne Leach, at all relevant times, project manager for NZDB and, at the time of execution of the Bonland Agreement, a director of Bonland.; and/or
(E) Mr Ashley Waugh, at all relevant times, NZDB's Group CEO of 'Ausapac' and Global Consumer Cheese and Foodservice Category Director.
Each of the individuals held the Plaintiffs' Understanding at the time of the execution of the Agreements.
Each of the individuals considered it essential that clauses 3.1 and 3.2 of the Agreements restrict Bega from using the Bega Trade Marks, or trade marks similar to the Bega Trade Marks, in each Territory, on or in connection with any products without the plaintiffs' consent unless expressly permitted by the Agreements, from the time of the commencement of negotiations of the terms of clauses 3.1 and 3.2 of the Agreements in about late November 2000 until the execution of the Agreements on 8 May 2001.
Each of the individuals believed that clauses 3.1 and 3.2 had that effect from about 23 January 2001, when negotiations as the terms of clauses 3.1 and 3.2 concluded with Bega agreeing, by letter dated 23 January 2001 from Mr David Ferguson, Bega's solicitor, to Ms Karen Wood, Bonlac's in-house counsel, and Mr Murray Dickson, NZDB's in-house counsel, to 'the current wording', until the execution of the Agreements on 8 May 2001.[114]
95 The plaintiffs' primary contention is that Mr Sloan as the 'lead negotiator' of the TMLAs and the person responsible for determining the commercial terms of the TMLAs being negotiated on behalf of the plaintiffs held the Plaintiffs' Understanding, such that the plaintiffs held the Plaintiffs' Understanding.[115] The plaintiffs submit that in order to establish an entitlement for rectification they must establish that ConsumerCo and BCT (as the plaintiffs were known on 8 May 2001) were relevantly mistaken.[116] The plaintiffs submit that the fact that the boards of Bonlac and NZDB authorised ConsumerCo and BCT to execute the TMLAs merely establishes that they authorised the plaintiffs to enter into the TMLAs as negotiated.[117] The plaintiffs submit that the fact that the boards of Bonlac and NZDB authorised ConsumerCo and BCT to execute the TMLAs 'does not, however, mean that the "beliefs or opinions or states of mind" of those persons "so closely and relevantly connected with" the plaintiffs in respect of the negotiation and determination of the terms of the TMLAs in respect of which rectification is sought are not to be attributed to ConsumerCo and BCT'.[118]
96 The plaintiffs submit that Bega is misconceived in contending that the plaintiffs must prove that each of Bonlac and NZDB intended the clauses 3.1 and 3.2 to restrict Bega from using the Trade Marks or similar trade marks on any products. The plaintiffs submit that:
(i) the proper enquiry is whether those persons so closely and relevantly connected with ConsumerCo and BCT in relation to the 'act or omission in point' held the Plaintiffs' Understanding;[119]
(ii) it is necessary to identify the natural person or persons having management or control in relation to the act or omission in point;[120] and
(iii) the relevant question is whose state of mind is to be attributed to ConsumerCo and BCT in respect of the terms upon which they agreed to licence the Trade Marks from Bega, as negotiated.[121]
97 The plaintiffs submit that the members of the boards of Bonlac and NZDB were not the same as the members of the boards of ConsumerCo and BCT, much less 'so closely and relevantly connected with' the plaintiffs in respect of the negotiation and determination of clauses 3.1 and 3.2 of the TMLAs, such that their beliefs or opinions or state of mind are to be attributed to the plaintiffs.[122]
98 The plaintiffs submit that the negotiations in respect of clauses 3.1 and 3.2 were completed on 23 January 2001 when Mr David Ferguson, a solicitor for Bega, wrote to Ms Wood of Bonlac and Mr Dickson of NZDB advising that Bega was prepared to accept the current wording of clause 3.2.[123]
99 As at 23 January 2001 ConsumerCo did not exist and BCT was a wholly owned subsidiary of Bega. On 8 May 2001 ConsumerCo purchased Bega's shareholding in BCT. Messrs David Mallinson and Wayne Leach were appointed as directors of BCT. Mr Mallinson was, at the time, an employee of Bonlac. Mr Leach was an employee of NZDB. Mr Mallinson and Mr Leach executed the Bonland TMLA on behalf of BCT. Mr Mallinson signed the TMLA acting on instruction/authorisation from the Bonlac board. Mr Leach signed the TMLA acting on instruction/authorisation of the NZDB board.[124]
100 BCT became a wholly owned subsidiary of ConsumerCo immediately before the execution of the TMLA by Messrs Mallinson and Leach. The minutes of the 8 May 2001 board meeting of ConsumerCo record that the resolution in favour of the execution of the Bega share sale agreement pursuant to which ConsumerCo acquired Bega's shareholding in BCT was passed at 11.47pm. The meeting concluded at 11.48pm.[125] I infer that the Bonland TMLA, which is dated 8 May 2001 was executed immediately thereafter.
101 When the TMLAs were executed on 8 May 2001, ConsumerCo was a wholly owned subsidiary of Bonlac and NZDB. ConsumerCo was the corporate vehicle through which Bonlac and NZDB implemented:
102 ConsumerCo and BCT did not negotiate and conclude any agreement with Bega regarding the terms of clauses 3.1 and 3.2. The negotiation for clauses 3.1 and 3.2 was finalised on 23 January 2001 prior to the incorporation of ConsumerCo and at a time when BCT was a wholly owned subsidiary of Bega. The present case stands in stark contrast with Leibler where the mistaken belief Enzedair, a wholly owned subsidiary of ANZ was found in the mind of Messrs Geary and MacFarlane who had been authorised by ANZ's board to conclude the terms of a shareholder agreement. Their state of mind was attributed to Enzedair on the basis that they had been authorised by ANZ's board to negotiate and conclude the shareholder agreement.[127] Neither ConsumerCo nor BCT authorised any of Messrs Sloan, Moller, Mallinson, Waugh and Leach to negotiate and conclude an agreement with Bega.
103 The plaintiffs do not submit that the mistaken intention as to the effect of clauses 3.1 and 3.2 was held by the boards of Bonlac and NZDB and that the same mistaken intention should be attributed to ConsumerCo or BCT. To the contrary, they submit that Bega's submission that the plaintiffs must prove that each of Bonlac and NZDB intended at the time the TMLAs were signed that the reach of clause 3.2 extended to non-licence products, is 'plainly wrong'.[128] The plaintiffs submit:
The plaintiffs are not required to establish that Bonlac and NZDB were relevantly mistaken. Bonlac and NZDB are not the plaintiffs. They are different companies, with different boards and officers, and they are not parties to the TMLAs.[129]
104 The plaintiffs submit that the fact that ConsumerCo did not exist until after the negotiation of clause 3.2 concluded does not detract from their submission that Mr Sloan's state of mind was ConsumerCo's state of mind:
The fact that the First Plaintiff (then called ConsumerCo) did not exist until after the negotiation of clause 3.2 concluded does not alter the analysis. The negotiations of the TMLA were premised on the basis that ConsumerCo was to be the incorporated joint venture vehicle of Bonlac and NZDB and the licensee under the TMLA. The moment it was incorporated, Mr Sloan's state of mind in relation to the negotiations of the TMLA became ConsumerCo's state of mind.[130]
105 Similarly, the plaintiffs submit that nothing turns on the fact that BCT was a wholly owned subsidiary of Bega until immediately prior to the execution of the Bonland TMLA:
the fact that the Second Plaintiff (then BCT) was a wholly owned subsidiary of Bega until very shortly prior to the execution of the TMLA (NSW & ACT) on 8 May 2001 does not alter the identity of the state of mind to be attributed to it. From no later than 6 March 2001 (the date of the execution of the Master Agreement), it was known by the parties to the Master Agreement, that, if ConsumerCo and Bega so agreed, Bega would sell BCT's shares to ConsumerCo and grant BCT the licence under the TMLA (NSW & ACT). For the purpose of identifying a state of mind to be attributed to BCT ' ... it is necessary to identify the natural person or persons having management or control in relation to the act or omission in point'. The act in point is BCT's entry into the TMLA (NSW & ACT) with Bega, as a wholly owned subsidiary of ConsumerCo. Mr Sloan had management and control in relation to that matter, so it is his state of mind that is to be attributed to BCT.[131]
106 I accept the plaintiffs' contention that the negotiations of the TMLAs were undertaken on the basis that ConsumerCo was to be the incorporated joint venture vehicle of Bonlac and NZDB and the licensee under one of the TMLAs. However, it does not follow that upon incorporation of ConsumerCo on 26 February 2001, Mr Sloan's state of mind 'in relation to the negotiations' of the TMLAs became ConsumerCo's state of mind.
107 The plaintiffs submit, correctly, in their reply submission, that state of mind is not to be imputed to a corporation 'generally or in the round' but rather '[i]t is necessary to identify the natural person or persons having management or control in relation to the act or omission in point'.[132]
108 Mr Sloan did not have management and control of the negotiations for the TMLAs on behalf of the ConsumerCo. Nor did he have management and control of the negotiations on behalf of both joint venture partners: Bonlac and NZDB. Mr Sloan was authorised by the Bonlac board to deal with Bega 'within parameters'.[133] He was the person at Bonlac ultimately responsible for determining the commercial terms of the TMLAs.[134] He was the lead negotiator for Bonlac.[135] However, Mr Sloan was not authorised to negotiate on behalf of NZDB. NZDB had its own negotiating team in relation to the TMLAs. Mr Chris Moller, a NZDB senior executive, was the key negotiator on behalf of NZDB.[136] NZDB had also engaged its own external lawyers to act on their behalf in connection with the TMLA negotiations.[137] For the majority of the discussions which Mr Sloan attended with Bega representatives, NZDB representatives were not present.[138] Mr Sloan had no recollection of any representative from NZDB being present when he had discussions with Bega regarding Bega's right to use the Bega Trade Marks.[139]
109 If Bonlac had executed the TMLAs, Mr Sloan's intention as to the effect of clause 3.1 of the TMLAs could have been attributed to Bonlac on the same basis that the state of mind of Messrs Geary and Macfarlane was attributed to Enzedair in Leibler. He was authorised by the board to lead the negotiations. His unchallenged evidence was that he was the person at Bonlac that was ultimately responsible for determining the commercial terms of the TMLAs.[140] It does not follow, however, that Mr Sloan's intention was attributed to ConsumerCo upon its incorporation.
110 The constitution of ConsumerCo is not in evidence. The explanatory statement for the proposed alliance between Bonlac and the NZDB is an exhibit to an affidavit in support of Bonlac's application to the Supreme Court of Victoria for approval of a scheme of arrangement which was heard in April 2001.[141] The explanatory statement includes the following in respect of the board of directors of ConsumerCo:
Under the ConsumerCo Constitution, each of Bonlac and NZDB must appoint three directors of ConsumerCo. As at the date of this Explanatory Statement, each of Bonlac and NZDB have made interim appointments to the Board of ConsumerCo. Bonlac has appointed Noel Robert Campbell (Chairman-Designate of Bonlac), Alexander Thomas Sloan (Managing Director and Chief Executive Officer of Bonlac) and William Peter Day (Executive Director and Chief Financial Officer of Bonlac) to the board of ConsumerCo, and NZDB has appointed Warren Arthur Larsen (Chief Executive of NZDB), Harry Gordon Bayliss (Director of NZDB) and David Alan Pilkington (Group Managing Director of New Zealand Milk) to the board of ConsumerCo.[142]
On 8 May 2001 Mr Sloan was one of six directors of ConsumerCo, three having been appointed by Bonlac and three having been appointed by NZDB.
111 Bonlac and NZDB each had a 50 per cent shareholding in ConsumerCo. NZDB acquired a 25 per cent interest in Bonlac prior to the incorporation of ConsumerCo. Mr Sloan accepted that by virtue of this shareholding, NZDB was, in effect, the major shareholder in ConsumerCo.[143] If Mr Sloan had been authorised by the board of NZDB to negotiate and conclude an agreement on behalf of NZDB, he could have conducted negotiations with Bega on behalf of both joint venture partners. In those circumstances, the plaintiffs could legitimately contend that Mr Sloan had management and control of the negotiations on behalf of both joint venture partners. However, Mr Sloan was only authorised to negotiate with Bega on behalf of Bonlac. Mr Sloan's intention regarding the effect of clause 3.2 was not attributed to ConsumerCo upon its incorporation. Further, there is no evidence that the board of ConsumerCo had any particular intention in relation to the meaning of clause 3.2, either upon its incorporation on 26 February 2001 or upon the execution of the TMLA on 8 May 2001.
112 As regards the state of mind of BCT, the plaintiffs submit that Mr Sloan had management and control in relation to BCT's entry into the TMLAs with Bega as a wholly owned subsidiary of ConsumerCo. They submit that his state of mind is to be attributed to BCT. I reject this submission. It is unsupported by any evidence. The Bonland TMLA was executed on behalf of BCT by its two directors, David Mallinson and Wayne Leach. They were appointed directors of BCT pursuant to Schedule 2 of a share sale deed dated 8 May 2001.[144] The parties to the deed were Bega, BCT, ConsumerCo, Bonlac and NZDB. Under the terms of the deed, ConsumerCo acquired all shares in BCT for $35 million.[145] Mr Mallinson was authorised to sign the TMLA on instruction from Bonlac.[146] The NZDB board authorised Mr Leach to sign the TMLA.[147]
113 Although BCT was a wholly owned subsidiary of ConsumerCo when it executed the TMLAs, there is no evidence that Mr Sloan, as one of six directors of ConsumerCo, had management or control of BCT's decision to enter into the TMLAs.
114 For the reasons set out above, Mr Sloan's intention as to the effect of clause 3.2 of the TMLAs cannot be attributed to:
(i) ConsumerCo upon its incorporation on 26 February 2001[148] and at the time of the execution of the Fonterra TMLA on 8 May 2001; and
(ii) BCT when it executed the Bonland TMLA on 8 May 2001.
115 If this conclusion is wrong and Mr Sloan's intention as to the effect of clause 3.2 was attributed to ConsumerCo and BCT, it is necessary to address the question: what was Mr Sloan's state of mind as to the effect of clause 3.2?
116 Before an order for rectification can be made on the ground of mistake it must be shown, by convincing proof, not only that the plaintiffs made a mistake, but that the mistake was precisely the one identified by them for the purposes of their claim for rectification.[149] The pleaded mistake which underpins the plaintiffs' claim is their belief that clauses 3.1 and 3.2 restricted Bega from using the Bega Trade Marks, or trade marks similar to the Bega Trade Marks in each Territory, on or in connection with any products without the plaintiffs' consent unless expressly permitted by the Agreements.[150] The plaintiffs seek rectification of the Agreements by the insertion of the phrase 'on or in relation to any product or otherwise whatsoever' at the end of clause 3.2(a) and (b).
117 Insofar as the plaintiffs rely upon the state of mind of Mr Sloan, they must establish that when the Agreements were executed on 8 May 2001, Mr Sloan intended that clauses 3.1 and 3.2 restricted Bega from using the Bega Trade Marks or any trade marks similar to the Bega Trade Marks on or in connection with any products whatsoever ('the requisite intention').
118 The plaintiffs have not established that when the TMLAs were executed Mr Sloan had the requisite intention. Mr Sloan's evidence as to his belief regarding the effect of clause 3.2 contained numerous references to 'management of the brand' and 'control of the brand'. Mr Sloan's evidence does not establish that it was his intention that clause 3.2 would prevent Bega from using the Bega Trade Marks, or any trade marks similar to the Bega Trade Marks, on any products whatsoever.
119 Mr Sloan understood that the basis upon which negotiations between the parties in respect of clause 3.2 were concluded on 23 January 2001 was:
(a) '[t]hat the licensee had control of the trade mark licence ... but that Bega had the ... right to consult with the licensee as to the use of the Bega brand, but it needed the licensee's agreement to that';[151] and
(b) 'excepting the carve out provisions if they wanted to use the Bega brand, they needed to consult with ... ConsumerCo, the licensee, and seek agreement to that.'[152]
120 The concern at the time of the negotiations about Bega's right to use the Bega brand in respect of products was that Bega not sell dairy or cheese products in parallel with the same brand being sold by Bonlac or ConsumerCo.[153] Mr Sloan distinguished between product and brand.[154] The concern was that there would only be one party (ConsumerCo) managing the brand:[155]
121 Mr Barry Irvin, the Chairman of Bega's board, represented Bega in negotiations of the TMLAs.[158] Mr Sloan had no recollection at any point during negotiations saying to Mr Irvin words to the effect that Bonlac was entering into the agreement on the understanding that the effect of the agreement was to preclude Bega at any point in the future from applying the Bega Trade Mark to any non-cheese product.[159]
123 Mr Sloan's evidence that only the dairy category was in contemplation in terms of the application of the Bega brand products, is consistent with the fact that Bega's business at the time of the negotiations for the TMLAs was confined to cheese and dairy products.[162]
124 The precise scope of the intention of the parties is critical to whether the remedy of rectification is available in the form sought.[163] The court must not assume for itself the task of making the contract for the parties.[164] The mistaken intention which the plaintiffs must establish is that which is subjectively foreseen and intended to be effected by clause 3.2. It does not include consequences which the plaintiffs did not have in their mind when the TMLAs were executed, even if, had the plaintiffs thought of them, they would have intended them.[165] Prior to the execution of the TMLAs, Mr Sloan did not turn his mind to the possibility of Bega seeking to apply the Trade Marks or similar trade marks to any products other than cheese and dairy products. Prior to the execution of the TMLAs, Mr Sloan did not have a mistaken intention as to the effect of clause 3.2 which is precisely the same as the mistake pleaded in [30] of the Fifth Further Amended Statement of Claim. If Mr Sloan had contemplated Bega applying the Trade Marks, or similar trade marks, to non-cheese/dairy products he may have intended that clause 3.2 would restrict Bega's right to do so. However, this does not provide a foundation for granting the relief sought which restricts Bega's right to apply the Trade Marks, or similar trade marks, to any product.
125 The precise scope of Mr Sloan's intention is critical to whether rectification is granted in the form sought by the plaintiffs. The plaintiffs do not seek rectification of clause 3.2 by the inclusion of words which confer rights on the plaintiffs in respect of the Bega brand, or which impose restrictions on Bega in respect of the Bega brand. Rather, they seek rectification of clause 3.2 by the addition of words 'on or in relation to any product or otherwise whatsoever'. The plaintiffs' application for rectification, insofar as it relies upon the evidence of Mr Sloan, is an invitation to the Court to rewrite clause 3.2 to include a prohibition which was not contemplated by Mr Sloan when the TMLAs were executed.
126 If, contrary to the findings set out above, Mr Sloan's evidence regarding his understanding that the TMLAs conferred upon the plaintiffs the right to manage/control the Bega brand, is to be equated with an intention that clause 3.2 prohibited Bega from applying the Trade Marks, or similar trade marks, to any product, it is not evidence that NZDB intended clause 3.2 to restrict Bega from applying its Trade Marks, or similar trade marks, to any product.
127 Mr Sloan gave evidence that control/management of the Bega brand in Australia was a 'drop dead issue' for NZDB.[166] Mr Sloan gave evidence that clause 3.2 was a 'deal breaker' for NZDB and that he had been told by Chris Moller that NZDB would walk away from the deal if the matter was not concluded in a desirable fashion from Bonlac/NZDB's point of view.[167] Mr Sloan gave evidence that he had discussed with Mr Moller issues in relation to clause 3.2 of the TMLAs and Bega's right to use the Trade Marks in Australia. However, he could not recall the substance of the conversation.[168] I do not accept this evidence as establishing the state of mind of NZDB. Mr Sloan was not authorised to act on behalf of NZDB and did not do so. His evidence of statements made to him by Mr Moller is not admissible evidence of the state of mind of NZDB.
128 Mr Moller did not give evidence. However, an affidavit from the plaintiffs' solicitor, Mr Matthew Lees, sworn 17 February 2020 exhibits an email dated 6 February 2020 from Mr Moller to the plaintiffs' general counsel. In that email Mr Moller states, inter alia:
I have made it very clear that I have no recollection of any discussions concerning the use of the Bega brand by Bega in Australia on non-dairy products, which seems to be the crux of the action Fonterra is taking against Bega.
That does not mean that I am saying that there were no such discussions/agreements but rather that I have no recollection of them and therefore I can not see what I can contribute to the case.[169]
129 Mr Lees deposes that he had a telephone conversation with Mr Moller on 7 February 2020:
The second telephone conversation I had with Mr Moller was on 7 February 2020. In that second conversation, Mr Moller stated:
(a) he had seen the documents that I sent him by email, but they did not prompt any independent recollections;
(b) he is not willing to give evidence as a witness in the trial of this proceeding, even if this was by video link from New Zealand; and
(c) he is travelling on Tuesday (11 February 2020) for 3 weeks on holiday to Hawaii with his family.[170]
130 Mr Moller's statement, both by way of email and in his telephone conversation with Mr Lees, that he had no recollection of any discussions concerning the use of the Bega brand by Bega in Australia on non-dairy products is consistent with Mr Sloan's evidence. Mr Sloan acknowledged that the plaintiffs' concern during the negotiations was that Bega would not sell dairy or cheese products in parallel with those with the same brand being sold by ConsumerCo.[171] Dairy products were the only thing in contemplation at the time.[172] This evidence is consistent with Mr Moller having no recollection of any discussion concerning the use of the Bega brand by Bega in Australia on non-dairy products.
131 Mr Sloan's evidence that NZDB wished to have management/control of the Bega brand in Australia is not evidence that NZDB intended that clause 3.2 would have the effect that Bega would be prohibited from applying the Bega Trade Mark, or similar trade marks, to any products.
The plaintiffs' alternative submission as to the attribution of state of mind
132 The plaintiffs' primary submission, which I have rejected, is that Mr Sloan's state of mind should be attributed to the plaintiffs. In the alternative, the plaintiffs submit that the state of mind of Mr Sloan in conjunction with the state of mind of Mr Moller, as the lead negotiator on behalf of NZDB, should be attributed to the plaintiffs. They submit that Messrs Sloan and Moller both held the Plaintiffs' Understanding, such that the plaintiffs held the Plaintiffs' Understanding.
133 Mr Moller was the lead negotiator for the TMLAs on behalf of the NZDB.[173] However, there is no evidence that Mr Moller was authorised by the board of NZDB to conclude the commercial terms of the TMLAs on behalf of NZDB. Mr Moller was not a member of the board of NZDB. He was the Global Chief Executive of New Zealand Milk Products, the global ingredient trading entity for NZDB.[174] There is no evidence that Mr Moller had been authorised by the Board of NZDB to conclude an agreement with Bega as to the terms of the TMLAs. There is therefore no basis for attributing Mr Moller's state of mind in respect of clause 3.2 to the NZDB. Further, there is no basis for attributing Mr Moller's state of mind regarding clause 3.2 to either of the plaintiffs.
134 The plaintiffs submit that Mr Moller was 'on the evidence, the most senior person within the NZDB most closely associated with this transaction'.[175]
135 Mr Moller did not give evidence. Had he done so he would have been able to address the question of whether he had been authorised by the board of NZDB to conclude negotiations with Bega in respect of the terms of the TMLAs. In the absence of any evidence from Mr Moller, or anybody else, on this point, there is no evidentiary foundation for a finding that the board of the NZDB delegated to Mr Moller the task of concluding the commercial terms of the TMLAs on its behalf. Further there is no evidence of any communication between Mr Moller and the boards of ConsumerCo and BCT. As such there is no evidentiary foundation for attributing Mr Moller's state of mind to the boards of ConsumerCo and BCT.
136 The plaintiffs submit that the evidence is clear that Mr Moller held the Plaintiffs' Understanding:
Once again, the evidence is clear that Mr Moller held the Plaintiffs' Understanding. Whilst Mr Moller did not give evidence in the proceeding, the 21 December 2000 letter authored by Mr Sloan is unequivocal - it provides a contemporaneous record of the fact that Mr Moller considered (on behalf of NZDB) any freedom by Bega to use the Bega trade marks in Australia to be 'a "deal breaker" for all of the reasons we have discussed'. Further, Mr Sloan was unequivocal, in his oral evidence, that Mr Moller had told Mr Sloan that the NZDB 'would walk away from the deal if this matter wasn't concluded in a desirable fashion', that Mr Moller had told Mr Sloan that 'the marketing of the Bega brand through the ConsumerCo joint venture had to be on the basis that ConsumerCo controlled the brand and the way that it was marketed in Australia', and that it was 'a "drop dead issue" with the New Zealand Dairy Board as to the management of the brand' and the NZDB 'wanted to have control of the management of the brand in the jurisdiction'. This evidence establishes that Mr Moller also held the Plaintiffs' Understanding, and that to the extent that his state of mind is to be attributed to the [p]laintiffs, it is entirely consistent with the state of mind of Mr Sloan.[176]
137 I do not accept that the 21 December 2000 letter[177] authored by Mr Sloan evidences Mr Moller's intention that clause 3.2 of the TMLAs would prevent Bega from applying the Bega Trade Marks, or similar trade marks, to any product. The letter does not record that this was the intention of either Mr Moller or NZDB. Mr Lees sent a copy of the 21 December 2000 letter to Mr Moller on 16 December 2019.[178] Mr Lees deposes that during a telephone conversation on 7 February 2020 Mr Moller told him that he had seen the documents forwarded on 16 December 2019 (which included the 21 December 2000 letter), but it did not prompt any independent recollection.[179] On 6 February 2020, Mr Moller stated in an email to the plaintiffs' general counsel - Australia:
I have made it very clear that I have no recollection of any discussions concerning the use of the Bega brand by Bega in Australia on non-dairy products, which seems to be the crux of the action Fonterra is taking against Bega.[180]
138 Insofar as the plaintiffs rely upon the evidence of Mr Sloan as evidence of the state of mind of Mr Moller, such evidence is of no probative value. Mr Sloan cannot give probative evidence of the state of mind of Mr Moller. In any event, Mr Sloan's evidence is inconclusive. For the reasons set out above, I do not accept that his evidence regarding 'management of the brand' and 'control of the brand' is to be equated with an intention on the part of Mr Moller that clause 3.2 prevented Bega from applying the trade marks, or similar trade marks, to any product.
139 The plaintiffs submit that they did not call Mr Moller because he did not have any independent recollection of the negotiations concerning, or the ultimate terms of, the TMLAs.[181] They submit:
In these circumstances, the Court is entitled to infer that Mr Moller held the Plaintiffs' Understanding, by reference to the evidence summarised above.[182]
140 I reject this submission. First, Mr Lee's affidavit is evidence that Mr Moller has no recollection of there being any discussion regarding the application of the Bega Trade Marks to any products other than cheese and dairy products. This evidence does not assist the plaintiffs in their claim for rectification, the effect of which would be to restrict Bega from applying its Trade Marks to any products. Further, the affidavit of Mr Lees is silent on the critical issue of whether Mr Moller had been authorised by the board of NZDB to conclude the commercial terms of the TMLAs on behalf of the board.
141 The plaintiffs submit that the Court is entitled to infer that Mr Moller held the Plaintiffs' Understanding. In determining whether to draw such an inference, the Court is entitled to have regard to the failure of the plaintiffs, who bear the onus of proof, to call Mr Moller to give direct evidence both as to his recollection of the negotiations in respect of clause 3.2 and the critical issue of whether he had been authorised by the board of NZDB to conclude negotiations on the commercial terms of the TMLAs on behalf of the board.[183] I am not prepared to draw an inference in favour of the plaintiffs regarding Mr Moller's state of mind in circumstances where the plaintiffs have failed to call Mr Moller.
142 If, contrary to the finding set out above, Mr Moller held the Plaintiffs' Understanding, there is no evidentiary foundation for attributing his state of mind to the NZDB and/or the plaintiffs.
143 In the further alternative, the plaintiffs submit that the state of mind of Messrs Sloan and Moller, in conjunction with the state of mind of one or more of:
should be attributed to the plaintiffs.[184]
144 As regards Mr Mallinson, the plaintiffs submit:[185]
Insofar as Mr Mallinson was concerned, the evidence establishes that:
(a) Mr Mallinson was 'involved in these negotiations between Bonlac, Bega and NZDB';
(b) Mr Mallinson became involved to 'add a commercial context' to the
negotiations. This occurred at the request of Mr Sloan. He was 'senior line management' involved in the functional role of actually negotiating the TMLAs;
(c) Mr Mallinson's counterpart in those negotiations was Mr Griffin, the CFO of Bega, although he also attended 'numerous' meetings with Messrs Irvin and van Ryn;
(d) upon the incorporation of ConsumerCo, Mr Mallinson was appointed as General Manager of Corporate Services, which was the equivalent of being the CFO of ConsumerCo; and
(e) Mr Mallinson was, on 8 May 2001, appointed as one of only two directors of BCT, and executed both the Share Sale and TMLA (NSW & ACT) on behalf of BCT.
Thus, although Mr Mallinson was not as senior as Mr Sloan, and was not a member of the board of Bonlac, he was integrally involved in the negotiation of the critical terms of the TMLAs. In this respect, he was an individual with responsibility to act for the Plaintiffs in certain 'aspects of the transaction', and who had been 'delegated authority to negotiate the terms of' the TMLAs, whose state of mind can be attributed to the Plaintiffs.
Once again, there cannot be any doubt that Mr Mallinson held the Plaintiffs' Understanding. Mr Mallinson, like Mr Sloan, provided emphatic oral evidence to that effect (as set out above). Once again, that oral evidence is corroborated by a raft of contemporaneous documents, including the documents identified above in respect of Mr Sloan, as well as the email of 6 December 2000 which recorded the view of Mr Mallinson that the 'issue of consent to use the Bega brand' was 'not negotiable' and that ConsumerCo had to be 'free to give or withhold at its absolute discretion'.
145 Mr Mallinson was employed as Bonlac's Commercial Director in late 2000/early 2001. He was in 'the third level of management'.[186] He was not involved in the decision as to whether the TMLAs should be entered into.[187] He was primarily brought in to assist with negotiations of the Product Supply Agreement.[188] As regards his role in negotiating the TMLAs, he had functional expertise and a good manufacturing background and had worked in the consumer business.[189] He was there to add a commercial context but the negotiations were driven largely by Karen Wood, Bonlac's general counsel, and external lawyers.[190] His understanding of the TMLAs was that Bega was not permitted to deploy its trade marks on food products. This was the line in the sand.[191] Bega could use its trade marks where the use did not involve food.[192]
146 Mr Mallinson was appointed a director of BCT 'a very short period' prior to signing the TMLAs on 8 May 2001.[193] In terms of the decision to execute the TMLAs, the real control was with the joint venture partners, Bonlac and NZDB.[194] As at 8 May 2001 ConsumerCo was effectively controlled by Bonlac/NZDB.[195] The decision that Mr Mallinson sign the TMLA as a director of BCT was a decision of the Bonlac board.[196]
147 Although authorised to participate in the negotiation of the TMLAs, there is no evidence that Mr Mallinson had been authorised by the board of Bonlac to conclude the negotiation of the commercial terms of the TMLAs. He did not have management and control of the negotiations on behalf of the Bonlac board. His state of mind cannot be attributed to Bonlac. Nor can his state of mind be attributed to ConsumerCo or BCT. He did not have management or control of the negotiations of the TMLAs on behalf of either of the plaintiffs. The fact that he was a director of BCT when he signed the TMLAs does not alter this conclusion. He had only been a director for a matter of minutes when he signed the TMLAs. He did so as the nominee of the Bonlac board and at the direction of the Bonlac board.[197]
148 If I am wrong in reaching these conclusions, I would in any event conclude that Mr Mallinson's understanding as to the effect of clause 3.2 does not correspond with the Plaintiffs' Understanding. As pleaded, the Plaintiffs' Understanding is that clause 3.2 restricted Bega from using the Bega Trade Marks, or trade marks similar to the Trade Marks, on or in connection with any products without the plaintiffs' consent unless expressly permitted by the Agreements.
149 Mr Mallinson's understanding was that the effect of the TMLAs was that Bega was not permitted to deploy its Trade Marks on food products.[198]
150 The plaintiffs submit that Mr Mallinson's oral evidence was that the issue of Bega being granted permission to use the Trade Marks was resolved by it being granted permission to use Trade Marks on the products listed in Schedule 5:
MR DALTON: All right. What was your understanding at the time that they were entered into as to how the issue in relation to Bega's use of the Trade Marks had been resolved?
MR MALLINSON: By the schedule on the back of the Agreement on what they could use it for and certainly it only covered products in Australia, they were free to sell overseas, but there's a list of products in Australia that could be - they could use on in circumstances, as I said, the Heritage Centre, I think the local supermarket sales and a few other things. I can't recall exactly.[199]
151 Viewed in isolation this evidence supports the plaintiffs' contention. However, it must be read in the context of Mr Mallinson's evidence, repeated on four occasions, that the restriction imposed on Bega's use of the Trade Marks by clause 3.2 was confined to food products.
152 The plaintiffs submit that Mr Mallinson's oral evidence is not determinative of his actual intention as to the restrictions imposed upon Bega by the TMLAs regarding the use of its Trade Marks. The plaintiffs submit that the proper enquiry is to seek to identify the subjective intention of the parties, that that subjective intention 'is to be determined objectively from their words or actions'.[200] In support of this submission, the plaintiffs cite the following passage from the judgment of Gageler, Nettle and Gordon JJ in Simic:[201]
The issue may be approached by asking - what was the actual or true common intention of the parties? There is no requirement for communication of that common intention by express statement, but it must at least be the parties' actual intentions, viewed objectively from their words or actions, and must be correspondingly held by each party.[202]
153 I accept that evidence of actual or true intention is viewed objectively by reference to a party's words or actions. The Court does not merely accept what a party says was in his or her mind, but instead considers and weighs admissible evidence probative of intention.[203]
154 The plaintiffs submit that documentary evidence clearly establishes that Mr Mallinson held the Plaintiffs' Understanding:
(a) an 'Outstanding Commercial Issues for Resolution' document tabled at a meeting attended by Mr Mallinson on 28 November 2018 recorded the position being put that: 'Bega be prohibited from using the Beqa [sic] mark on all products for the life of the licence unless ConsumerCo consents, which consent will not be unreasonably withheld'. The file note of that meeting recorded in unequivocal terms: 'ConsumerCo want an exclusive use to the Bega brand but would grant Bega Co-op use of brand in certain circumstances ... ConsumerCo must have ultimate say over what the Bega brand goes on. ConsumerCo want to have the right to say how the brand is used, and to be able to restrict Bega's use of the brand'; and
(b) an internal email circulated within Bonlac on 6 December 2000 recorded the consolidated view of Mr Mallinson and Suzanne Douglas, Bonlac's Sales and Marketing Manager for Consumer Products, that the 'issue of consent to use the Bega brand ... is not negotiable. ConsumerCo must be free to give or withhold at its absolute discretion'.[204]
155 The contents of the two documents set out above do not displace the clear evidence of Mr Mallinson that the 'line in the sand' was that Bega would not be able to apply its trade marks to food products.
156 Mr Mallinson was not the author of the 'Outstanding Commercial Issues for Resolution' document.[205] The plaintiffs rely on the statement contained in that document: 'Bega be prohibited from using the Beqa [sic] mark on all products for the life of the licence unless ConsumerCo consents, which consent will not be unreasonably withheld.'[206] This statement appears under the heading 'The Bega Proposal'. The document was not put to Mr Mallinson by either party during his evidence. In effect, the plaintiffs submit that the Court should reject Mr Mallinson's direct evidence regarding his understanding of the effect of clause 3.2, on the basis of a document which he did not author and which was not put to him during the course of his evidence. I reject this submission.
157 The file note of the meeting on 28 November 2000 was prepared by Bega's Chief Financial Officer, Mr Colin Griffin.[207] The file note was not put to Mr Mallinson by either party during the course of his evidence. Neither the 'Issues for Resolution' document nor the file note of the 28 November 2000 meeting constitute 'words or actions' of Mr Mallinson which qualify his subjective understanding of the restriction imposed upon Bega by clause 3.2.
158 The email of 6 December 2000 authored by Ms Douglas includes the introductory statement:
Both myself and David Mallinson have reviewed and we have comments on the following:
...
5. Clause 3.2 Exclusivity
The issue of consent to use the Bega brand is in my mind is [sic] not negotiable. Consumer Co must be free to give or withhold at its absolute discretion.[208]
159 This document does not, in terms, deal with the issue of the use by Bega of its trade marks on products. It does not constitute words or actions by Mr Mallinson that support a finding that, objectively viewed, Mr Mallinson's understanding was that the TMLAs prevented Bega from applying the Trade Marks to any products.
160 During his evidence-in-chief Mr Mallinson was questioned about the email of 6 December 2000. After being taken to that part of the email set out above, he was asked as to his recollection as to what the email was referring to. He responded:
'It's - it's the ability to use the brand on - on other food products.'[209]
161 The plaintiffs submit that 'the unauthorised use made by Bega of the Trade Marks, sought to be impugned by the plaintiffs in this proceeding, relates to food products'.[210] Further, they submit that if the TMLAs were rectified to conform with Mr Mallinson's evidence, that Bega was restricted from applying its trade marks to food products, Bega's conduct (such as the marketing of Bega peanut butter) would amount to a breach of the TMLAs.[211]
162 This submission confronts a number of difficulties. First, the plaintiffs' case, as pleaded and conducted, is that the Plaintiffs' Understanding was that clause 3.2 restricted Bega from applying its Trade Marks, or similar trade marks, to any product. Second, the plaintiffs do not contend that the state of mind of Mr Mallinson alone constitutes the state of mind of the plaintiffs. Rather, they submit, in the further alternative, that the state of mind of Messrs Sloan and Moller, in conjunction with the state of mind of 'one or more' of Messrs Mallinson, Waugh and Leach, should be attributed to both plaintiffs.[212] Further, there is no basis for attributing Mr Mallinson's state of mind to either Bonlac or the plaintiffs. Mr Mallinson had not been delegated authority by the Bonlac board to conclude an agreement with Bega on the commercial terms of the TMLAs. He signed the Bonland TMLA as a director of BCT. However, he did so as the nominee of Bonlac. He exercised no independent authority in signing the TMLA, but rather acted upon the direction of the Bonlac board. There is no basis for attributing his state of mind regarding the effect of clause 3.2 to BCT.
163 The divergence between the evidence of Messrs Sloan and Mallinson regarding their respective understanding of the effect of clause 3.2 is significant. The plaintiffs' alternative submission is that the state of mind of Messrs Sloan and Moller in conjunction with Mr Mallinson should be attributed to the plaintiffs. However, the evidence of Mr Sloan and Mr Mallinson supports a finding that Mr Sloan had a different view to Mr Mallinson regarding the extent of the restriction imposed upon Bega by clause 3.2. Mr Mallinson understood the effect of clause 3.2 was to restrict Bega from applying its Trade Marks to any food products. Mr Sloan's understanding was that the only products in contemplation were cheese and dairy products. The inconsistency between the evidence of Messrs Sloan and Mallinson reinforces my conclusion that Mr Sloan's evidence falls well short of discharging the plaintiffs' onus of establishing by clear and convincing proof that it had a mistaken understanding that clause 3.2 would restrict Bega from applying its Trade Marks, or similar trade marks, to any product.
164 The plaintiffs advance the following submission in support of the attribution of Mr Waugh's state of mind to the plaintiffs:[213]
(a) Mr Waugh was Group CEO of 'Ausapac' and Global Consumer Cheese and Foodservice Category Director for NZDB. Thus, he was the most senior executive of the NZDB based in Australia, and was responsible for 'chart[ing] the strategic direction for the business in the Australian marketplace';
(b) in that capacity, Mr Waugh was responsible, along with Mr Moller, for making the initial presentation to the board of the NZDB, advising on the strategy of pursuing a partnership with Bonlac, attending meetings with Mr Sloan, the CEO of Bonlac, and also meeting with Mr van Ryn, the CEO of Bega, in respect of the transaction;
(c) further, Mr Waugh received regular reports from the NZDB 'deal team' in relation to the transaction and was asked for advice in relation to the terms of the transaction, including by Mr Leach, who headed that team. Mr Waugh acted as an advisor on the negotiation of the TMLAs and reviewed the TMLAs and discussed the terms of the TMLAs with Mr Moller. In this respect, Mr Waugh had weekly telephone calls with Mr Moller, whom he briefed on 'many occasions';
(d) the advice provided by Mr Waugh, to the deal team, specifically concerned whether Bega ought be permitted to use the Bega trade marks in Australia and Mr Waugh made it 'very clear that from a local management point of view, we wanted to control the Bega brand'. Mr Waugh provided this advice to Mr Leach, of the deal team, to ensure that 'the document that he was working on and negotiating, um, was as strong as possible in terms of, ah, getting control of the Bega brand'.
165 The plaintiffs' characterisation of Mr Waugh as a person 'responsible for the initial negotiations and who had set the scene'[214] does not provide a legitimate foundation for attributing his state of mind to the plaintiffs. He had no authority to negotiate on behalf of NZDB or the plaintiffs. He did not participate in negotiations with Bega on behalf of NZDB.[215] He reported to Mr Moller, who in turn reported to NZDB's Chief Executive Officer, Mr Warren Larsen.[216] Mr Waugh was not a member of the NZDB deal team which conducted negotiations with Bega on behalf of NZDB.[217] He had no involvement in preparation of board papers in respect of the Bega transaction.[218] There is no evidence of Mr Waugh having any authority to act on behalf of ConsumerCo or BCT.
166 Mr Leach was a member of Mr Moller's commercial corporate team based in Wellington, New Zealand.[219] Mr Waugh described Mr Leach as having 'primary responsibility for the ConsumerCo side of the negotiation'.[220] However, Mr Sloan identified Messrs Moller and Waugh as NZDB's representatives in the negotiations for the TMLAs, with Mr Moller as the key negotiator.[221] Mr Sloan had no recollection of Mr Leach's involvement in the negotiations.[222] There is no evidence that Mr Leach was authorised to conclude the negotiation of the commercial terms of the TMLAs on behalf of the NZDB.
167 Mr Leach signed the Bonland TMLA as a director of BCT. The authority for him to do so was a decision of the NZDB board.[223] Mr Leach did not give evidence. There is no basis for the Court to attribute his state of mind, whatever it may have been in relation to clause 3.2, to either NZDB or the plaintiffs.
The plaintiffs' reliance upon contemporaneous documents
168 The plaintiffs submit that in circumstances where the relevant events occurred in 2000 and 2001, contemporaneous documents provide the most reliable record of the state of mind of the plaintiffs and Bega regarding the effect of clause 3.2. The plaintiffs submit that the documents reveal, in the clearest terms, that the plaintiffs held the Plaintiffs' Understanding.[224]
169 I accept that given the passage of nearly 20 years since the negotiation of the TMLAs, those involved in the negotiations will have diminished recollection of the negotiations. Nevertheless, if as the plaintiffs contend, Messrs Sloan and Moller had intended clause 3.2 to restrict Bega's rights to use its Trade Marks on products extending beyond cheese and dairy products, I would expect them to be able to recall this. Mr Sloan gave clear evidence, which I accept, that at the time of the negotiations it was not in the contemplation of the parties that Bega's Trade Marks would be applied to any products other than cheese and dairy products. Further, Mr Sloan had a clear recollection that he had been authorised by Bonlac's board to conclude the negotiations of the commercial terms of the TMLAs. If Mr Moller had given evidence, I would have expected him likewise to have had a clear recollection as to whether or not he had been authorised by the board of NZDB to conclude the negotiations of the commercial terms of the TMLAs on behalf of the NZDB. The fact that neither Messrs Sloan nor Moller have any recollection of any discussions concerning the use of the Bega brand by Bega in Australia on non-dairy products is entirely credible. It is consistent with the fact that in 2000/2001 Bega conducted a cheese/dairy business and that the products licensed under the TMLAs (cheddar, string cheese and butter) represented the totality of the products it manufactured at the time.
(a) the 'Outstanding Commercial Issues for Resolution' document tabled at a meeting, in Melbourne, on 28 November 2000, between representatives of Bega (Messrs Irvin, van Ryn, Griffin and Ferguson), NZDB (Messrs Smith, Leach and Dickson) and Bonlac (Messrs Sloan, Mallinson and Ms Wood) records Bega's proposal under the heading 'Bega Use of Brand' as being:
That Bega be prohibited from using the Beqa mark on all products for the life of the licence unless ConsumerCo consents, which consent will not be unreasonably withheld.
(b) Mr Griffin's handwritten notes of the 28 November 2000 meeting record, beneath the heading 'Use of Bega brand', that 'ConsumerCo want an exclusive use to the Bega brand, but would grant Bega Co-op use of the brand in certain circumstances' and 'Bonlac want to give ConsumerCo the authority to say how the brand is to be managed' and record, beneath a heading 'How Bega brand is used', that 'ConsumerCo want to have right to say how the brand is used, and to be able to restrict Bega's use of the brand'; 'ConsumerCo must have the ultimate say over what the Bega brand goes on'; and 'Deal breaker';
(c) by email dated 29 November 2000, Ms Owen of BDW sent a draft of the TMLA to Mr Ferguson, which was marked-up against a 22 November 2000 draft, including by the striking through of the words, 'which consent will not unreasonably be withheld or delayed' at the end of clause 3.2;
(d) an internal email circulated within Bonlac on 6 December 2000 recorded the consolidated view of Mr Mallinson and Suzanne Douglas, Bonlac's Sales and Marketing Manager for Consumer Products, that the 'issue of consent to use the Bega brand ... is not negotiable. Consumer Co must be free to give or withhold at its absolute discretion';
(e) by letter dated 7 December 2000, BDW informed Mr Ferguson that: 'Clause 3.2- Exclusivity: ... the issue of consent to uses of the Bega brand is considered fundamental and ConsumerCo should be free to give or withhold consent as and when it pleases. I am instructed that Bega agreed to this proposal as part of the "trade off" on pricing';
(f) Mr Ferguson responded by letter dated 13 December 2000, pointed to 'the commercial reality' that Bega 'does sell certain products under the "Beqa" [sic] trade mark which will not be transferred to ConsumerCo' and stated that Bega 'needs to know that these arrangements can continue' and that Bega 'will not be stopped from using the trade mark in circumstances which do not impact on ConsumerCo';
(g) by letter dated 15 December 2000, Ms Wood of Bonlac wrote directly to Mr Ferguson. Ms Wood explained that her letter contained a list of 'the issues which I have escalated' to Mr Sloan and that the next meeting between Mr Sloan, Mr Moller and Mr van Ryn 'will be focussed on resolution of these issues'. The first issue identified, under the hearing 'Trademark Licence', was: 'Clause 3.2 grants exclusive rights to ConsumerCo to use the trademarks in Australia ... Bega is required to obtain consent from Consumer to use the marks on any new products. The issue is whether the words "which consent should not be unreasonably withheld or delayed" should be included';
(h) by letter dated 18 December 2000, Mr Ferguson acknowledged, on behalf of Bega, to BDW that: 'At present, Clause 3.2 prevents BCS from using the Trade Marks on any products without the prior consent of ConsumerCo. The only qualifications to this at present are ... BCS notes that this provision has been identified as a "deal breaker" by Bonlac and NZDB and, in the interests of moving forwarding [sic], BCS is prepared to accept it subject to the following';
(i) by letter dated 21 December 2000, Mr Sloan wrote directly to Mr van Ryn. Mr Sloan confirmed (both in the letter and in his oral evidence) that he had discussed 'the outstanding issues with Chris Moller of the NZDB', that 'we' (ie Mr Sloan and Mr Moller) had carefully considered the comments of Mr van Ryn, and that 'Our position on each of the items' (ie the position of Bonlac and NZDB) was 'set out below'. Mr Sloan referred to the letter from Mr Ferguson dated 18 December 2000 and reiterated: 'David Ferguson's letter correctly identifies this issue as a "deal breaker" for all of the reasons we have discussed'. Mr Sloan then requested further information in relation to 'existing products', so that Bonlac/NZDB could 'provide a carve out for those products'. The oral evidence of Mr Sloan in relation to this letter was that: 'I've spoken with Chris Moller, I've met with the Bonlac board and I'm conveying those views in the correspondence';
(j) by email dated 3 January 2001 to Mr Ferguson (cc'd to NZDB's lawyers, Messrs Dickson and Mann), Ms Wood enclosed a document headed 'Trademark Licence and Product Supply Agreement Outstanding Issues', which she described as an 'outline of the matters discussed between Alex Sloan and Maurice van Ryn the week before Christmas' and which recorded, in relation to Bega's rights to use the Bega brand that Bonlac/NZDB '... are unable to move from the position we have previously put on this issue'. Mr Sloan would have seen this letter before it was sent and confirmed that Bonlac never moved from that position at any time prior to the execution of the TMLAs;
(k) by letter dated 23 January 2001, to Ms Wood of Bonlac and Mr Dickson of NZDB, Mr Ferguson wrote, on behalf of Bega, that: 'while Bega Co-op remains concerned with Clause 3.2 of the Trade Mark Licence it notes the importance of this provision to ConsumerCo and, provided that the other issues raised in this letter can be adequately dealt with, Bega Co-op is prepared to accept the current wording of Clause 3.2'; and
(l) by letter dated 26 January 2001, to Mr Ferguson, Ms Wood, of Bonlac, wrote in relation to Bega's use of the Bega mark that: 'As you correctly identify this remains an issue of critical importance to us.'
171 In their reply submissions, the plaintiffs addressed the importance of identifying the relevant corporate state of mind which needs to be proved in order to establish their claim for rectification:[227]
In responding to Bega's submission that 'the plaintiffs' claim for rectification fails for want of proof', it is important to clearly identify, at the outset, whose states of mind need be proved.
Bega repeatedly asserts, throughout BCSP1, that 'Fonterra must prove that each of (a) Bonlac; and (b) the NZDB intended - at the time of executing the TMLAs - that the reach of cl 3.2 extended to non-licensed products'.
That is plainly wrong.
Neither Bonlac nor NZDB executed the TMLAs. Neither Bonlac nor NZDB are parties to this proceeding. Neither Bonlac nor NZDB seek rectification of the TMLAs on the basis of any mistake on their part.
The TMLAs were executed by ConsumerCo (now Fonterra) and Bega Cheese Trading (BCT) (now Bonland).
In order to establish an entitlement to rectification, the plaintiffs must establish that the plaintiffs (ConsumerCo and BCT, as they were known at the time) were relevantly mistaken. This requires the court to identify the 'beliefs or opinions or states of mind' of those persons 'so closely and relevantly connected with' the plaintiffs in relation to the 'act or omission in point' which ought be attributed to the plaintiffs for the purpose of determining the state of mind of the plaintiffs.
172 The plaintiffs are correct in submitting that in order to succeed in their claim for rectification they must establish that ConsumerCo and BCT were mistaken as to the effect of clause 3.2 when the TMLAs were executed on 8 May 2001. The probative value of the documents which the plaintiffs rely upon is to be measured by reference to the extent to which those documents evidence the plaintiffs' actual intention as to the effect of clause 3.2, viewed objectively.[228]
173 I have set out earlier in this judgment my findings regarding the plaintiffs' submission that the state of mind of one or more of Messrs Sloan, Moller, Mallinson, Waugh and/or Leach should be attributed to the plaintiffs. The plaintiffs have not established that these five individuals, individually or collectively, held the Plaintiffs' Understanding when the TMLAs were executed on 8 May 2001. Thus, this is not a proceeding in which the Court rejects the evidence of a witness' subjective intention after considering that evidence objectively, including by reference to documents which call into question the weight to be afforded to the witness' evidence of actual intention.
174 Save for the letter dated 21 December 2000 from Mr Sloan to Mr van Ryn, none of the documents relied upon by the plaintiffs set out above, are authored by any of the five individuals whose state of mind is sought to be attributed to the plaintiffs. The letter of 21 December 2000 refers to a letter from Bega's external lawyer dated 18 December 2000 which includes the statement:
At present, clause 3.2 prevents BCS from using the Trade Marks on any products without the prior consent of ConsumerCo.[229]
175 Mr Sloan did not give evidence that it was his understanding in late 2000 that the effect of clause 3.2 was to prevent Bega from applying its Trade Marks to any products. His evidence was that the only products in contemplation were cheese and dairy products. The letter of 21 December 2000 does not constitute objective evidence that Mr Sloan intended Bega would be restricted from applying its Trade Marks to products other than cheese and dairy products.
176 Under the TMLAs the plaintiffs were granted an exclusive licence to use the Trade Marks in respect of natural and processed cheddar cheese products, string cheese and butter. There were many varieties of cheese products which were not licensed. Mr Sloan's evidence, which I accept, is that insofar as Bonlac/NZDB had a concern regarding the use of the Trade Mark by Bega in relation to products, the concern was that Bega be prevented from selling dairy/cheese products in parallel to those being sold by Bonlac/ConsumerCo.[230]
177 Bega's core business in late 2000/early 2001 was as a manufacturer and marketer of cheese and dairy products, specifically cheddar cheese, string cheese and butter. Each of the Trade Marks licensed to the plaintiffs are identified in Schedule 1 of the TMLAs as being either class 29 or 30. Schedule 1 includes a 'specification of goods' in respect of each Trade Mark. In respect of each of the 22 Trade Marks listed, a specification of goods is listed. Of the 22 Trade Marks, the designated class in respect of 21 is class 29, which includes 'milk and milk products'. In each instance the designated specification of goods is cheese, cheese slices and dairy products.[231] The description of the Trade Marks licensed, and the specification of products in respect of which they were licensed, is consistent with the evidence of Mr Sloan, that when the TMLAs were negotiated the only products in contemplation were cheese and dairy products.
178 Mr Ferguson's letter of 18 December 2000 includes the statement: 'At present, clause 3.2 prevents BCS from using the Trade Marks on any products without the prior consent of ConsumerCo'.[232] Mr Ferguson's reference to 'any product' is readily explicable as a reference to 'any cheese or dairy products', having regard to the fact that:
179 Further, there is nothing in Mr Sloan's letter of 21 December 2000 which justifies a departure from my finding that as at 8 May 2001 Mr Sloan did not contemplate clause 3.2 having any application beyond cheese and dairy products.
180 None of the documents upon which the plaintiffs seek to place reliance have been authored by an employee or agent of NZDB. Mr Sloan's state of mind cannot be attributed to NZDB because he was not authorised to act on its behalf in the negotiations for the TMLAs. Further, the state of mind of Messrs Moller and Waugh is not to be attributed to NZDB. In Mr Moller's case there is no evidence that he was authorised by the Board of NZDB to conclude the terms of the TMLAs. As regards Mr Waugh, he was not authorised to negotiate on behalf of the Board.
181 The plaintiffs submit that 'to the extent that the Court entertains any doubt as to the intention of the [p]laintiffs in entering into the TMLAs, it ought to have regard to the numerous admissions contained in Bega's own documents'.[233] The plaintiffs submit that in numerous Bega documents it is clearly and repeatedly recorded that:
(a) 'Bonlac have looked to tie up tightly, Bega's ability to use the Bega brand in the Australian market ... Bega must seek Consumer Co's permission if it wishes to use the Bega brand on any products outside of the licence agreement';
(b) 'would the objections to the deal referred to in paragraph 1 be dealt with if BCS was free to market and sell products outside of the categories of cheddar cheese and stringers? ... Anyway ConsumerCo will not permit this';
(c) any interpretation of clause 3.2 confined to 'Products' was 'not what they [ie the Plaintiffs] mean',
(d) 'ConsumerCo want ultimate say over what the Bega brand goes on',
(e) 'Clause 3.2 is intended [by ConsumerCo] to be an absolute prohibition'
(f) 'Consumer Co believe this restricts our ability to use the Bega mark on any products', and that if clause 3.2 was confined to 'Products' '[t]his is not the intention of the clause';
(g) 'MVR [Maurice van Ryn] told Chris Moller Bega would not use the brand'; and
(h) 'Cl 3.2 - B/NZDB believe this restricts our access to the Bega Brand ... commercially B/NZDB cannot allow Bega to get access to the brand as we may basterdise [sic] the brand'.[234]
182 The plaintiffs submit that '[t]hese are unequivocal contemporaneous admissions, made by the Chairman, CEO and/or CFO of Bega, that the [p]laintiffs did, in fact, hold the "Plaintiffs' Understanding". They are of significant probative value and provide compelling evidence of the "Plaintiffs' Understanding"'.[235]
183 I reject the plaintiffs' submission that the statements contained in the documents as set out above are of significant probative value. The plaintiffs bear the onus of establishing by clear and convincing proof that when the TMLAs were executed they intended that clause 3.2 would have the effect of restricting Bega's use of its Trade Marks, or similar trade marks, on any products. The plaintiffs accept that in order to discharge this onus it is necessary for them to identify the natural person or persons having management or control in relation to the act or omission in point.[236] The plaintiffs plead their claim for rectification for unilateral mistake on the basis that the Plaintiffs' Understanding was held by one or more of Messrs Sloan, Moller, Mallinson, Leach and/or Waugh.
184 Each of the documents which the plaintiffs submit contain admissions are internal Bega documents. They are of limited probative value as evidencing the subjective intention of the plaintiffs that the effect of clause 3.2 of the TMLAs was to restrict Bega from applying its Trade Marks, or similar trade marks, to any product. Shortly stated, if the plaintiffs are unable to discharge the onus of establishing their own actual intention viewed objectively by their own words and actions, they will not be able to do so via recourse to the words and actions of Bega. On the other hand, if the plaintiffs had established that they had the Plaintiffs' Understanding, the 'Admissions documents' would be probative evidence of whether Bega had knowledge of the plaintiffs' mistaken intention.
185 I reject the plaintiffs' submission that the statements set above 'are unequivocal contemporaneous admissions', made by the Chairman, CEO, and/or CFO of Bega, that the plaintiffs did in fact, hold the Plaintiffs' Understanding. The Plaintiffs' Understanding is that the plaintiffs believed that clauses 3.1 and 3.2 of the Agreements restricted Bega from using the Bega Trade Marks, or trade marks similar to the Bega Trade Marks, in each Territory on or in connection with any products. Thus, the Plaintiffs' Understanding extends to products beyond cheese and dairy products. As set out above, I have found that during the negotiation of the TMLAs the only products in contemplation were cheese and dairy products. Products such as peanut butter were simply not contemplated by the parties.
186 The statements set out at [181(c), (f)] could support a finding that Bega believed that Bonlac/NZDB misunderstood the legal effect of clause 3.2. In particular, the statements could support a finding that Bega understood that properly construed, the restriction imposed on Bega's use of its Trade Marks by clause 3.2 was confined to 'Products' (as defined) whereas Bonlac/NZDB believed that the restriction extended beyond Products as defined. This, however, falls short of an admission that Bega understood that Bonlac/NZDB believed that the restriction imposed by clause 3.2 would extend to any products, including non-cheese/dairy products.
187 The 'Admissions documents' relied upon by the plaintiffs demonstrate the risks, more than 19 years after the event, of reading statements literally and out of context. In February 2001 Bega's business was that of a manufacturer of cheese and dairy products, in particular, cheddar cheese, string cheese and butter. The only products which were to be licensed to the plaintiffs under the TMLAs were cheddar cheese, string cheese and butter. The evidence of Mr Sloan, the lead negotiator for Bonlac, is that in terms of the application of the Bega Trade Marks to products, the only products in contemplation were cheese and dairy products. Twenty-one of the twenty-two Trade Marks found in Schedule 1 of the TMLAs were registered in respect of cheese and dairy products. In this context, a reference in contemporaneous documents to 'any products' read literally is apt to mislead because it suggests that the parties were contemplating the application of Bega's Trade Marks to products such as peanut butter.
188 The plaintiffs submit that the reference to 'any products' constitutes an admission by Bega that it understood the plaintiffs believed that clause 3.2 would restrict Bega from using its Trade Marks on products such as peanut butter. This submission flies in the face of the true position. Neither party gave any consideration to the application of Bega's Trade Marks to any products other than cheese and dairy products.
189 The plaintiffs have failed to establish by clear and convincing proof that they held the Plaintiffs' Understanding. In reaching this conclusion I have taken into account the unexplained failure to call a number of witnesses. In respect of each of the individuals referred to below, I infer that had they been called by the plaintiffs their evidence would not have assisted the plaintiffs' claim for rectification.
190 At the time the TMLAs were being negotiated and drafted, Ms Woods was Bonlac's general counsel and Ms Owen a partner with the firm Blake Dawson Waldron. The drafting of the terms of the TMLAs was driven largely by Ms Woods and external lawyers.[237] Mr Sloan gave instructions to Ms Woods who would then deal with external lawyers in preparing documents.[238] Ms Woods and Ms Owen corresponded with Mr David Ferguson, Bega's external lawyer, regarding clause 3.2 of the TMLAs.[239]
191 Notwithstanding the common law rule that parol evidence is not admissible to contradict a written agreement, such evidence is admissible in a claim for rectification to establish the intention of each of the parties to the TMLAs.[240] Such evidence may be of considerable importance.[241] The evidence can be given by those who have drafted relevant documents, stating what their instructions were and that particular words were included or omitted by mistake.[242]
192 In the present proceeding the plaintiffs could have called Ms Woods and Ms Owen to give evidence of their instructions, if any, to draft clause 3.2 to restrict Bega from being able to apply its Trade Marks, or similar trade marks, to any products. Ms Woods and Ms Owen could have given evidence that if clause 3.2 is construed as restricting Bega's right to apply its Trade Marks only to Products as defined, this is not what they intended. In particular, they could have given evidence that the opening words of clause 3.2 were not intended to confine the restrictions imposed upon Bega's right to use its Trade Marks, or similar trade marks, to Products as defined.
193 Further, Ms Woods and Ms Owen could have given evidence that in order to achieve conformity between their instructions and the intended effect of clause 3.2, the words 'on or in relation to any product or otherwise whatsoever' need to be added to clause 3.2. Such evidence would have been probative in aid of establishing not only that a mistake was made in the drafting of clause 3.2, but that the mistake made was precisely the one identified by the plaintiffs for the purposes of their claim for rectification.
194 The evidence of Ms Woods and Ms Owen would have 'cast light' on the question of whether the actual intention of the plaintiffs was to restrict Bega from applying its Trade Marks, or similar trade marks, to any products whatsoever.[243] The plaintiffs are required to prove this matter by clear and convincing proof. Where parties undertake prolonged negotiations in which they are assisted by solicitors, the executed document would be taken to represent their real intentions and a court will not reach a contrary conclusion unless satisfied by convincing proof.[244] It is therefore to be expected that Ms Woods and Ms Owen would have been called to give evidence on this matter by the plaintiffs rather than Bega.[245]
195 The plaintiffs submit that they do not contend that the state of mind of Ms Woods and Ms Owen was to be attributed to them and there was no evidence that either of them held a different view to the plaintiffs regarding the effect of clauses 3.1 and 3.2 of the TMLAs. The question is not whether the state of mind Ms Woods and Ms Owen is to be attributed to the plaintiffs. Rather, in circumstances where the plaintiffs seek to establish a mistaken intent as to the effect of clause 3.2, evidence from those involved in the drafting of clause 3.2 is relevant to establishing whether the plaintiffs intended that clause 3.2 would restrict Bega from applying its Trade Marks, or similar trade marks, to any product.
196 The plaintiffs' claim for rectification is pleaded in the alternative to its primary claim that, on its proper construction, clause 3.2 restricts Bega from applying its Trade Marks, or similar trade marks, to any product. Clause 3.2 does not have that effect. The restriction imposed by clause 3.2 applies only in respect of Products as defined. There is a significant disparity between the legal effect of clause 3.2 and that which the plaintiffs contend was the intended effect of clause 3.2. The lawyers who received instructions from the plaintiffs in respect of the drafting of clause 3.2 were capable of giving evidence to establish that, notwithstanding the legal effect of clause 3.2, the intention of those who instructed them was for clause 3.2 to impose a much broader restriction on Bega.
197 In drawing the inference that if Ms Woods and Ms Owen had been called to give evidence in relation to the drafting of clause 3.2, such evidence would not have assisted the plaintiffs, I place weight on the terms of the Bonlac TMLA which was entered into between Bonlac and ConsumerCo ('Bonlac TMLA')[246] which was also executed on 8 May 2001. The Bonlac TMLA was one of numerous documents executed on 8 May 2001, simultaneously with the Fonterra TMLA and the Bonland TMLA. Under the terms of the Bonlac TMLA, Bonlac Foods Ltd and four Bonlac subsidiaries ('the Bonlac companies') licensed trade marks to ConsumerCo. Clauses 3.1 and 3.2 of the Bonlac TMLA provides:[247]
3.1 Licence
Subject to clauses 3.4, 3.5 and 11.3(b)(vi) and the Licensee complying with its obligations under this Agreement each Bonlac Company hereby grants to the Licensee during the term of this Agreement, the sole and exclusive right to use those Trade Marks, identified as owned by that Bonlac Company in the Schedules, in the Territory on or in relation to the Products in connection with the manufacturing, packaging, distribution, promotion, marketing, advertising and sale of the Products.
3.2 Exclusivity
During the term of this Agreement the Bonlac Companies agree, subject to clauses 3.4, 3.5 and 11.3(b)(vi):
(a) not to grant to any other person (including any Related Body Corporate of any Bonlac Company), the right to use the Trade Marks or the Supplementary Trade Marks in the Territory on or in relation to the Products or any other products; and
(b) not to use, or permit the use by any other person (including any Related Body Corporate of any Bonlac Company) of, the Trade Marks or the Supplementary Trade Marks in the Territory on or in relation to the Products or any other products.
198 Clause 3.2(b) restricts the Bonlac companies from using or permitting the use by any other person of its Trade Marks 'on or in relation to the Products or any other products'. Thus, those involved in the drafting of the Bonlac TMLAs expressly provided that the restriction of Bonlac's Trade Marks would not be limited to Products as defined. The front cover of the Bonlac TMLA features prominent reference to Blake Dawson Waldron and Middletons Moore & Bevins.[248] Ms Gail Owen was a partner of Blake Dawson Waldron and acted for Bonlac in relation to the drafting of the TMLA. Mr John Mann of Middleton Moore & Bevins acted for NZDB in relation to the drafting of the TMLA.
199 The Bonlac TMLA was tendered in evidence on 12 March 2020, the thirty-first day of the trial.[249] Mr Davis QC submitted, without opposition, that the Bonlac TMLA was first located by Bega on 21 February 2020.[250] By the time the document had been tendered the plaintiffs had closed their case. This occurred on 17 February 2020, subject to the evidence of Mr Irvin and expert evidence.
200 The plaintiffs submit that the rule in Browne v Dunn[251] precludes Bega from relying on the Bonlac TMLA.[252] I reject this submission. In Broughton v B&B Group Investments Pty Ltd[253] the Court of Appeal set out the principles relevant to the application of the rule in Browne v Dunn as follows:
The rule in Browne v Dunn has two elements. First, it is 'a rule of practice or procedure designed to achieve fairness to witnesses and a fair trial between the parties'. Secondly, it is a 'rule relating to weight or cogency of evidence'.
An aspect of the first element is that, if an opposing party intends to submit that a witness's evidence on a factual issue is to be disbelieved, that party should cross-examine the witness on that factual issue and put to him or her any facts in contradiction of his or her evidence so that he or she has an opportunity to make any explanation that is open to him or her. Depending on the circumstances, a breach of the first element of the rule in Browne v Dunn may result in the trial being unfair and the court's decision being set aside on appeal.
In relation to the second element, in MWJ v The Queen, Gummow, Kirby and Callinan JJ stated that judges should in general abstain from making adverse findings about parties and witnesses in respect of whom there has been non-compliance with the rule in Browne v Dunn. Notwithstanding this, non-compliance with the rule does not mean that the evidence led in contradiction of the relevant witness's evidence cannot be considered. Instead it is a matter of weight for the court to take into account. If a witness is not cross-examined upon a particular matter in relation to which he or she has given evidence, then that circumstance will often be a very good reason for accepting the witness's evidence upon that matter. However, if a witness's evidence appeared to be incredible or unconvincing, or if it was contradicted by other evidence which appeared worthy of credence, the fact that the witness had not been cross-examined would, or might, be of little importance in deciding whether to accept his or her evidence.[254]
201 In Philippiadis v Transport Accident Commission[255] the Court of Appeal stated:
The rule in Browne [v Dunn] has two aspects. Its first aspect is 'a rule of practice or procedure designed to achieve fairness to witnesses and a fair trial between the parties'. Its second aspect is a 'rule relating to weight or cogency of evidence'.
In relation to the first aspect, this Court has endorsed the proposition that non-compliance with the rule in Browne [v Dunn] will 'not always be a reason for setting the decision aside on appeal' and that, instead, an appellate Court must take into account all of the circumstances so as to see whether the conduct of the trial was in fact unfair to the appellant.[256]
202 In MWJ v R[257] Gummow, Kirby and Callinan JJ stated:
Reliance on the rule in Browne v Dunn can be both misplaced and overstated. If the evidence in the case has not been completed, a party genuinely taken by surprise by reason of a failure on the part of the other to put a relevant matter in cross-examination, can almost always, especially in ordinary civil litigation, mitigate or cure any difficulties so arising by seeking or offering the recall of the witness to enable the matter to be put. In criminal cases, in many jurisdictions, the salutary practice of excusing witnesses temporarily only, and on the understanding that they must make themselves available to be recalled if necessary at any time before a verdict is given, is adopted. There may be some circumstances in which it could be unfair to permit the recalling of a witness, but in general, subject to the obligation of the prosecution not to split its case, and to present or make available all of the relevant evidence to an accused, the course that we have suggested is one that should be able to be adopted on most occasions without injustice.[258]
203 In considering the application of the rule in Browne v Dunn, it is necessary to bear in mind that Bega does not rely upon the terms of the Bonlac TMLA in aid of a submission that the Court should not accept the evidence of Messrs Sloan, Mallinson and Waugh as to their understanding of the effect of clause 3.2 of the TMLA. Rather, Bega submits:
[t]he significance of Fonterra's failure to call the internal and external solicitors for Bonlac (Ms Wood, who is Mr Sloan's wife, and the relevant representatives of Blake Dawson Waldron), as well as its failure to call the internal and external solicitors for the NZDB (Murray Dickson and John Mann of Middletons Moore & Bevins) is accentuated by the wording of the Bonlac TMLA. That document, which forms part of the suite of transaction documents entered into by the parties on 8 May 2001 bears the badge of Blake Dawson Waldron and Middletons Moore & Bevins. That document regulates the use by ConsumerCo of Bonlac's trademarks.[259]
204 I do not have regard to the terms of clauses 3.1 and 3.2 of the Bonlac TMLA as a basis for rejecting the evidence of Messrs Sloan, Mallinson and Waugh as to their understanding of the effect of clause 3.2 of the TMLA. However, I do have regard to clauses 3.1 and 3.2 of the Bonlac TMLA in drawing an inference that if Ms Owen and Ms Woods had been called to give evidence as to the instructions received by them from Bonlac in respect of clauses 3.1 and 3.2, such evidence would not have assisted the plaintiffs.[260]
205 The plaintiffs submit that they 'cannot be criticised for failing to call witnesses to explain an irrelevant document which was not even produced by Bega until after the plaintiffs closed their case'.[261] I reject this submission. First, absent the tender of the Bonlac TMLA, Ms Wood and Ms Owens were witnesses who could have given probative evidence of the instructions provided by Bonlac relating to the drafting of clause 3.2 and the intended breadth of the restriction upon Bega's right to use its Trade Marks. Second, upon the tender of the Bonlac TMLA, the plaintiffs could have made an application to reopen their case and to call Ms Woods and Ms Owen.
206 The plaintiffs' explanation for their failure to call Mr Moller as a witness is that he had no recollection of any discussions concerning the use of the Bega brand by Bega in Australia on non-dairy products and that his recollection of other matters relating to the transaction 'is at best patchy'.[262] This does not constitute a satisfactory explanation for the failure to call Mr Moller. As set out earlier in this judgment, Mr Moller could have given evidence in respect of the critical issue of whether he had been delegated authority by the NZDB to conclude the commercial terms of the TMLAs on behalf of the NZDB. Absent evidence that Mr Moller had been authorised to conclude the terms of the TMLAs on behalf of the NZDB, there is no basis for attributing his understanding of clause 3.2 to NZDB. No explanation has been provided by the plaintiffs for their failure to call evidence from Mr Moller in respect of this issue. I infer that if Mr Moller had given evidence on the issue of whether he had been delegated authority from the board of NZDB to conclude the commercial terms of the TMLAs, such evidence would not have assisted the plaintiffs.
207 Mr Leach was the lead member of the NZDB 'deal team' which negotiated the terms of the TMLAs.[263] He was also a director of ConsumerCo and was present at the board meeting on 8 May 2001.[264] The plaintiffs submit that the Court can readily conclude that Mr Leach's intention regarding the effect of clause 3.2 of the TMLAs was not different from that expressed in the contemporaneous documents and by Messrs Sloan, Mallinson and Waugh in their oral evidence. I reject this submission. Mr Leach could have given direct evidence regarding his state of mind as to the effect of clause 3.2 and whether he and/or Mr Moller had been authorised to negotiate concluded terms of the TMLAs on behalf of NZDB.
208 I infer that if Mr Leach had been called to give evidence on these issues, his evidence would not assisted the plaintiffs.
209 Mr Larsen was the CEO of NZDB in 2000/2001 and the person to whom Mr Moller reported. Mr Larsen in turn reported to the board of the NZDB.[265] Mr Larsen was also a director of ConsumerCo on 8 May 2001. As the CEO of NZDB and the person to whom Mr Moller reported, Mr Larsen could have given evidence as to whether Mr Moller had been delegated by the board of the NZDB the task of concluding negotiations on the commercial terms of the TMLAs. As the most senior executive of NZDB he could have cast light on whether NZDB had the Plaintiffs' Understanding.
210 In aid of a submission that no adverse inference should be drawn from the failure to call Messrs Moller, Leach and Larsen, the plaintiffs submit:
Second, as set out in FCS at [65] and [85]-[93], the proper enquiry, in a rectification claim, is to seek to identify the subjective intention of the parties, but that subjective intention is to be determined 'objectively from their words or actions'. The Court should not 'merely accept what a party says was in his or her mind', but should instead consider and weigh all 'admissible evidence probative of intention'. The test is 'what an objective observer would have thought the intentions of the parties to be', and documentary evidence will often be accorded greater weight than self-serving assertions as to state of mind.
In this case, the documentary evidence (wholly ignored in BCSP1) objectively establishes that the plaintiffs held the 'Plaintiffs' Understanding'. That being so, there was no need for the plaintiffs to call oral evidence from peripheral witnesses consistent with that documentary evidence. In circumstances where the plaintiffs' case was 'otherwise proved, the inference that the absent witness would not assist the [plaintiffs'] case does not detract from the proof'.[266]
211 In claims for rectification based on unilateral mistake the test is not what an objective observer would have thought the intention of the parties to be. Rather, in the first instance, it is necessary to enquire into the subjective/actual intention of the plaintiffs. The Court must then consider the weight to be attributed to the evidence of subjective/actual intention by reference to the words and actions of the plaintiffs.[267]
212 I do not accept the plaintiffs' contention that Messrs Moller, Leach, Larsen, and Ms Woods and Ms Owen are 'peripheral'. Each of these individuals could have given probative evidence in respect of the plaintiffs' actual intention when the TMLAs were signed. As regards Messrs Leach and Moller, the plaintiffs plead their claim for rectification based on unilateral mistake on the basis that their state of mind, in conjunction with the state of mind of Mr Sloan, was to be attributed to the plaintiffs.
213 As to the plaintiffs' submission 'documentary evidence will often be accorded greater weight than self-serving assertions as to state of mind',[268] this submission is of no relevance to the plaintiffs' claim for rectification for unilateral mistake. The plaintiffs do not submit that the evidence of Messrs Sloan, Mallinson and Waugh was based on self-serving assertions as to their state of mind which should be disbelieved on the basis of documentary evidence. On the other hand, in a claim for rectification for common mistake, the self-serving assertions as to the state of mind of a party opposing an application for rectification can be overridden by documentary evidence.[269]
214 The plaintiffs submit that they were not required to call 'cumulative evidence' in circumstances where Mr Sloan, in consultation with Mr Moller, was the person responsible for determining on behalf of the plaintiffs, the commercial terms of the TMLAs.[270] There is no evidence to support a finding that Mr Sloan had any authority on behalf of NZDB to determine the commercial terms of the TMLAs. To the contrary, NZDB, as acknowledged by the plaintiffs, had their own negotiating team. Further, there is no evidence to support a finding that Mr Moller had been authorised to determine the commercial terms of the TMLAs on behalf of NZDB. The evidence of Messrs Moller, Leach and Larsen is not cumulative evidence. Rather, it could have addressed the discrete question of the state of mind of NZDB regarding the effect of clause 3.2 of the TMLAs.
Conclusion in relation to rectification for unilateral mistake
215 The plaintiffs have failed to establish by clear and convincing proof that when the TMLAs were executed they intended that clause 3.2 would restrict Bega from applying the Trade Marks, or similar trade marks, to any product. The plaintiffs' claim for rectification of the TMLAs for unilateral mistake must therefore be dismissed. As the plaintiffs have failed to establish they had the requisite intention, the question of whether Bega had knowledge that the plaintiffs had the requisite intention does not arise.
216 The plaintiffs seek rectification of the TMLAs for common mistake in the alternative to their claim based on unilateral mistake. In respect of both unilateral and common mistake, the plaintiffs plead that the same individuals (Messrs Sloan, Moller, Mallinson, Leach and/or Waugh) held the Plaintiffs' Understanding/'Common Intention' and their state of mind is to be attributed to the plaintiffs. The plaintiffs have failed to establish that these individuals held the Plaintiffs' Understanding. As this is the foundation of the claim for rectification for common mistake, the claim must be rejected.
(a) the plaintiffs' construction of clauses 3.1 and clause 3.2 is upheld, or
(b) clause 3.2 is rectified in accordance with the plaintiffs' application,
clause 3.2 is invalid as an unreasonable restraint of trade.[271]
218 As I have rejected both the plaintiffs' construction of clause 3.2 and their claim for rectification, it is unnecessary to consider Bega's reliance upon the restraint of trade doctrine. Nevertheless, for the sake of completeness, I shall do so. My consideration of the restraint of trade doctrine is premised on the assumption that the plaintiffs' construction of clauses 3.1 and 3.2 is correct, or alternatively, clause 3.2 has been rectified in accordance with the plaintiffs' application.
219 Under the plaintiffs' construction of clause 3.2, save for the exceptions prescribed by clauses 3.5 to 3.8 and Schedule 5, Bega is precluded from using the Trade Marks, or any similar trade marks, in relation to any product without the plaintiffs' consent. Bega would be subject to the same restriction if clause 3.2 is rectified in accordance with the plaintiffs' application.
220 The plaintiffs submit that the restraint of trade doctrine has no application to clause 3.2 because the restraints imposed upon Bega's right to use its Trade Marks are part of or ancillary to a licence to use intellectual property.[272] The plaintiffs submit that authority for this proposition is implicit in the High Court's judgment in Maggbury Pty Ltd v Hafele Australia Pty Ltd ('Maggbury').[273] The plaintiffs also rely upon the judgment of Gyles J in Council of the City of Sydney v Goldspar Pty Ltd ('Goldspar')[274] where his Honour considered Maggbury 'to indicate that licences to use intellectual property would not be caught by the doctrine'.[275]
221 Clause 3.1 grants the plaintiffs a sole and exclusive licence of the Trade Marks in relation to Products. I have concluded that, objectively construed, clause 3.2 prevents Bega from using or permitting the use by any person of the Trade Marks, or similar trade marks, in relation to Products. Under this construction of clauses 3.1 and 3.2 the reasoning in Maggbury and Goldspar is apposite. Bega could not legitimately contend that the restriction under clause 3.2 upon its right to use its Trade Mark is invalid as an unreasonable restraint of trade. The restriction is ancillary to the licence granted by clause 3.1.
222 However, the plaintiffs' contention that the restraint of trade doctrine does not apply to clause 3.2 is premised on their construction of clause 3.2, or the rectification of clause 3.2, whereby the restriction imposed upon Bega extends to any product. It is therefore necessary to consider the application of the restraint of trade doctrine on the basis that clause 3.2 restricts Bega from applying its Trade Marks or similar trade marks to any product without the plaintiffs' consent. I do not consider that this restriction is part of and ancillary to the licence granted by clause 3.1. Rather, the restriction imposed upon Bega by clause 3.2 goes beyond the rights conferred upon the plaintiffs by clause 3.1. First, on the plaintiffs' construction, clause 3.2 is not confined to Products but extends to any products. Further, it restricts Bega's use, not only of its Trade Marks, but also trade marks similar to its Trade Marks. Clause 3.2 is not, of itself, a licence to use intellectual property. As such, the reasoning in Maggbury and Goldspar is not applicable. The restraint of trade doctrine does apply to clause 3.2.
223 On the plaintiffs' construction/rectification of clause 3.2, subject to clauses 3.5 to 3.8 and Schedule 5, Bega is restricted from using its Trade Marks or similar trade marks on any product without the plaintiffs' consent. So construed/rectified, clause 3.2 restricts Bega's right to carry on trade by preventing the sale by Bega of any products bearing its Trade Marks, or similar trade marks, without the plaintiffs' consent. As such, clause 3.2 is a covenant in restraint of trade.[276]
224 A covenant in restraint of trade is prima facie unlawful and void at common law as being contrary to public policy, unless the covenant is shown to be reasonable.[277] For a restraint to which the doctrine applies to be held valid, the court must be able to conclude that it is both reasonable in the interest of both parties and reasonable having regard to the public interest.[278]
225 The validity of a restraint clause is tested by reference to the facts on the date the agreement was made.[279] The onus of proving that a restraint of trade is reasonable is on the parties seeking to enforce the contract, while the onus of proving circumstances enabling the court to conclude that it is against the public interest is on the party resisting enforcement.[280] The question of reasonableness is to be determined not by the form in which the relevant provision is framed, but by its effect and operation in practice. The reasonableness of a restraint must be tested by reference to what the restraint requires or permits the parties to do, rather than by what the parties have actually done.[281] Whether a restraint is reasonable having regard to the interests of the parties depends upon two questions: first, whether the covenantee has a legitimate protectable interest, and secondly, whether the restraint is no more than reasonable for the legitimate protection of that interest.[282]
226 The plaintiffs have a legitimate interest in protecting the value of the rights conferred upon them by clause 3.1; ie a sole and exclusive licence of the Trade Marks in relation to natural and processed cheddar cheese, string cheese and butter. The plaintiffs submit that the substance of their protectable interest 'is the reputation of the Bega brand as a cheese brand' and 'in ensuring that the brand is presented to consumers in the Territory in a way that is consistent with how Fonterra is required to conduct its marketing activity in respect of products bearing the brand.'[283] I accept this submission.
227 Courts have adopted a broad approach to the identification of the legitimate interest supporting a restraint of trade. In Seven Network (Operations) Ltd v Warburton (No 2)[284] Pembroke J cited with approval the judgment of the English Court of Appeal in Dawnay Day & Co Ltd v D'Alphen[285] where the court stated that the categories of cases in which covenants in restraint of trade are enforceable include any case where the covenantee has a legitimate interest of whatever kind to protect and where the covenant is no wider than necessary to protect that interest.[286]
228 The plaintiffs' interest in protecting the value of the sole and exclusive licence granted by clause 3.1 is analogous to the interest of a purchaser of a business protecting the goodwill in the business purchased.[287]
229 The products licensed to the plaintiffs represented the total range of products manufactured by Bega in May 2001 save for additional products identified in Schedule 5. The plaintiffs had a legitimate interest in protecting the value of the sole and exclusive licence which it acquired. I accept the plaintiffs' submission that when the parties executed the Agreements there was a risk that if Bega was free to use its trade marks as it saw fit on any product this had the potential to damage the value of the plaintiffs' goodwill in the trade marks.
230 The reasonableness of the restraint is to be assessed as at May 2001. Clause 3.2 does not prevent Bega from manufacturing and marketing cheese or any other product. It does not operate as a restraint on Bega's capacity to trade.[288] Rather, the restraint restricts Bega's right to use its Trade Marks, or similar trade marks. The reasonableness of the restraint is not determined by whether subsequent use by Bega of its trade marks has in fact damaged the plaintiffs' goodwill in the trade marks. It is sufficient that there was a real risk of this occurring when the parties executed the TMLAs.
231 Further, in concluding that the restriction imposed by clause 3.2 was reasonable as between the parties, I have had regard to the following matters. First, the TMLAs were the product of an arm's length transaction between substantial corporations each of which had the benefit of legal advice.[289] Second, under the TMLAs and the 2001 Product Supply Agreement the plaintiffs agreed to pay Bega significant upfront and ongoing consideration for the rights acquired.[290] Finally, I do not consider there is any proper basis for concluding that the restriction imposed upon Bega by clause 3.2 is contrary to the public interest. In particular, the restraint does not restrict Bega from competing with the plaintiffs in the market place. Rather, it restricts Bega's right to use its trade marks in the course of competing with the plaintiffs.
232 On the plaintiffs' construction of clause 3.2 the clause is not invalid at common law as an unreasonable restraint of trade. It is therefore unnecessary to consider the plaintiffs' alternative submission that clause 3.2 was enforceable pursuant to s 4(1) of the Restraint of Trade Act 1976 (NSW).
The plaintiffs' contention that Bega has breached clause 3.2 irrespective of how it is construed
233 Since November 2017 Bega has sold processed and natural cheddar cheese products under the 'Dairymont' and 'Dairylea' trade marks which it owns. The plaintiffs submit that in so doing Bega has breached clause 3.2 by using Bega's trade marks in connection with the sale of Products (cheddar cheese) under the Dairymont and Dairylea brands.[291]
234 The restrictions on Bega's right to use its Trade Marks, or similar trade marks, on or in relation to products is subject to clause 3.6. Clause 3.6 acknowledges Bega's right to use its Trade Marks 'in connection with the identification or promotion of the Bega Group'. Further, from May 2011 Bega was expressly permitted by clause 3.9 to be involved in the marketing of Competing Products.
235 The plaintiffs submit that a promotional flyer for Dairymont cheese constitutes a breach by Bega of clause 3.2. The flyer is headed 'DAIRYMONT PROFESSIONAL'. Under that heading nine varieties of Dairymont cheeses, including shredded, tasty, cheddar and cheddar slices are depicted. The bottom left hand corner features a red stylised Bega Trade Mark and the tag line '[t]he great Australian food company'.[292]
236 There is no evidence that this promotional flyer is still in circulation. Absent such evidence there would be no utility in granting injunctive relief. However, even if the flyer was currently in circulation the use of the Bega Trade Mark on it does not constitute a breach of clause 3.2 because it is permitted by clause 3.6. The Bega Trade Mark is used for the purpose of identifying and promoting the Bega Group. In particular, it identifies Bega as the owner of the Dairymont brand.
237 The plaintiffs also contend that a Bega foodservice catalogue[293] constitutes a breach of clause 3.2 because it involves the use of the Bega Trade Mark in relation to cheddar cheese. There is no evidence that this catalogue is currently being used, such that there would be any utility in granting an injunction to restrain its publication. In any event, I do not consider the use of the Bega Trade Mark on the catalogue contravenes clause 3.2. The red stylised Bega mark appears on the front cover above 'Foodservice catalogue'. It is used for the purpose of corporate identification/promotion. The catalogue includes promotion of numerous products, including Dairymont tasty cheddar and tasty cheddar slices. These products are marketed under the Dairymont brand. The use of the red stylised Bega Trade Mark on the front cover of the catalogue is in connection with the identification and promotion of Bega foodservice and is permitted by clause 3.6.
238 The plaintiffs submit that display signage at a stand at a Metcash expo in July 2017, which featured both the Bega Trade Mark and the Dairylea trade mark constitutes a breach of clause 3.2.[294] There is no evidence that the display signage is currently being used, such that there would be any utility in granting an injunction to restrain the ongoing use of the display signage.
239 The requirement for ongoing supervision of an injunction is a powerful discretionary consideration weighing against the grant of injunctive relief. This consideration is significant given the terms of clause 3.6 and Bega's right pursuant to clause 3.9 to be involved in the marketing of Competing Products. It is not appropriate to grant an injunction which leaves room for debate as to whether or not Bega's use of its Trade Marks, or similar trade marks, is permitted by clause 3.6. The plaintiffs seek an injunction to restrain Bega from using or permitting the use of the Trade Marks 'except as expressly permitted by clauses 3.5-3.8 or Schedule 5 of the Agreements'.[295] Injunctive relief in these terms is not appropriate. Whether Bega's use of its Trade Marks in connection with Products is permitted requires consideration of the particular promotional material which is alleged to be a breach of clause 3.2.
240 The plaintiffs' claim for declaratory and injunctive relief as set out in paragraphs A, B, B1, C, E and F of the prayer for relief in the Fifth Further Amended Statement of Claim is dismissed. In paragraphs D and G of the prayer for relief Fonterra seeks a declaration that a notice of breach served by Bega on 29 October 2018 is invalid and an injunction restraining Bega from terminating the TMLAs in reliance upon it. The validity of the notice is considered in the part of this judgment in respect of Bega's counterclaim.
241 Bega claims that the plaintiffs breached express and implied terms of the TMLAs. There are three limbs to Bega's counterclaim:
(i) marketing and promotion claim;
(ii) cheese quality claim; and
(iii) provenance claim.
242 Before addressing the parties' competing contentions it is necessary to address the meaning of Above the Line ('ATL') and Below the Line ('BTL') marketing. It is not controversial in the current proceeding that marketing activity encompasses both ATL promotion and BTL promotion. ATL promotion is promotion using commission-paying mass media[296] such as TV, radio, press, cinema and poster advertising. BTL is all other promotional expenditure and is focussed on encouraging customers to try/purchase the product in store and encouraging retailers to stock and support the product.[297] The plaintiffs' BTL expenditure comprises:
(a) discretionary trade spend - amounts paid by the plaintiffs to retailers to fund price promotions/discounting; and
(b) co-op trade spend - amounts paid by the plaintiffs to retailers for advertising and promotional activity undertaken by the retailer such as catalogue or in-store advertising.
243 Bega submits that the plaintiffs have, in breach of their express and implied contractual obligations:
(i) failed to engage in sufficient ATL advertising in relation to the Bega brand;
(ii) engaged in excessive brand price discounting of Bega branded products, which has eroded 'brand equity' and therefore the value of the goodwill in the Bega brand;
(iii) failed to position Bega branded cheese as 'premium' cheese;
(iv) failed to engage in sufficient new product development ('NPD') (also referred to as 'innovation') and suffered significant delistings (also referred to as 'deletions') of Bega branded products in supermarkets;
(v) gave preference to the brands Fonterra owns, Mainland and Perfect Italiano, in relation to ATL advertising and NPD; and
(vi) failed properly to promote and offer Bega branded products for sale in the Foodservice sector ('FSS') (which refers to the market for the sale of food products to entities and institutions who prepare meals for consumption outside of homes, such as cafes, restaurants, hospitals, jails and nursing homes).[298]
244 Bega submits that these failures amount to serious breaches of the TMLAs as well as repudiatory conduct.[299] Bega contends that as a result of the breaches it has not received royalties it would otherwise have received.[300] Bega contends that the plaintiffs' breaches of the TMLAs have caused damage to the brand equity of the Bega brand and goodwill associated with the Bega Trade Marks.[301] Bega seeks declarations that the plaintiffs have breached express and implied terms of the TMLAs. It also seeks declarations that it is entitled to terminate the TMLAs pursuant to the express terms of the TMLAs and/or pursuant to a right of termination at law. Bega also claims damages in respect of the alleged breaches.
245 The plaintiffs deny that they were subject to any contractual obligation:
Further, the plaintiffs deny there was an implied no undue preference term ('NUPT') in the TMLAs which precluded them from giving preference to their own brands, Mainland and Perfect Italiano.
246 For the reasons set out below, Bega's marketing and promotion claim is dismissed. I have concluded that the TMLAs do not impose any contractual obligation on the plaintiffs:
(i) to engage in any particular type of marketing activity;
(ii) to engage in NPD;
(iii) to 'effectively' promote and develop sales of Branded Products; and
(iv) to promote and develop sales of Branded Products in the FSS.
247 I have concluded that the TMLAs do not contain an implied term that the plaintiffs are not to unduly prefer their own products compared to Bega's Branded Products. The TMLAs do contain an implied no hindrance of purpose term.
(i) promote and develop sales of Branded Products in the Territory consistent with the Agreed Marketing Principles ('AMPs');
(ii) when using any of the Trade Marks on or in relation to any Product ensure that the good name and image of those Trade Marks is maintained and not harmed; and
(iii) conduct their business operations in accordance with appropriate business standards and in a manner not to damage the value of the Trade Marks.
249 I have concluded that the plaintiffs have promoted and developed sales of Branded Products consistent with the AMPs and have undertaken marketing activity in a manner broadly consistent with the AMPs. I have concluded that Bega has failed to establish any breach by the plaintiffs of the requirement that when using any of the Trade Marks on or in relation to any Product the plaintiffs must ensure the good name and image of those Trade Marks is maintained and not harmed. Bega has also failed to establish that the plaintiffs have breached the requirements to conduct their business operations in accordance with appropriate business standards and in a manner not to damage the value of the Trade Marks.
250 In this section of the judgment I refer to commercially sensitive information. This information will not be set out in the version of the judgment which is to be published to the world at large. The information which has been redacted will be included in a confidential annexure available to the parties and to judicial officers. The annexure will consist of the relevant paragraphs of the judgment in unredacted form.
Express contractual terms relevant to the marketing and promotion claim
251 The express terms of the TMLAs which Bega alleges have been breached by the plaintiffs are clauses 6.1 and 6.3. Clause 6.1 provides:
The Licensee must, consistent with the Agreed Marketing Principles;
(a) promote and develop sales of the Branded Products in the Territory; and
(b) when using any of the Trade Marks on or in relation to any Product, ensure that the good name and image of those Trade Marks is maintained and not harmed.
252 The AMPs are in Part 1 of Schedule 2. They provide as follows:
The Licensee must conduct its business operations, including its handling of credit arrangements and its servicing of Customers, in accordance with appropriate business standards applying in the Territory from time to time and in a manner not to damage the value of the Trade Marks, such conduct extending but not limited to promotional, marketing and advertising policies and content.
254 Bega acknowledges that clauses 6.1 and 6.3 'do not spell out exactly what was required of Fonterra at a granular level'.[302] Bega submits that it is necessary for the Court to construe clauses 6.1 and 6.3 to give them 'meaningful content'.[303] Bega submits that 'in the absence of the parties having documented their intentions expressly as regards new product development, advertising etc, the court must determine their inferred intention'.[304]
(a) clause 6.1 required Fonterra to engage in (or could not be complied with by Fonterra without engaging in) the activities, the lack of which Bega complains of in its Counterclaim (ATL advertising, NPD), and to refrain from the activities, an excess of which Bega complains about (excessive discounting); and
(b) the first part of clause 6.3 imposes a contractual standard of conduct against which Fonterra's conduct is to be assessed - 'appropriate business standards'. Fonterra's actions and omissions are to be assessed against whether they conform to the obligation it undertook to adhere to appropriate business standards, including in respect of promotional, marketing and advertising policies and content; and
(c) the part of clause 6.3 which requires Fonterra to conduct its business operations (including its promotional, marketing and advertising policies and content) 'in a manner not to damage the value of the Trade Marks' also requires the [C]ourt to evaluate Fonterra's acts and omissions and to determine whether they have been conducted in a manner to avoid damaging the value of the Trade Marks.[305]
the satisfaction of the obligations imposed by clauses 6.1 and 6.3 required Fonterra to promote and sell Bega branded products in a manner that maintains consumer and retailer interest, involves a reasonable level of innovation, maintains brand and shelf presence in the shops, maintains good relationships with retailers, and which includes engaging in advertising campaigns and/or promotional activities and spending an adequate amount of money on such advertising and promotion.[306]
257 Bega submits that a 'key commercial principle' underpinning the relationship between the plaintiffs and Bega when the TMLAs were executed was that 'Bega would concentrate on manufacturing and Fonterra would assume responsibility for all marketing activity in relation to the Branded Products in Australia. Bega could not, itself, engage in promotion of the Branded Products and safeguard the value of the goodwill of the Trade Marks - that was left in Fonterra's hands.'[307]
In this context, Bega was obviously concerned to protect the value and goodwill of the Bega brand and its associated heritage (which had been built up over a significant time period). Bega was handing over stewardship of the Branded Products to Fonterra, which was to have exclusive responsibility for their marketing and promotion. It was accordingly concerned to ensure that the arrangements protected Bega's long term interests in relation to how the brand was managed by Fonterra. This was a mutually known background fact.
Fonterra's obligations in clause 6.1 and 6.3 must be understood in this context, namely, having regard to the evident commercial purpose of protecting Bega's goodwill and brand equity in the Bega brand.
Understood in light of this background, the obligation to 'promote and develop sales' and the obligation to 'conduct [Fonterra's] business operations ... in accordance with appropriate business standards ... and in a manner not to damage the value of the Trade Marks ... ' requires that Fonterra must do things, take steps or actions, which promote and develop sales in a manner which protects Bega's long term brand equity and goodwill.[308]
259 Bega submits that the AMPs are clearly directed to matters 'which would protect long term brand value' and 'are directed to the emotional connection consumers form to the brand and its history and alignment with premium values. They are matters which support brand equity'.[309]
It was plainly within the objective contemplation of the parties that, in order to fulfil these express obligations in a manner consistent with their commercial object, mass media advertising of a sufficient level would be required. The very purpose of the provisions was to ensure that Bega's long term brand equity and goodwill in the Trade Marks was preserved over the course of the agreement. Simply increasing sales would not fulfil the purpose or object of the provisions, and indeed the expert evidence was to the effect that too heavy a focus on increasing sales in the short term will damage brand equity where that relies on sales techniques such as heavy discounting.
That is, the surrounding facts and circumstances which a reasonable businessperson in the position of the parties may be taken to have known would have pointed to the conclusion that Fonterra was required by clause 6 to market and promote sales of the Branded Products so as to maintain the valuable brand equity which Bega had built up over a number of years. In order to maintain brand equity, it is necessary to foster the emotional connections consumers have toward a brand and its history or story, and the obvious means for achieving that end is (or at least includes) ATL advertising. The relationship between ATL and brand equity is discussed in section C.7 of these submissions.
It follows that Fonterra is required to engage in advertising campaigns and promotional activities which will enhance brand equity, and not just engage in discounting to drive sales volumes, which will have the opposite effect on brand equity.
In addition, the surrounding circumstances and purpose of the provisions support the view that the obligations in clauses 6.1 and 6.3 required Fonterra to:
(a) maintain consumer and retailer interest in the brand and the products;
(b) engage in product innovation, including by developing new product offerings, and exploiting new marketing and product development opportunities;
(c) maintain brand presence and 'shelf space' in retailers' stores (particularly Coles and Woolworths), including by maintaining good relationships with those retailers to minimise the risk of products being de-listed
or it could not comply with its contractual obligations without having done those things.[310]
261 Bega submits that the 'critical matters' in respect of the construction of clauses 6.1 and 6.3 are as follows:
(a) the chief commercial purpose of clause 6 was to protect Bega's long term interests in relation to how the brand was managed by Fonterra in relation to the Branded Products and to maintain the goodwill in the Trade Marks of which Bega retains ownership;
(b) that purpose or object was sought to be achieved by requiring Fonterra to promote and develop sales of the Branded Products, and do so consistently with an agreed set of principles directed to preserving long term brand equity;
(c) a reasonable person in the position of the contracting parties would have understood the performance of those obligations to require Fonterra to undertake the steps articulated by Bega in its Counterclaim - for example, to engage in appropriate engagement in ATL advertising, new product development etc; and
(d) Fonterra's obligation to promote and develop sales is not limited to it doing only what may reasonably be done in the circumstances, by refence [sic] to its own business or financial interests. The parties did not reserve such freedom or discretion to Fonterra. As the authorities considered above make clear, if the parties had sought to impose such qualifications, then a reasonable endeavours clause would have achieved this. However, the parties chose not to do this, presumably because it would have undermined the very commercial objective sought to be achieved by the provisions. Their objective intention must be given effect.[311]
262 Bega submits that it is 'necessarily implicit' in the meaning of the words 'Fonterra must promote and develop sales', that it must do so 'effectively'.[312]
263 When considering the construction of clauses 3.1 and 3.2 of the TMLAs I set out the principles which govern construction of commercial contracts summarised by French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd.[313] It is convenient to set those principles out again:
The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.
Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.
Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption 'that the parties ... intended to produce a commercial result'. Put another way, a commercial contract should be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'.
These observations are not intended to state any departure from the law as set out in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales and Electricity Generation Corporation v Woodside Energy Ltd. We agree with the observations of Kiefel and Keane JJ with respect to Western Export Services Inc v Jireh International Pty Ltd.[314]
264 In Adaz Nominees Pty Ltd v Castleway Pty Ltd ('Adaz')[315] Whelan JA and Riordan AJA summarised the principles governing construction of commercial contracts as follows:
To construe the terms of a commercial contract, the Court asks 'what a reasonable businessperson would have understood those terms to mean'. To answer that question, 'the reasonable businessperson [is] placed in the position of the parties', and the Court applies the following principles:
(a) The terms are construed objectively, and the subjective intentions of the parties are irrelevant.
(b) The objective approach requires reference to the text and its ordinary meaning, together with:
(i) the context, being the entire text of the contract including matters referred to in the text; and
(ii) the purpose.
These matters will ordinarily be identified by reference to the contract alone, but evidence of mutually known objective background circumstances relevant to the purpose is admissible 'no matter how clear the "ordinary meaning" of the words'. Identification of purpose may allow admission of evidence of the genesis of the transaction, the background, the context and the market in which the parties are operating.
(c) Unless a contrary intention appears in the contract, the court is entitled to approach the task of interpretation on the assumption that the parties intended to produce a commercial result, and should construe it so as to avoid a commercial nonsense. However, the court does not weigh the commerciality of the agreement, and business common sense is a topic on which reasonable minds may differ.
(d) If, after completion of this process, the language used in the contract 'is ambiguous or susceptible of more than one meaning', then evidence of surrounding circumstances external to the contract is admissible to assist with interpretation of the language in question.
(e) However, 'evidence of the parties' statements and actions reflecting their actual intentions and expectations' is inadmissible. Although evidence of prior negotiations is admissible to establish objective background facts known to both parties and the subject matter of the contract, evidence of negotiations reflective of actual intentions and expectations is not receivable.
(f) Post-contractual conduct is inadmissible to construe the terms of the contract. However, the parties' subsequent communications may be relevant to determine whether the parties intended to enter into a binding contract.[316]
265 Ordinarily, the process of construction of a commercial agreement, including ascertaining the commercial purpose of the agreement, is possible by reference to the contract alone.[317] Establishing the common intention of the plaintiffs and Bega requires consideration of the text of the TMLAs. This approach is consistent with the judgment of the majority of the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd ('Toll'):[318]
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.[319]
266 Clause 6.1 imposes a positive obligation, expressed in mandatory terms, requiring the plaintiffs to promote and develop sales of the Branded Products in the Territory, consistent with the AMPs. The phrase 'promote and develop sales' is a compendious expression, the obligation is to promote and develop sales of the Branded Products in the Territory, but to do so in a manner consistent with the AMPs.
267 'Promote' is defined in the Macquarie Dictionary as 'to further the growth, development, progress, etc, of; encourage'.[320] 'Develop' is defined in the Macquarie Dictionary as 'to bring out the capabilities or possibilities of; bring to a more advanced or effective state; to cause to grow or expand'.[321]
268 If they had so wished, the parties could simply have used the word 'increase' in lieu of 'promote and develop'. Instead, the phrase used by the parties, 'promote and develop sales', means encourage growth of sales. The obligation on the plaintiffs is to take positive steps to encourage the growth of sales of Branded Products. This conclusion is reinforced by the phrase 'the Licencee's marketing activities will be conducted' in clause 2 of the AMPs. I reject the plaintiffs' contention that clause 6.1 does not impose a contractual obligation upon them to engage in marketing activities in relation to the Branded Products. The obligation imposed by clause 6.1 is not met simply by reason of there being an increase in sales. It is possible that sales of Branded Products could increase as a result of a competitor going out of business. Nor is it breached simply by reason of there not being an increase in sales. Despite strenuous efforts to increase sales, market conditions such as extensive discounting by competitors, or the growth in sales of private label cheese, might militate against an increase in sales in Branded Products.
269 'Branded Product' means a unit of Product that bears a Trade Mark or in relation to which a Trade Mark is used or applied. Under the Fonterra TMLA 'Territory' means Australia except for ACT and NSW.
270 During the trial no party addressed the question of how many Branded Products were in existence when the TMLAs were executed, and the proportion of these Products which were packaged in bulk for sale in the FSS. After the completion of the trial I asked the parties to reach an agreed position in relation to these matters. They were unable to do so.
271 On 8 May 2001 when Fonterra and Bega executed the TMLAs they also executed a Product Supply Agreement ('PSA').[322] The Agreement is referred to in the definitions clause of the TMLAs. The PSA includes a Schedule of Branded Products. The Schedule identifies 154 Branded Products. Twenty-one of these products are designated as being for the export market and therefore fall outside the operation of the TMLAs. Of the remaining 133 products, there are 12 products which appear to be specifically packaged for the FSS. There are five 'Chef's Choice' products and seven products in packaging exceeding two kgs. In the absence of any agreement between the parties, I conclude that when the TMLAs were executed there were 133 Branded Products which were subject to the TMLAs. Of these, 12 products were manufactured specifically for sale in the FSS.
272 The phrase 'promote and develop' when read in conjunction with the AMPs points to clause 6.1 having a dual purpose. In addition to the purpose of promoting and developing sales, it is also concerned with the manner in which promotion is conducted. This conclusion is supported by the text of clause 6.1(b) which requires the plaintiffs when using any of the Trade Marks on or in relation to Products, to ensure that the good name and image of the Trade Marks is maintained and not harmed. It is also supported by the terms of the four marketing principles. Each principle is concerned with the way in which Bega cheese is perceived by consumers: that it is sourced from Australia, is a premium product, with a heritage dating back over 100 years and is made from milk sourced from farms with lush green pastures. Although described as 'principles' the plaintiffs are obliged by clause 6.1 to promote and develop sales consistently with them.
The plaintiffs are not subject to any contractual obligation to position Bega cheese as a premium brand
273 The parties disagree regarding the legal effect of the marketing principle: 'the cheese is a premium product'. Bega submits that this principle requires the plaintiffs to position the cheese as a premium brand. Bega submits:
Fonterra is expressly obliged to conduct its marketing activities in respect of the Branded Products in a manner broadly consistent with the principle that the cheese is a premium product. It has, quite plainly, failed to do so. The positioning of the Bega brand has been addressed extensively in the marketing narrative above, and the discussion of the expert evidence.
The long and short of it is that Fonterra never sought to position Bega as premium nor was it perceived as such. Dr Honeywill summarised the position in his evidence as follows:
Bega is not positioned by Fonterra as a premium brand. As a consequence, it is not perceived by consumers as premium. Similarly, it is not positioned by Fonterra in the Best tier of the everyday block cheese sub-category and, as a consequence, consumers perceive it as non-premium.
From the beginning of the Relevant Period in 2012, Fonterra continued its then-existing strategy of positioning Mainland as 'premium' and Bega as 'Everyday', having already identified the 'premium' space as an area of growth potential in fixed weight cheese. Fonterra's own documents equated the 'best' tier with 'premium'.
Fonterra's sole strategy ever since has been to position Bega at the middle to lower segment of the branded products segment. Its own internal documents record this as a deliberate strategy, whilst Mainland is sought to be promoted as a 'premium product'. Fonterra's strategy has been to drive volume in the Bega brand through positioning and discounting, deep and sustained discounting. A promotional strategy involving sustained discounting is anathema to a product being a premium product. It is also damaging to brand equity.
The construction of the relevant provision requiring premium positioning is, in the circumstances of this case, straightforward. The issue is whether or not Fonterra has complied with the obligation to market Bega products as premium.
It is plain that it has not, and in the end, there does not seem to be much dispute about this. Rather, Fonterra suggests that it would be commercially undesirable to do so, as it is harder to shift high volumes of product that is positioned as a premium product ([f]or example, it was put to Dr Honeywill in cross-examination that Fonterra's attempts to make Mainland a more premium brand by placing it in the best category have resulted in Mainland's sales dropping significantly).
As noted above however, whatever the substantive merits of this submission, it is irrelevant to the issue of whether or not Fonterra has promoted Branded Products in a manner broadly consistent with the principle that the cheese is a premium product.
Fonterra's obligation to promote and develop sales is not limited to it doing only what may reasonably be done in the circumstances, by refence [sic] to its own business or financial interests. The parties did not reserve such freedom or discretion to Fonterra. If the parties had intended that approach to marketing and promotion of the Bega Branded Products would be left to Fonterra's discretion, the contract could easily have specified that to be the case, or they could have agreed to qualify Fonterra's obligations by expressing them in terms of 'best endeavours' or 'reasonable endeavours'.
However, the parties chose not to do this, presumably because it would have undermined the very commercial objective sought to be achieved by the provisions.[323]
274 I reject Bega's submission that the principle 'the cheese is a premium product' requires the plaintiffs to position Bega cheese as a premium brand. The marketing principle 'the cheese is a premium product' requires marketing activity which promotes Bega cheese as a product of superior quality attracting a higher price than competing products. This is consistent with the ordinary meaning of the phrase 'premium product'.[324] The evidence of Dr Honeywill and Mr Johnston regarding the three tiers of 'Good/Better/Best' in the fixed weight cheese market is of no assistance in construing the meaning of 'the cheese is a premium product'.[325] First, there is no evidence that when the parties executed the TMLAs in May 2001 the existence of the three tiers, 'Good/Better/Best' of the fixed weight cheese market was an objective circumstance known to the contracting parties. Second, the phrase 'a premium product' has an ordinary and natural meaning which can be applied harmoniously alongside the other three marketing principles. Further, evidence that during the period 2012 to 2018 Fonterra structured its cheese portfolio so that Mainland cheese would be marketed as a 'premium' product in the 'Best' tier, with Bega positioned in the 'Better' tier sheds no light on the meaning of the phrase 'the cheese is a premium product'. Rather, this is evidence of post contractual conduct which is not admissible as an aid to the construction of the contract.[326]
The requirement to conduct marketing activities 'broadly consistent with the AMPs'
276 In Calliden Group Ltd v Australian Unity Ltd[329] Einstein J considered the meaning of the following clause:
'The outstanding claims liability is assessed by the Appointed Actuary on a basis broadly consistent with prior periods and in accordance with professional standards'.[330]
277 His Honour considered that the requirement for outstanding claims liability to be assessed on a basis broadly consistent with prior periods meant that the assessment methods 'do not, of course, have to be identical. But the general approach must be consistent'.[331]
278 The requirement to conduct marketing activities 'broadly consistent' with the prescribed principles confers some discretion upon the plaintiffs to place more emphasis on one or more of the principles. For example, the marketing of processed cheddar cheese (which contains emulsifiers, preservatives and other non-natural ingredients)[332] compared to natural cheddar cheese (which comprises cheese made directly from milk separating the curds and whey)[333] may warrant a different approach in respect of the principle 'milk supplied to make the cheese is sourced from farms which enjoy lush green pastures'. Whilst this principle is apt in respect of the marketing of natural cheese it is less so in respect of the marketing of processed cheese. An advertising campaign which placed particular emphasis on Bega's brand heritage dating back over 100 years would not, for that reason alone, contravene the requirement for marketing activity to be broadly consistent with the four prescribed principles.
The plaintiffs are not subject to any contractual obligation to engage in NPD
279 The text of the TMLAs does not support Bega's contention that clauses 6.1 and 6.3 require the plaintiffs to engage in NPD. The terms 'new product development' and 'innovation' do not appear in the TMLAs. The plaintiffs are required to promote and develop sales of 'the Branded Products'. The Branded Products are the 133 units of product bearing the Bega Trade Marks for sale in the Territory which were in existence at the time the TMLAs were signed on 8 May 2001. There is no contractual obligation on the plaintiffs to develop products which were not in existence at the time the TMLAs were signed. Any requirement to do so begs the question: how many new products would have to be developed and marketed, within what period of time, to comply with the contractual obligation?
280 Subsequent to May 2001 the plaintiffs did develop new products which were marketed under the Bega brand. The plaintiffs were subject to the same contractual obligations in relation to these products as in respect of the Branded Products in existence when the TMLAs were executed. Bega may have hoped or expected that the plaintiffs would develop new products which would be the subject to the same marketing obligations as the Branded Products which were in existence with the TMLAs were executed. However, they were not subject to any contractual obligation to do so.
The plaintiffs are not subject to any contractual obligation to 'effectively' promote and develop sales of Branded Products
281 Bega submits that clause 6.1 imposes an obligation upon the plaintiffs to 'effectively' promote and develop sales of Branded Products. I reject this submission. There is no basis for reading 'effectively' into clause 6.1. It would only be permissible to do so if it was 'clearly necessary in order to avoid absurdity or inconsistency',[334] or where it is 'clear that something has gone wrong with the language'.[335]
282 The principles governing the circumstances in which a court may modify the written words of a contract, as part of the process of construction were considered by the Court of Appeal in Perpetual Ltd v Myer Pty Ltd.[336] The Court of Appeal stated that the principle that permits rectification by construction is premised on absurdity, not ambiguity, and that the test of absurdity is not easily satisfied.[337] It concluded that:
for the owners to succeed on their absurdity contention, they must establish to a high level of conviction that:
(1) the literal meaning of clause 3(b) of the fourth schedule contains a clear mistake, which produces an absurd result;
(2) the absurdity is such that 'it is self-evident what the objective intention is taken to have been'; and
(3) it is clear what correction ought to be made.[338]
283 The literal meaning of clause 6.1(a) of the TMLAs does not produce an absurd result. Rather, it produces a sensible commercial outcome, particularly having regard to the minimum market performance requirements (clause 4.4 and Part 2 and Part 3 of Schedule 2 of the Fonterra TMLA) and Bega's right to terminate the TMLAs if the minimum performance requirements are not met for two years running (clause 16.1(d) of the Fonterra TMLA and clause 16.3 of the Bonland TMLA provide for the automatic termination of the TMLA upon the termination of the Fonterra TMLA).
284 Bega submits that it is 'necessarily implicit' in the words 'Fonterra must promote and develop sales' that it must do so effectively. The authority cited in support of this proposition is the Court of Appeal's judgment in Tabcorp Holdings Ltd v Victoria.[339] This judgment concerned a question of statutory construction and is of limited assistance. In any event, I do not accept that it is 'necessarily implicit' in the words 'Fonterra must promote and develop sales' that it must do so effectively. The issue of the plaintiffs' effectiveness in promoting and developed sales is dealt with by the agreed minimum royalty payments, agreed market performance requirements and Bega's right of termination under clause 16.1(d) of the Fonterra TMLA.
The plaintiffs are permitted to have regard to their own commercial interests
285 Bega submits that as the obligations imposed on the plaintiffs by clauses 6.1 and 6.3 are not subject to modification by way of a reasonable/best endeavours clause, the obligations are not conditioned by what is reasonable in the circumstances by reference to the plaintiffs' independent commercial or financial interests.[340]
286 Bega submits that the effect of a modification of a contractual obligation by a reasonable/best endeavours clause is to require the promisor to do only that which is commercially practicable; to promote and develop sales of a promisee's product but only to the extent consistent with running the (promisors') company efficiently and prudently in the interests of the company and to no greater extent.[341] Bega further submits that as the obligation to promote and develop sales is not expressed to be subject to best or reasonable endeavours, it is an express covenant to do certain things and the qualification of commercial practicability does not apply.[342]
287 Electricity Generation Corporation v Woodside Energy Ltd ('Woodside')[343] is authority for the proposition that a contractual obligation to use reasonable endeavours to achieve a contractual object is not an absolute or unconditional obligation.[344] However, it does not follow that a clause which does not impose an obligation to use reasonable/best endeavours is an absolute or unconditional obligation. It does not follow from the absence of a reasonable endeavours qualification in clause 6.1 that the plaintiffs are required to promote and develop sales of Branded Products in a manner contrary to their commercial interests.
288 The first paragraph of the AMPs states that the plaintiffs will 'market branded consumer products under a range of brands and trade marks including the Trade Marks'. This is an express recognition of the fact that the plaintiffs market cheese products under the Mainland and Perfect Italiano trade marks. Mainland cheddar cheese competes with Bega cheddar cheese. Perfect Italiano does not compete with any Bega cheese. This was an objective background circumstance known to the parties when the TMLAs were executed.
289 In 2012 Coles' delisting of all cheese varieties sold under the Mainland brand had a detrimental effect on sales of Mainland cheese in the retail sector.[345] Post-2012, the plaintiffs allocated more resources to the promotion of Mainland cheese than Bega cheese in the FSS.[346] I infer that the plaintiffs saw an opportunity in the FSS to recoup sales lost in the retail sector as a result of the delisting of the Mainland brand in Coles. In seeking to increase sales of Mainland cheese in the FSS the plaintiffs were promoting their own commercial interests. In doing so, the plaintiffs did not breach clause 6.1.
290 The plaintiffs were licensed to market Bega natural and processed cheddar cheese and string cheese under the Bega Trade Mark, but could continue to market cheese products under their own brands. The obligation imposed on the plaintiffs by clause 6.1 is not an absolute/unconditional obligation. It is subject to the AMPs which expressly acknowledge the right of the plaintiffs to continue to market cheese products under their own brands. The absence of a reasonable endeavours clause does not mean that the plaintiffs, in promoting and developing sales of branded products are precluded from having regard to their own commercial interests in marketing and developing sales of products under the Mainland and Perfect Italiano brands. It would be commercially unrealistic to conclude otherwise.[347]
The plaintiffs' marketing obligations under clauses 6.1 and 6.3
291 Bega submits that the failure of clauses 6.1 and 6.3 to spell out 'at a granular level' what is required of the plaintiffs in terms of marketing activities is not surprising.[348] Bega submits that if clauses 6.1 and 6.3 had spelled out specific obligations such as the level of marketing expenditure required, such obligations could have become outdated and inapt, bearing in mind that the TMLAs have a term of 25 years and could be extended indefinitely.[349] It is difficult to reconcile this argument with Bega's contention that clauses 6.1 and 6.3 impose specific obligations upon the plaintiffs such as the requirement for mass media advertising[350] and NPD.[351] Bega's submissions acknowledge that specific and granular obligations could become outdated and inapt as the market changes.[352] The risk of change in market conditions over the course of a long term agreement such as the TMLAs supports a construction of clause 6.1 which confers discretion on the plaintiffs to conduct marketing activities in a manner responsive to changing market conditions, albeit underpinned by the minimum sales requirements and minimum royalty payment provisions of the TMLAs.[353]
292 The language in which the parties have expressed their agreement imposes an obligation upon the plaintiffs to engage in marketing activity broadly consistent with the AMPs, but does not otherwise prescribe the form and quantity of marketing activity the plaintiffs are required to engage in. A reasonable businessperson would have understood clause 6.1 and the AMPs to confer discretion upon the plaintiffs as to the form and quantity of marketing activity to be engaged in to encourage growth of sales of the Branded Products. This discretion includes the level of marketing activity in respect of particular Branded Products. However, the discretion conferred upon the plaintiffs does not permit them to engage in little or no marketing activity. A reasonable businessperson would have understood clause 6.1 as imposing an obligation upon the plaintiffs to engage in marketing activity which encourages growth of sales of Branded Products.
293 Clause 6.3 imposes an obligation upon the plaintiffs to conduct their business operations 'in accordance with appropriate business standards' and in a manner not to damage the value of the Trade Marks, such conduct extending to but not being limited to promotional, marketing and advertising policies and content. Clause 6.3 does not impose an obligation upon the plaintiffs to engage in any particular form of promotional, marketing and advertising activity. However, when such activity is engaged in it must be in accordance with appropriate business standards and not damage the value of the Trade Marks.
294 The commercial purpose of the TMLAs is to grant the plaintiffs a sole and exclusive licence of the Trade Marks in respect of Products (natural and processed cheddar cheese, string cheese and butter) on the terms and conditions set out in the TMLAs. Clause 6 is concerned with both the promotion and development of sales of Branded Products and the manner in which the plaintiffs conduct their marketing activities. Each of the four marketing principles in the AMPs is directed to protecting the value of the goodwill in the Trade Marks. So too are clauses 6.1(b) and 6.3. However, those purposes do not support a construction of clauses 6.1 and 6.3 which imposes the specific obligations for which Bega contends.
295 Although the plaintiffs are not subject to specific obligations to market particular Branded Products, or as to the type and quantity of marketing activity they are required to engage in, their obligation to promote and develop sales is subject to specific prescription. Clause 4.4 of the Fonterra TMLA provides that the plaintiffs must pay Bega, at a minimum, royalties equal to the Agreed Minimum Payment for each Annual Period. The formula for the calculation of the Agreed Minimum Payment is contained in Schedule 2 of the Fonterra TMLA:
(a) under this formula the plaintiffs are required to pay Bega a minimum annual royalty of 2.5 per cent on 15.7 per cent of the total sales made by Participating Retailers (supermarkets and retail chains which provide scan data, such as Coles and Woolworths) of cheese products in the Branded Cheese Category (which includes cheese sold by competitors such as Coon, Kraft and Devondale); and
(b) clause 16.1(d) of the Fonterra TMLA provides that Bega may terminate the TMLA if, for two consecutive Annual Periods, sales of Branded Products are less than the Minimum Market Performance Requirement. The formula for the calculations of the Minimum Market Performance Requirement is contained in Part 3 of Schedule 2. Under this formula the plaintiffs are required to achieve annual sales of Branded Products equating to at least 11.775 per cent of the total sales made by Participating Retailers of cheese products in the Branded Cheese Category.[354] Clauses 4.4 and 16.1(d) are not in the Bonland TMLA. However, the Agreed Minimum Payment under clause 4.4 of the Fonterra TMLA is calculated on the basis of the aggregate of the royalties under both TMLAs. Further, if the Fonterra TMLA is terminated pursuant to clause 16.1(d), pursuant to clause 16.3 of the Bonland TMLA, that agreement is automatically terminated.
296 Further, the plaintiffs have a financial interest in maintaining the value of the Trade Marks. Under clause 17.1, upon the expiration of the TMLAs or their termination, other than where terminated under clause 16.1, Bega is required to pay the plaintiffs a lump sum equal to the value of the plaintiffs' rights to the Trade Marks, calculated in accordance with Schedule 4.
297 Bega submits that an objective circumstance known to the parties when the TMLAs were executed was that the TMLAs would confer upon the plaintiffs the sole rights to market the Products under the Bega Trade Marks, the ownership of which would be retained by Bega. I accept this submission. However, the text of clauses 6.1, 6.3 and the AMPs in light of this objective circumstance does not require the plaintiffs to engage in 'mass media advertising of a sufficient level'[355] or to engage in NPD.[356]
298 Bega submits that the obligations to engage in mass media advertising and NPD were within the objective contemplation of the parties because '[t]he very purpose of the provisions was to ensure that Bega's long term brand equity and goodwill in the Trade Marks was preserved over the course of the agreement'.[357] I reject this submission.
299 Clause 6.1(b) requires the plaintiffs to ensure that when using any of the Trade Marks on or in relation to any Product the good name and image of the Trade Marks is maintained and not harmed. Under clause 6.3 the plaintiffs' promotional, marketing and advertising policies and content must not damage the value of the Trade Marks. The commercial purpose of these provisions is directed to preserving the value of the goodwill in the Trade Marks. The same commercial purpose is implicit in the AMPs. However, it does not follow that because activities such as ATL and NPD could have a beneficial effect on the goodwill in the Trade Marks that the plaintiffs were required to undertake those activities. A reasonable businessperson in the plaintiffs' position would have understood that clauses 6.1, 6.3 and the AMPs proscribe the plaintiffs' contractual obligation to preserve the value of the goodwill in the Trade Marks. A reasonable businessperson would also have understood these provisions as conferring discretion upon the plaintiffs as to which Branded Products would be the subject of marketing activity and the type and quantity of marketing activity to be engaged in to promote and develop sales.
300 Although Bega is precluded by clause 3.2 from using its Trade Marks on Products, it is free to promote the goodwill in the Bega brand by marketing cheese varieties other than natural and processed cheddar and string cheese (and other products such as peanut butter) using its Trade Marks. The Products licensed to the plaintiffs under the TMLAs represented the core of Bega's business in May 2001. Nevertheless, given the 25 year term of the TMLAs and the potential for the term to be extended, the potential for Bega to develop and market other cheese varieties such as parmesan, mozzarella and ricotta under the Bega brand, was an objective circumstance known to the parties. As such, there was significant scope when the TMLAs were executed for Bega to engage in its own marketing and promotional activities to promote the value of the goodwill in the Trade Marks. The maintenance of the value of the goodwill in the Trade Marks was not solely contingent upon the marketing and promotional activities engaged in by the plaintiffs in respect of the Branded Products.
301 Establishing the objective common intention of Bega and the plaintiffs requires consideration of the text of the TMLAs, the surrounding circumstances known to the parties and the purpose and object of the transaction. As the High Court observed in Toll, references to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would have understood the language in which the parties have expressed their agreement.[358] In Retirement Services Australia (RSA) Pty Ltd v 3143 Victoria Street Doncaster Pty Ltd ('RSA')[359] the Court of Appeal stated:
[o]f all of the objective facts available to a judge whose task it is to construe a written agreement, the writing itself stands out as a quintessentially objective means of discovering what the intention of the contracting parties were.[360]
302 In Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd[361] Kiefel, Bell and Gordon JJ adopted the following approach to the construction of a term of a lease by reference to commercial purpose:
It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it.
Clause 4 is to be construed by reference to the commercial purpose sought to be achieved by the terms of the lease. It follows, as was pointed out in the joint judgment in Electricity Generation Corporation v Woodside Energy Ltd, that the court is entitled to approach the task of construction of the clause on the basis that the parties intended to produce a commercial result, one which makes commercial sense. It goes without saying that this requires the construction placed upon cl 4 be consistent with the commercial object of the agreement.[362]
303 Bega submits that based on the commercial purpose of the TMLAs of protecting Bega's long term brand equity and goodwill, the plaintiffs were required by clauses 6.1 and 6.3 to engage in a range of marketing activities, none of which are specified in the TMLAs. When construing the terms of a contract by reference to commercial purpose there is a risk of imposing a contractual obligation which is consistent with the contract's commercial purpose, but extends beyond what is required by the language of the contract.[363] This is illustrated by the Court of Appeal's judgment in RSA which involved a dispute over the management of a retirement village. Clause 7 of the joint venture agreement which regulated the operation of retirement village relevantly provided:
'[s]ubject to and in accordance with such instructions as the Manager may receive from time to time from [the respondent] for the duration of the Project, the Manager will conduct, manage and administer the operation of the Retirement Village as a first class retirement village and will provide all services to Residents which the Manager agrees to provide under the Service Agreements, and without limitation, will:
(a) provide the Management Services at and from the Premises to a high standard in accordance with this agreement'.[364]
304 The respondent (Darnley) alleged that RSA had breached this obligation by:
(a) failing to provide the services of a qualified the nurse at the village, during at least weekly business hours, at no additional costs to residents; and
(b) failing to make available, promote the use of, and let out as respite units, some 12 single bedroom units.[365]
305 In the judgment at first instance, Pagone J concluded:
'[w]hat the parties expressed was a broad obligation which they intended would be given detailed content in the context of their undertaking. In this case the context was a retirement village for people to live in a community and who might from time to time require assistance. The commercial purpose of Darnley and RSA was to create such a facility which would attract people seeking to retire in the comfortable surroundings of a community. In the context of this agreement that included the presence of a person with nursing qualifications and the active marketing of the respite units: both are but instances of the obligations expressly found in clause 7(a) to conduct, manage and administer the operation of the retirement village as "a first class retirement village" and to provide services at and from the premises "to a high standard"'.[366]
306 The Court of Appeal did not dispute Pagone J's finding regarding the commercial purpose of the contract. Nevertheless, the Court of Appeal allowed the appeal, finding that on its proper construction clause 7(a) did not require RSA to provide the services of a qualified nurse nor to let out respite units. Pagone J had erroneously considered evidence '"of statements and actions of the parties which are reflective of their actual intentions and expectations"', contrary to the requirement laid down in Codelfa.[367] The Court of Appeal stated:
where the dispute concerns the meaning of a contract which has been reduced to writing (especially a contract which, like the management agreement here, contains an 'entire agreement' clause), the principal point of initial focus must be the directly relevant written words in the context of the documentary whole. In this initial phase, evidence about objective background facts should be in the foreground, but not centre stage. Evidence of statements and actions of the parties which are reflective of their actual intentions and expectations should be out of sight.[368]
307 RSA illustrates the risk of a commercial purpose being described in terms which includes obligations which are not required by the contract. The presence of a person with nursing qualifications and marketing of respite units were consistent with the commercial purpose identified by Pagone J (to create a facility which would attract people seeking to retire in the comfortable surroundings of a community). However, there was no contractual obligation requiring either the presence of a person with nursing qualifications or the marketing of respite units.
308 Clause 6.1 is to be construed by reference to the commercial purpose sought to be achieved by the terms of the TMLAs. One of the commercial purposes sought to be achieved is the maintenance of the value of the goodwill in the Trade Marks. That purpose is explicit in clause 6.1(b) and clause 6.3 and is implicit in the AMPs. Clause 6.1 requires the plaintiffs to promote and develop sales of Branded Products in a manner consistent with the AMPs. The plaintiffs are not required to engage in any particular form of marketing activity. However, the marketing activity which the plaintiffs do engage in must be broadly consistent with the marketing principles and must not damage the value of the Trade Marks. The discretion conferred on the plaintiffs as to the nature and quantity of the marketing activity is subject to clause 4, Parts 2 and 3 of Schedule 2 and clause 16.1(d) of the Fonterra Agreement. This construction of clause 6.1 is consistent with the commercial purpose of the agreement and produces a commercial result which makes commercial sense.
309 Bega may have hoped or expected that the plaintiffs would engage in mass media advertising to maintain the value of the goodwill in the Trade Marks. However, the plaintiffs were not required by clause 6.1 to do so. The fact that the four principles in the AMPs are apt to be communicated via ATL advertising does not mandate a conclusion that the plaintiffs were required to engage in ATL advertising. Bega concedes that each of the marketing principles can be communicated by other means such as the packaging in which Bega cheese is sold to consumers.[369] The packaging for a 1 kg block of Bega Farmer's Tasty cheddar cheese communicates the marketing principles. The Bega stylised logo includes 'since 1899'. The packaging states that the cheese is Australian made. The packaging includes images of a dairy farmer.[370] The packaging on Bega Strong & Bitey Vintage cheddar cheese displays a gold medal logo from the Sydney Royal Easter Show.[371] Thus, the product is marketed as a high quality cheese product, consistent with the 'premium product' marketing principle. Advertising and promotional activities undertaken by retailers such as Coles and Woolworths which are funded by the plaintiffs (which is a form of BTL marketing) are also capable of addressing each of the marketing principles.
310 The absence of any obligation under clause 6.1 for the plaintiffs to engage in a particular form of marketing activity such as ATL mass media advertising does not render clause 6.1 uncertain or illusory. In Thorby v Goldberg[372] Menzies J stated:
It is an objection to a contract if one party is left to choose whether he will perform it but it is an entirely different matter if there is an obligation to do a specified thing of a general description but it is left to the party who is to perform it to choose the particular thing that he will do in performance of it.[373]
This reasoning applies to the plaintiffs' obligation to promote and develop sales of Branded Products consistently with the AMPs.
311 The Court is required to give consideration to surrounding circumstances known to the parties. Bega submits, correctly, that '[s]urrounding circumstances are, by definition, objective facts which will usually be uncontroversial and not the subject of much (if any) evidence'.[374] Bega submits that its construction of clauses 6.1 and 6.3 is supported by the expert evidence led in the proceedings. In support of its submission that the commercial purpose of the TMLAs was to ensure Bega's long term brand equity and goodwill in the Trade Marks was preserved over the course of the agreement Bega submits:
indeed the expert evidence was to the effect that too heavy a focus on increasing sales in the short term will damage brand equity where that relies on sales techniques such as heavy discounting.[375]
312 In support of its submission that clause 6.1 requires the plaintiffs to promote and develop sales in a manner which protects Bega's long term brand equity and goodwill, Bega submits:
It is not necessary, in this case, to traverse the slight differences in usage of terminology by Dr Honeywill and Professor O'Sullivan. On either expert's approach, the value of the goodwill in the Trade Marks was directly connected with the equity in the Bega brand. As Professor O'Sullivan puts it, 'brand equity' 'normally refers to the economic value of a brand'.[376]
313 In support of its submission that the plaintiffs were required to promote and develop sales in a manner which would protect Bega's goodwill and brand equity, Bega submits:
Further, as noted at BCCS [743] - [744], Fonterra was required to engage in positive forms of marketing to 'promote and develop sales' of the Branded Products in a manner which would protect Bega's goodwill and brand equity in the Bega brand. The commercial purpose of these particular provisions was to protect Bega's goodwill and brand equity in the Bega brand. That was in circumstances where whilst Fonterra was given exclusive responsibility for all marketing and promotion of the Bega Branded Products, but Bega was to continue to own the Trade Marks and their associated goodwill, and therefore had an interest in protecting and enhancing the long term brand equity of the Bega brand.
In order to maintain brand equity, the expert evidence demonstrated that it is necessary to:
(a) foster the emotional connections consumers have toward a brand and its history or story. In order to achieve this, it is necessary that a brand engage in an appropriate level of ATL advertising (along with other means of promotions). Accordingly, compliance with Fonterra's express obligations required ATL activity. That was, over the Relevant Period as a whole, simply not done.
(b) ensure that the Bega cheese was promoted as a premium product. One form of promotion which Bega identifies as completely inconsistent with this principle is excessive and sustained price discounting;
(c) innovate, and in particular to engage in new product development, which the expert evidence demonstrated is vital in the grocery category, including in the cheese segment. For example, Professor O'Sullivan. [sic] gave evidence that category-leading brands are expected to show leadership in the category through innovation, and Mr Simonovski's evidence was that 'innovation is definitely an important fact for all brands'.[377]
314 Bega relies upon expert evidence in respect of brand equity in support of its submission that clauses 6.1 and 6.3 require the plaintiffs to undertake an appropriate level of ATL and engage in NPD. I do not accept that the expert evidence referred to by Bega constitutes uncontroversial objective facts known to the parties when the TMLAs were executed. As such, this evidence is not admissible as an aid to construction of the TMLAs.
315 There was significant disagreement between the plaintiffs' expert, Professor O'Sullivan and Bega's expert, Dr Honeywill, as to:
(i) the meaning of the terms 'brand equity'/'brand value'; and
(ii) whether it is necessary for the plaintiffs to engage in ATL advertising in order to maintain brand equity in the Bega brand.
316 As to the first issue, Professor O'Sullivan stated that Dr Honeywill uses the terms 'brand value' and 'brand equity' in a way that is foreign to 'marketing scholarship and practice',[378] 'does not make sense',[379] 'runs counter' to 'commonly held understandings' in marketing scholarship and practice[380] and renders those terms 'largely meaningless from a commercial perspective'.[381]
317 Further, Professor O'Sullivan challenged Bega's proposition that the plaintiffs were required to engage in mass media advertising in order to protect Bega's brand equity. Professor O'Sullivan gave evidence that '[a]dvertising is not the only - or, necessarily, the most efficient - means by which a firm can build or maintain mental availability' and that 'it is possible to maintain mental availability through physical availability (ie, ensuring that the brand is widely available and prominently positioned in stores) by focusing on BTL promotion and trade spend'.[382] Further, Professor O'Sullivan gave evidence that:
318 For the purpose of considering the admissibility of the expert evidence as an aid to the construction of clauses 6.1 and 6.3, it is not necessary to record a finding regarding Professor O'Sullivan's criticism of Dr Honeywill's approach to the meaning of 'brand equity'/'brand value'. Nor is it necessary to make a finding as to whether I accept Professor O'Sullivan's evidence that ATL advertising is not required to maintain brand equity. Were it necessary to do so, for reasons discussed later in this judgement, I prefer the evidence of Professor O'Sullivan to that of Dr Honeywill wherever their evidence conflicts. There is controversy as to the meaning of 'brand equity'/'brand value' and whether mass media ATL advertising is required to maintain the value of brand equity. As such, I do not accept Bega's reliance on the expert evidence as an aid to the construction of clauses 6.1 and 6.3. The meaning of brand equity and the question of whether mass media ATL advertising campaigns were required to maintain brand equity were not uncontroversial objective matters when the TMLAs were signed in May 2001.
319 Clause 6.1 imposes a mandatory obligation upon the plaintiffs to engage in marketing activity to promote and develop sales of the Branded Products in the Territory. However, neither clause 6.1 nor the AMPs, impose any specific obligation upon the plaintiffs as to the mode of marketing activity which the plaintiffs are required to conduct in order to promote and develop sales of the branded products. There is no contractual requirement for the plaintiffs' marketing activity to include ATL mass media advertising, such as television advertising campaigns. It is a matter within the plaintiffs' discretion as to how it discharges the obligation to promote and develop sales of the Branded Products. Each of the matters listed in [40(a)-(g)] of the Counterclaim involves an activity which could have been engaged in by the plaintiffs in discharging its obligations to promote and develop sales of the Branded Products. However, a failure by the plaintiffs to engage in any or all of those activities does not of itself constitute a breach of clause 6.1.
320 Bega submits that the plaintiffs have breached clause 6.1(a) by reason of their failure to have undertaken any, or alternatively, any adequate promotion of Branded Products in the FSS. Bega submits that clause 6.1 imposes a discrete obligation on the plaintiffs to promote and develop sales of Branded Products in the FSS. Under this construction of clause 6.1 the plaintiffs can be liable for a breach of clause 6.1 for failing to promote and develop sales of Branded Products in the FSS, irrespective of how successfully they have promoted and developed sales of Branded Products in the retail sector. The plaintiffs submit that they are not subject to any discrete contractual obligation to promote and develop sales of Branded Products in the FSS. They submit that clause 6.1 imposes a 'single, indivisible obligation to promote and develop sales in the Territory'.[386]
321 Bega submits that the plaintiffs should not be permitted to advance this submission. Bega submits that prior to filing their written submissions the plaintiffs did not deny that they were subject to a contractual obligation to promote and develop sales of Branded Products in FSS. Bega submits that it will suffer prejudice if the plaintiffs are permitted to advance an argument not previously disclosed by way of pleadings or submission. Bega submits that had it been put on notice that the plaintiffs' contention that they were not subject to a discrete obligation to promote and develop sales in FSS it could have 'investigated the availability of evidence of the commercial context concerning the Foodservice industry and Foodservice sales, including of the Branded Products, prior to the parties' entry into the TMLA'.[387]
322 Bega's claim that the plaintiffs failed to promote and develop sales of Branded Products in FSS is pleaded at [54] to [57] and [63] of its Counterclaim.
(a) could have, but did not, promote or sell Bega branded butter in the Food Services segment; and
(b) promoted and sold Western Star branded butter in the Food Services segment.
(a) failed to undertake any, further or alternatively any adequate, promotion of Branded Products in the Food Services segment; and ...
323 In paragraph [63] of its Counterclaim Bega alleges that the failure to develop sales in the FSS as alleged in paragraphs [54] to [57] is a breach of clauses 6.1 and/or 6.3 of the TMLAs and/or the NUPT.
324 In paragraphs [54] to [57] Bega does not identify the source of any contractual obligation requiring the plaintiffs to promote Branded Products in the FSS. Bega does not do so until the particulars to paragraph [63] which pleads that the failure to develop sales in the FSS is a breach of clauses 6.1, 6.3 and the NUPT.
325 In their Defence to the Counterclaim the plaintiffs deny the allegations in paragraph [56(a)] 'and say further that, in the period since about 2013, they have promoted Branded Products in the [FSS]'.[388] In paragraph [63(a)] the plaintiffs deny the allegation in paragraph [63] of the Counterclaim. In paragraph [63(c)] the plaintiffs pleaded 'further' that they have effectively promoted and developed sales of Branded Products in the Territory. The particulars of this pleading include at (viii), '[t]he marketing activity in the [FSS] referred to in the particulars to paragraph [56(a)] above'.
326 I do not accept Bega's submission that the plaintiffs have departed from their Defence to the Counterclaim by submitting that clause 6.1 does not impose an obligation to promote and develop sales of Branded Products in the FSS. Bega was put on notice by paragraph [63(a)] of the plaintiffs' defence that the plaintiffs dispute Bega's construction of clause 6.1 insofar as it relates to the FSS. It is correct that the plaintiffs advanced a positive defence by leading evidence of marketing activities undertaken in the FSS. However, this is consistent with paragraph [63(c)] of the plaintiffs' defence.
327 Further, during Dr Button's opening submission regarding the plaintiffs' promotion of Mainland cheese in the FSS being a breach of clause 6.1(a) of the TMLAs the following exchange took place:
HIS HONOUR: Well, this is your undue preference point, isn't it, because it's a matter of just the company running its day to day business, in the ordinary course of events, and saying it's perfectly reasonable if it was a choice between Mainland and Bega, perfectly reasonable for Fonterra to have taken the approach, 'Well, in this sector of the market, we will more actively promote Mainland and, you know, any increase in sales of the Bega product would be at the expense of Mainland, so we'll push Mainland, a perfectly reasonable thing to do.'
So, there's this sort of extraction, but isn't it contingent on your undue preference point getting off the runway?
DR BUTTON: Your Honour, with respect, no. We would say that the declining profile, in light of the evidence I will take Your Honour to about the promotional activities that can be undertaken and we say were not really undertaken with any real vigour in respect of the Bega brand, also breaches clause 6.1(a) in particular.
HIS HONOUR: But that doesn't operate by reference to particular market sectors, it's a global provision.
DR BUTTON: Indeed. Yes, I entirely agree with Your Honour that it is a global provision, but it extends also to the food services sector and, in a growing sector, there's a declining profile and an absence of marketing effort to promote and develop sales of the Bega branded products in the food services sector.
It also, we say, breaches this implied term, but we say, to be no doubt about our case, we do also say it breaches the express obligation to promote and develop sales and royalties are paid on both food services and retail.[389]
328 It is clear from the exchange set out above that Bega was on notice that the Court considered that there was an issue as to whether clause 6.1 imposes discrete obligations to promote and develop sales in a particular market segment.
329 Bega bears the onus of establishing that clause 6.1 imposes a discrete obligation upon the plaintiffs to promote and develop sales of Branded Products in the FSS. Bega was put on notice by the plaintiffs' reply and the exchange between the Court and Dr Button during opening submissions that the construction for which Bega contends was in issue.
330 The construction of clause 6.1 is central to the Court's findings in respect of Bega's counterclaim. The Court's hands cannot be tied by the manner in which the parties have conducted their respective cases. A contract can only have one correct meaning and subject to the requirements of procedural fairness the Court is entitled to reach its own conclusion as to the true construction of clause 6.1.[390]
331 Bega submits that considerations of procedural fairness preclude the plaintiffs from contending that clause 6.1 does not impose a discrete obligation in the FSS to promote and develop sales of Branded Products. Bega submits that it has suffered prejudice by being denied the opportunity to investigate the availability of evidence of the commercial contexts concerning the foodservices industry and foodservices sales, including of the Branded Products, prior to the parties' entry into the TMLAs. I do not accept that considerations of procedural fairness preclude the plaintiffs from advancing their construction argument. Bega was placed on notice by the plaintiffs' reply that the plaintiffs denied they were required to promote and develop sales of Branded Products in FSS. Bega had the opportunity in its written submission to address the plaintiffs' construction arguments, and has done so.
The plaintiffs are not subject to any contractual obligation to promote and develop sales of Branded Products in the FSS
332 Clause 6.1 requires the plaintiffs to promote and develop sales of the Branded Products in the Territory. Under the Bonland TMLA the Territory is defined as NSW and ACT. Under the Fonterra TMLA the Territory is defined as Australia except for NSW/ACT.
Bega acknowledges and agrees that under the Product Supply Agreement, it has appointed the Licensee as its exclusive distributor in the Territory of all Product manufactured by it for sale to Foodservice Customers, or which will bear a Retailer's Mark or which is intended to be resold by a retailer without a trade mark subject to certain exceptions set out in that agreement.[391]
'Foodservice Customer' means any person in the Territory that desires to purchase Foodservice Products and use the products for any of the purposes referred to in the definition of 'Foodservice Products' ...[392]
'Foodservice Products' means dairy based and other products used in the preparation, creation or assembly in the Territory of either meals in kitchens outside the home or products in retail bakery outlets including, for the avoidance of doubt, dairy based and other products used by quick service restaurants ...[393]
336 The definition of Foodservice Products is not limited to Branded Products. Rather, it extends to products manufactured by Bega for supply by the plaintiffs in FSS which do not bear the Bega Trade Mark. In this regard, the plaintiffs supply 7,000 metric tonnes of processed cheddar cheese per annum to the McDonalds restaurant chain which is manufactured by Bega but not branded as a Bega product.[394]
337 When the TMLAs were executed in May 2001 there were 133 Branded Products for sale in the Territory. The Branded Products were listed in Schedule 1 of the Product Supply Agreement signed on 8 May 2001.[395] A total of 154 Branded Products are listed in the Schedule. However, 21 of these products are designated as being for export, leaving a balance of 133 products for sale in the Territory. Twelve of these products were packaged in bulk: Chef's Choice Catering Slices 8 x 1.5 kg; Chef's Choice Cubes 8 x 1.0 kg; Chef's Choice Cubes 4 x 2.0 kg; S3 Bega Super Light 5 x 2.2 kg; V12 Bega Vintage 5 x 2.2 kg; T6 Bega Tasty 5 x 2.2 kg; M2 Chef's Choice 5 x 2.2 kg; Bega NCC Vintage 5 x 2.2 kg; Bega NCC Tasty 5 x 2.2 kg; Bega NCC Mild 5 x 2.2 kg; X2 Vanti Veggie Cheddar 4 x 5.00 kg; Chef's Choice Shred 4 x 2.0 kg. During the trial no party led direct evidence identifying the number of Branded Products for sale in the FSS when the TMLAs were signed. After the completion of the trial I asked the parties to endeavour to reach agreement in relation to this matter but they were unable to do so. In the absence of agreement I infer that there were 12 Branded Products for sale in the FSS when the TMLAs were signed.
338 Under clause 4.2 of the TMLAs the formula for calculating royalties includes 'the aggregate Gross Sale Value of Branded Products sold or supplied in the Territory by the Licensee to Customers during that Month'. Thus, the Gross Sale Value of Branded Products sold in both the retail sector and FSS is counted for the purpose of calculating royalties. However, if the quantum of royalties so calculated falls below the Agreed Minimum Payment, the plaintiffs are required to pay Bega the difference. The formula for calculating the Agreed Minimum Payment is based on 'the total sales (expressed in AUD$) by Participating Retailers of cheese products in the Branded Cheese Category during the relevant Annual Period as shown in the Market Measurement Report'.[396]
339 'Participating Retailer' means: 'a supermarket and/or other retail chain that from time to time provides scan data (or in certain circumstances, warehouse withdrawal statistics) to ACNielsen (or other organisations referred to in clause 3A.3) in respect of its retail sales for inclusion in the ScanTrack Database (or other report referred to in clause 3A.3)'.[397]
cheese products bearing a trade mark and sold by Participating Retailers in Australia excluding:
(a) random weight cheese products;
(b) cheese products which bear a Retailer's Mark or which are sold by a retailer without a trade mark (and which, for the avoidance of doubt, are referred to in the ACNeilsen ScanTrack Database as private label and generic cheese products); and
(c) cheese products not derived from cow's milk (for example, goat's cheese) ...[398]
341 The Agreed Minimum Payment is based solely on sales in the Branded Cheese Category in the retail sector. Under clause 16.1(d) of the Fonterra TMLA, subject to limited exceptions, Bega has the right to terminate the TMLAs if the Gross Sale Value of sales of Branded Products in two consecutive years is less than the Minimum Market Performance Requirement ('MMPR'). The MMPR is based on 'the total sales (expressed in AUD$) by Participating Retailers of cheese products in the Branded Cheese Category during the relevant Annual Period as shown in the Market Measurement Reports'.[399] The MMPR is 11.775 per cent of the total sales in the Branded Cheese Category by Participating Retailers.[400] Sales of Branded Products in the FSS are not relevant for determining whether the plaintiffs meet the MMPR. The potential for the TMLAs to be terminated if the MMPR is not met is a significant incentive for the plaintiffs to promote sales of Branded Products in the retail sector.
342 The plaintiffs submit that clause 6.1 does not impose any obligation to promote and develop sales of Branded Product in the FSS. Bega submits that clause 6.1 imposes a discrete obligation to promote and develop sales of Branded Products in each of the retail sector and FSS. On Bega's construction of clause 6.1, irrespective of how successfully the plaintiffs promote and develop sales of Branded Products in the retail sector, they will breach clause 6.1 if they do not promote and develop sales of Branded Products in the FSS.
343 The obligation under clause 6.1 is to promote and develop sales of the Branded Products in the Territory. I accept the plaintiffs' submission that this is a single indivisible obligation and that compliance with the obligation is not determined by the promotion and development of Branded Products in discrete market segments. Whether the obligation under clause 6.1 has been breached is not determined by reference to the plaintiffs' promotion and development of Branded Products in one or other of the retail sector or the FSS. Rather, to determine whether the plaintiffs have complied with the obligation under clause 6.1 it is necessary to address whether the plaintiffs promoted and developed sales of the Branded Products:
(a) in all Australian states except NSW/ACT (Fonterra TMLA);
(b) NSW/ACT (Bonland TMLA)?
344 Clause 6.1 is to be construed in a way which is consistent with the commercial purpose of the TMLAs and produces a commercial result which makes commercial sense. A commercial purpose of the TMLAs is to require the plaintiffs to achieve minimum sales of Branded Product equivalent to 11.775 per cent of the total sales by Participating Retailers in the Branded Cheese Category. Failure to comply with this requirement exposes the plaintiffs to the risk of termination of the TMLAs. A further commercial purpose of the TMLAs is to deliver to Bega a guaranteed minimum royalty payment of no less than 2.5 per cent of 15.7 per cent of the sales in the Branded Cheese Category in the retail sector.
345 The TMLAs are highly prescriptive in laying down the minimum royalty payment and MMPR. Save for the AMPs and the requirement under clauses 6.1(b) and 6.3 not to use the Trade Marks on or in relation to Products or engage in marketing activities which damage the value of the goodwill in the Trade Marks, the TMLAs do not prescribe how the plaintiffs are to generate the sales of Branded Products necessary to meet the Agreed Minimum Payment and the MMPR. Further, the AMPs expressly preserve the right of the plaintiffs to continue to market products under their own brands including Mainland cheddar cheese, which competes directly with Bega cheddar cheese.
346 Bega submits that a 'key commercial principle' underpinning the relationship between the plaintiffs and Bega when the TMLAs were executed was that Bega would concentrate on manufacturing and Fonterra would assume responsibility for all marketing activity in relation to the Branded Products in Australia.[401] I accept this submission. The promotion and development of sales of Branded Products is left in the plaintiffs' hands.[402] Save for the AMPs, clauses 6.1(b) and 6.3, the TMLAs afford significant discretion to the plaintiffs as to how they promote sales of the Branded Products.
347 A construction of clause 6.1 which confers discretion upon the plaintiffs as to how they achieve sufficient volume of sales to satisfy the MMPR and the Agreed Minimum Payments produces a result which makes commercial sense. This discretion permits the plaintiffs to determine how to deploy funds available for advertising and promotion (both ATL and BTL) of Branded Products to maximise the potential for meeting the Agreed Minimum Payment (and avoiding having to make a top up royalty payment) and meeting the MMPR (and avoiding the risk of termination of the TMLAs). On the other hand, under Bega's construction of clause 6.1, if the plaintiffs achieve excellent sales in the retail sector far surpassing the MMPR and agreed minimum payment, they could nevertheless breach clause 6.1 by reason of a failure to promote and develop sales in FSS.
348 When the TMLAs were signed there were 133 Branded Products for sale in the Territory including 12 specifically for sale in the FSS. Clause 6.1 requires the plaintiffs to promote and develop and sales of 'the Branded Products'. However, a reasonable businessperson in the position of the parties would not have considered that clause 6.1 requires each of the 133 Branded Products to be the subject of separate marketing. Advertising and promotion (particularly ATL advertising) can promote the Bega brand rather than individual products sold under the brand. The 'Real Town, Real Cheese' television advertisements which screened in the first half of 2015 (which cost the plaintiffs between $1.4 and $2.3 million)[403] (featuring Ron Apps, a dairy farmer from the Bega Valley for 50 years who considers himself a 'blow in') highlighted Bega's Australian heritage dating back over 100 years and its strong connection with farms which enjoy lush green pastures. Although the advertisement concludes with Ron Apps holding a block of Strong & Bitey cheddar cheese, the advertising campaign promoted sales of all products sold under the Bega brand.
349 A reasonable businessperson would have understood clause 6.1 as conferring discretion upon the plaintiffs as to the extent to which they promote and develop sales of the Branded Products, including the extent to which the plaintiffs encouraged sales of the Branded Products by promoting the Bega brand rather than individual products. The plaintiffs do not have a discretion to refrain from engaging in marketing activity in the Territory. However, they do have discretion as to the nature and quantity of the marketing activity they undertake, including which Branded Products they choose to promote in the Territory. Clause 6.1 does not require the plaintiffs to promote and develop sales of branded products in the FSS.
350 If I am wrong in reaching this conclusion and clause 6.1(a) requires the promotion and development of Branded Products in both the retail sector and the FSS, whether the obligation to do so has been breached requires the plaintiffs' promotion and development of sales of Branded Products to be assessed as a whole, across both sectors. I reject Bega's submission, the effect of which is that irrespective of how successfully the plaintiffs have promoted and developed sales of Branded Products in the retail sector they can be held liable for a breach of clause 6.1 if they have failed to have promoted and developed sales of Branded Products in the FSS.
351 As set out later in this judgment,[404] there is no basis for concluding that the plaintiffs have not engaged in promotion and development of Branded Products in the FSS. The plaintiffs' promotion and development of sales of Branded Product in the FSS, in conjunction with their promotion and development of Branded Product in the retail sector, supports a finding that the plaintiffs have discharged the obligation under clause 6.1 to promote and develop sales of Branded Products in the Territory.
352 Bega alleges that the plaintiffs have breached two implied terms of the TMLAs. First, a no hindrance of purpose term. Second, a no undue preference term.
353 Bega has alleged[405] and the plaintiffs admits[406] that the TMLAs contain an implied term that the plaintiffs would not hinder or prevent the fulfilment of the purpose of the express promises made in clauses 6.1 and 6.3 ('No Hindrance of Purpose Term'). The particulars of the pleaded term plead that the purpose of the express promise made by the plaintiffs in clauses 6.1 and 6.3 includes the maintenance of the value and goodwill of the Trade Marks throughout the term of the agreement.
354 The no hindrance of purpose term is a negative covenant which prohibits the plaintiffs from endeavouring to impede or defeat the fulfilment of the purpose of the express promises made in clauses 6.1 and 6.3.[407] As such, the plaintiffs are subject to a negative covenant not to hinder the purpose of their express promise under:
(a) clause 6.1(a): to promote and develop sales of branded products consistent with the AMPs; and
(b) clause 6.1(b): when using any of the Trade Marks on or in relation to any Product, ensure that the good name and image of those Trade Marks is maintained and not harmed; and
(c) clause 6.3: to conduct its business operations in accordance with appropriate business standards and in a manner not to damage the value of the Trade Marks.
355 Bega contends that the TMLAs contain an implied term that the plaintiffs 'would not give undue preference to the promotion and development of brands it owns in comparison to the promotion and development of Bega branded products (the No Undue Preference Term)'.[408] Bega contends that the NUPT is to be implied to give business efficacy to the TMLAs.[409]
356 In order for the NUPT to be implied into the TMLAs the Court must be satisfied of each of the following matters:
357 Bega advances the following submission regarding the meaning of 'undue preference' in the NUPT:
The meaning of 'undue preference' in this context is closely tied to the commercial objectives which the term seeks to achieve. Taking Mainland as the example, 'undue preference' means differential treatment which either advantages the Mainland Brand at the expense of the Bega brand (in the sense that the differential treatment risks damage to the goodwill or long term brand equity of the Bega brand), or a lack of resources for advertising and promotion or NPD, which would otherwise have been available for allocation to the Bega brand for the purpose of generating sales and protecting brand equity and goodwill.[411]
Bega's attempt to explain what it means by 'undue preference' lays bare its lack of clarity and the impossibility of Fonterra being able to predict when it is complying with it and when it is breaching it. According to Bega, the touchtone [sic] for 'preference' is 'differential treatment' and a 'differential treatment' becomes 'undue' when it:
(a) 'advantages [a Fonterra owned brand] at the expense of the Bega brand (in the sense that [it] risks damage to the goodwill or long term brand equity of the Bega brand); or
(b) [scil, involves] a lack of resources for advertising and promotion or NPD, which would otherwise have been available for allocation to the Bega brand for the purpose of generating sales and protecting brand equity and goodwill.'
On that explanation, Fonterra could never advertise or promote Mainland cheddar, without being at risk of breaching the proposed implied term. On one view, any advertising or promotion of Mainland cheddar cheese, if successful, 'risks damage to goodwill or long term brand equity of the Bega Brand'. Mainland is a branded cheese which consumers may buy in preference to Bega. Further, by definition, any investment in any brand other than Bega means that there will be 'a lack of resources for advertising and promotion or NPD, which would otherwise have been available for allocation to the Bega brand for the purpose of generating sales and protecting brand equity and goodwill.' Thus, even if Fonterra undertook exactly the same promotion for each of its brands (that promotion would necessarily be generic rather than tailored to the needs of each brand), it would not be possible for Fonterra to comply with the No Undue Preference Term. As such, the so-called 'No Undue Preference Term' is effectively a prohibition on Fonterra promoting any brand other than Bega.[412]
359 I accept the plaintiffs' submission set out above. The plaintiffs are permitted to market and promote Mainland cheddar cheese products and to do so in a manner which promotes the plaintiffs' commercial interests. Where such promotion is successful there is a risk that any growth in Mainland's market share will be at the expense of Bega cheddar cheese. In turn, this may damage the goodwill or long term brand equity of the Bega brand. Further, it would be difficult for the plaintiffs to know in advance whether marketing activities directed at promoting sales of Mainland cheddar would result in reduced sales of Bega cheese. There are cheddar cheese brands other than Mainland and Bega. Advertising and promotion of Mainland cheddar could increase its market share at the expense of brands other than Bega.
360 The fact that the plaintiffs market Mainland cheddar cheese in direct competition with Bega was an objective fact known to the plaintiffs and Bega when the TMLAs were executed in May 2001. The existence of this competition and the plaintiffs' right to continue marketing cheese under its own brands is acknowledged in clause 1 of the AMPs. The formulation of an implied term premised on 'undue preference' begs the question: at what point does 'legitimate preference' become 'undue' and therefore illegitimate? If the NUPT was implied the plaintiffs would be left in a state of speculation as to the extent of their obligations. A putative term that has such an effect should not be implied.[413]
361 Bega relies upon the following passage from the judgment of Bridge LJ in Shell UK Ltd v Lostock Garage Ltd ('Lostock Garage'):[414]
It is said that lack of precision in the criterion to be embodied in the implied term is fatal to any implication. But it is no novelty in the common law to find that a criterion on which some important question of liability is to depend can only be defined in imprecise terms which leave a difficult question for decision as to how the criterion applies to the facts of a particular case. A clear and distinct line of demarcation may be impossible to draw in abstract terms; yet the court does not shrink from the task of deciding on the facts of any case before it on which side of the line the case falls. This kind of pragmatism is so deeply entrenched in the common law's approach to a multitude of legal problems that I decline to accept that the difficulty of defining with precision what term is to be implied in this case is an insuperable obstacle to the implication of any term limiting the plaintiffs' freedom to discriminate. I am content, in my approach to the further question arising, to take as the test of the degree of discrimination prohibited by the implied term whether it is such as to render the defendants' commercial operation of their petrol sales business impracticable.[415]
362 Bridge LJ dissented on the question of whether a petrol supply agreement contained an implied term that Shell as the supplier, should not abnormally discriminate against the buyer and/or should not abnormally discriminate against the buyer and/or should supply petrol to the buyer on terms which did not abnormally discriminate against him.[416] Lord Denning MR and Ormrod LJ held that this term was not necessary and could not be formulated with sufficient precision.[417]
363 Immediately before the passage from the judgment of Bridge LJ set out above, his Honour stated:
The extreme difficulty which this case presents is that of defining appropriately the degree of discrimination which any implied term is to preclude. If one were to say that the plaintiffs must not discriminate abnormally, unfairly or unreasonably, none of those criteria indicate where the line is to be drawn with any precision. If any term is to be implied, it may be appropriate to define it by reference to the necessary effect of the discrimination on the defendants. If the effect of the discrimination is, so long as it continues, such as to render it commercially impracticable for the defendants to continue to trade on the express contractual terms, then, in my judgment, one could say with confidence that the limitation to be imposed by implication on the plaintiffs' freedom to discriminate has been exceeded.[418]
364 Unlike the majority, Bridge LJ was satisfied that the implied term had sufficient precision because its operation could be assessed by reference to whether the discriminatory conduct rendered the operation of the defendants' petrol station business commercially impracticable.
365 As noted in Bega's submission[419] the judgment of Bridge LJ was cited with approval by Einstein J in New South Wales v Banabelle Electrical Pty Ltd.[420] I can find no other Australian case which has cited the passage from the judgment of Bridge LJ relied upon by Bega save for the two occasions on which Einstein J has cited the passage. In Wellington v Huaxin Energy (Aust) Pty Ltd[421] Jackson J cited Lostock Garage in support of the proposition:
The fourth requirement, that the term must be capable of clear expression, has two relevant aspects under the case law. One is that a term that is incapable of being expressed with a sufficient degree of precision is unlikely to have been agreed by the parties, as a matter of fact, in the absence of an objective standard, such as reasonableness. Examples are Ansett Transport Industries v Commonwealth and Shell UK Ltd v Lostock Garage Ltd.[422]
366 The proposition in respect of which Jackson J cites Lostock Garage is consistent with the basis upon which Lord Denning MR and Ormrod LJ rejected the implication of the implied term.
367 In Grocon Constructors (Vic) Pty Ltd v APN DF2 Project 2 Pty Ltd ('Grocon Constructors')[423] the Court of Appeal stated:
In relation to the condition that an implied term 'must be capable of clear expression', it is worth noting the observation of Gibbs J in Ansett Transport Industries (Operations) Pty Ltd v Commonwealth that the 'width and lack of precision' of a term supplied an argument against implying it. Mason J in Codelfa refused to imply a term into a contract on the basis that, had the parties explored the term at the time that they entered into the contract, negotiation about the term 'might have yielded any one of a number of alternative provisions, each being regarded as a reasonable solution'. It has been observed by this Court that it is elementary that a contractual party who is to be subjected to an additional obligation by reason of the implication of a term into a contract should be 'left in no doubt of the extent of the obligation' and, accordingly, a term that would leave a party in a 'state of speculation' as to the extent of its obligations would not be implied.[424]
368 Applying the reasoning set out above the NUPT does not satisfy the criterion of being capable of clear expression and should not be implied into the TMLAs. I place greater weight on the reasoning of the Court of Appeal than the dissenting judgment of Bridge LJ in Lostock Garage. However, even applying the reasoning of Bridge LJ, the NUPT should not be implied. Bridge LJ was prepared to imply a term that Shell not abnormally discriminate against Lostock Garage on the terms of the supply of petrol. He did so in circumstances where there was a reference point against which it was possible to measure whether the term had been breached; ie whether it was commercially impracticable for Lostock Garage to continue to trade. However, Bega has not identified any objective reference point which would enable a clear determination of whether any preference which the plaintiffs accord to their own brands is 'undue'.
369 The NUPT is not necessary to give business efficacy to the TMLAs. It is not sufficient that the term be reasonable.[425] Rather, in order to satisfy the criterion of necessity, the term must be needed in order to make the agreement work.[426] In Commonwealth Bank of Australia v Barker ('Barker')[427] French CJ, Bell and Keane JJ stated:
The broad concept of 'necessity' discussed earlier in these reasons may be defined by reference to what 'the nature of the contract itself implicitly requires'. It may be demonstrated by the futility of the transaction absent the implication. It is not satisfied by demonstrating the reasonableness of the implied term.[428]
370 Bega submits that the commercial purpose sought to be achieved by the marketing and promotion provisions of the TMLA would be defeated if the plaintiffs' construction of clauses 6.1 and 6.3 is accepted and the NUPT is not implied into the TMLAs.
In particular, under the TMLA, in addition to being granted an exclusive licence to use the Trade Marks on the Products in the Territory, Fonterra had exclusive control over the marketing and promotion of the Bega brand in cheese.
However, Bega continued to own the Trade Marks and their associated goodwill.
In these circumstances, Bega was obviously concerned to protect the value and goodwill of the Bega brand and its associated heritage (which had been built up over a significant time period). Bega was exposed to a risk to the goodwill in its marks if Fonterra preferred its own brands and, in the course of so doing, did not devote adequate resources to the Bega brand in cheese.
Accordingly, it is common ground that the chief commercial purpose and object of the marketing and promotion provisions in the TMLA was to protect Bega's long term interests in relation to how the brand was managed by Fonterra in relation to the Branded Products and to maintain the goodwill in the Trade Marks over which Bega retains ownership. ...
In particular, Fonterra submitted in its opening that clause 6.1(a) only requires Fonterra to increase and grow the sales of the Bega Branded Products, and that Fonterra had a complete discretion to decide how to go about achieving that goal.
If this construction is accepted, there would be no requirement for Fonterra to engage in forms of marketing and promotion directed at maintaining the value of Bega's long-term brand equity and goodwill. In circumstances where it was common ground that maintaining the value of Bega's long-term brand equity and goodwill was a commercial purpose of the marketing and promotion obligations in the TMLA, this leaves a significant gap in the parties' express agreement. The No Undue Preference Term fills that gap.[429]
372 I reject these submissions. First, Bega's contention that the plaintiffs 'had exclusive control over the marketing and promotion of the Bega brand in cheese' is incorrect. Clause 3.2 does not restrict Bega from marketing a wide range of cheese products such as mozzarella, parmesan and ricotta under the Bega brand. The constraint on Bega's rights to use its Trade Marks is limited to natural and processed cheddar cheese and string cheese. These products constituted Bega's core business in May 2001. However, the initial term of the agreements is 25 years with potential for the term to be extended. When the TMLAs were executed an objective circumstance known to the parties was the potential for Bega to develop and market cheese products under its own brand.
373 Second, insofar as Bega's submission is premised on the Court's acceptance of the plaintiffs' contention that they had an unfettered discretion in relation to the development of sales of Branded Products, I have rejected this contention. Clause 6.1 and the AMPs impose a positive obligation on the plaintiffs to engage in marketing activity broadly consistent with the AMPs.
374 Third, applying the test of necessity in Barker, it is not necessary in order to give business efficacy to the TMLAs to imply the NUPT. Absent the implication of the term, the TMLAs are not rendered futile. Further, the implication of the term is not necessary in order to make the agreement work. To the contrary, the agreements work perfectly well absent the implication of the NUPT. The combined effect of clauses 6.1, 6.3, the AMPs, clause 4.4 (read in conjunction with Parts 2 and 3 of Schedule 2 of the Fonterra TMLA) and clause 16.1(d) of the Fonterra TMLA and clause 16.3 of the Bonland TMLA, places a positive obligation on the plaintiffs to promote and develop sales of the Branded Products to achieve a minimum level of sales, consistently with the AMPs. Further, the plaintiffs are subject to an obligation to ensure that the value of the Trade Marks and their good name and image are maintained and not damaged in accordance with clause 6.1(b) and clause 6.3. The TMLAs are 'commercially workable and effective' without the NUPT.[430]
375 The matters referred to above also support a finding that the NUPT does not satisfy the criterion of being so obvious it goes without saying. The plaintiffs and Bega agreed upon a precise formula to regulate minimum sales and performance and revenue. If the plaintiffs fail to meet the prescribed standards they must pay the shortfall and risk termination of the TMLAs if minimum sales levels are not met two years running. The TMLAs regulate the quantum of sales to be achieved by minimum sales and royalty payments and the potential for termination if the minimum prescriptions are not met. The TMLAs regulate the mode of marketing activity by virtue of clauses 6.1(b), 6.3 and the AMPs.
376 The TMLAs expressly acknowledge the plaintiffs' right to market cheese products, (including cheddar cheese in direct competition with Branded Products) under their own brands. The TMLAs regulate:
(a) the plaintiffs' obligation to promote and develop sales of Branded Products consistent with the AMPs; and
(b) the plaintiffs' right to market their own products, including products which compete with Branded Products.
377 The potential for the plaintiffs' marketing of their own products to adversely impact on the sale of Bega Branded Products is addressed directly by clause 4.4, clause 16.1(d) and Parts 2 and 3 of Schedule 2 of the Fonterra TMLA. The potential for the plaintiffs' marketing activities to damage the value of the Trade Marks is addressed by clauses 6.1(b), 6.3 and the AMPs. The NUPT is not so obvious it goes without saying.
378 Further, the NUPT is not reasonable or equitable. Mainland cheddar cheese has a significantly smaller share of the fixed weight cheese market compared to the Bega cheddar cheese. If the plaintiffs spend more on advertising Mainland cheese relative to Bega cheddar cheese this would be differential treatment which advantages Mainland at the risk of taking market share from Bega. It may also entail the expenditure of funds for the promotion of the Mainland brand which would otherwise have been available to be spent on Bega. Such conduct would constitute undue preference for the purposes of the NUPT. It is neither reasonable nor equitable for the plaintiffs to be precluded from engaging in legitimate marketing activities directed at increasing Mainland's share of the cheddar cheese market. However, this would be the practical effect of the NUPT.
(a) promote and develop sales of Branded Products in the Territory consistent with the AMPs; and
(b) to undertake marketing activity in the Territory in a manner broadly consistent with the four marketing principles; and
(c) when using any of the Trade Marks on or in relation to any Product ensure that the good name and image of those Trade Marks is maintained and not harmed.
381 Clause 6.1 does not require the plaintiffs to engage in any particular type or quantity of marketing activity. The plaintiffs are not required to engage in ATL mass media advertising or NPD. Nor are they required to engage in marketing directed to particular Branded Products. They are not required to 'effectively' promote and develop sales of the Branded Products. The plaintiffs have the right to market products under their own brands, Mainland and Perfect Italiano and to do so in a way that advances their own commercial interests. The plaintiffs are not subject to a discrete contractual obligation to promote and develop sales of Branded Products in the FSS. Alternatively, if they are subject to such an obligation, whether it has been complied with requires consideration of the promotion and development of the sales of Branded Products in both the retail sector and the FSS.
382 Clause 6.3 does not require the plaintiffs to engage in promotional, marketing or advertising activity. However, any promotional, marketing or advertising activity which is engaged in must be undertaken in a manner not to damage the value of the Trade Marks.
383 The No Hindrance of Purpose term is an implied term of the TMLAs. The NUPT is not an implied term of the TMLAs.
384 The findings set out above significantly reduce the matters which need to be addressed in the remaining sections of this judgment. I have concluded that:
385 As a result of these findings it is unnecessary to consider a substantial body of evidence and submissions the relevance of which is contingent upon findings contrary to those set out above. I have given consideration to whether I should address the evidence and submissions rendered otiose by my findings. I have concluded that to do so would not be an efficient use of judicial resources. If it was possible to address the evidence and submissions economically (as I have been able to do in relation to the application of the restraint of trade doctrine) I would have recorded my findings on the premise that my construction of clauses 6.1, 6.3 and the NUPT is wrong. However, it is not possible to address the evidence and submissions economically. The evidence in relation to:
(i) alleged differential treatment of the Bega brand compared to Mainland/Perfect Italiano (said by Bega to constitute a breach of the NUPT);
(iii) alleged failure of the plaintiffs to position Bega as a premium brand;
occupied many hearing days and hundreds of pages of evidence and submissions. To address these matters would add substantially to the length of this judgment and the time required to complete it. In the circumstances of the present case, I consider that not addressing evidence and submissions rendered otiose by the findings set out above is consistent with the overarching purpose prescribed in s 7 of the Civil Procedure Act 2010 (Vic) of facilitating the just, efficient and timely resolution of the real issues in dispute.
386 In light of the findings set out above, it is necessary to address the following questions:
(i) Have the plaintiffs promoted and developed sales of the Branded Products in the Territory? This requires consideration of the promotion and development of sales of Branded Products in both the retail sector and the FSS.
(ii) If the first question is answered in the affirmative, have the plaintiffs:
(a) promoted and developed sales of Branded Products in a manner broadly consistent with the AMPs;
(b) when using any of the Trade Marks on or in relation to any Product ensured that the good name and image of those Trade Marks is maintained and not harmed;
(c) conducted their business operations in accordance with appropriate business standards applying in the Territory and in a manner not to damage the value of the Trade Marks; and
(d) complied with the no hindrance of purpose term?
The plaintiffs' promotion and development of Branded Products in the retail sector and FSS 2012-2018
387 Bega filed its Counterclaim on 23 March 2018. The limitation period in respect of its claim operates from 23 March 2012. Evidence prior to this time is irrelevant to the question of whether the plaintiffs have breached the TMLAs. On 8 June 2018 Bega served a notice of breach on Fonterra relating to the marketing and promotion claim. The relevant period for the assessment of whether the plaintiffs promoted and developed sales of Branded Products is 23 March 2012 to June 2018.
388 The total amount spent by the plaintiffs to promote and develop sales of the Branded Products (both ATL and BTL) during the financial years ending 30 June 2012 to 30 June 2018, as evidenced by the plaintiffs' financial records is as follows:
2012: The plaintiffs spent [redacted] on advertising and promotion ('A&P') relating to the Bega brand and [redacted] on discretionary trade spend[431] (discretionary co-op figures are not available for 2012);
389 Mr Michael Potter, a chartered accountant who gave evidence on behalf of Bega, analysed the plaintiffs' advertising and promotion expenditure during the financial years 30 June 2012 to 30 June 2018. As regards Mr Potter's analysis of the financial year ending 30 June 2012, it is necessary to bear in mind that only the period 23 March to 30 June (equating to approximate 25 per cent) is relevant. The figures in brackets referrable to 2012 in the table below equate to 25 per cent of the expenditure in that year. Mr Potter gave unchallenged evidence of the following advertising and promotion expenditure by the plaintiffs on Branded Products in the retail sector and FSS:
390 There is no dispute between the parties that the plaintiffs' expenditure on discretionary trade spend and discretionary co-op expenditure is a form of BTL promotion. There is some disagreement as to the extent to which the plaintiffs' advertising and promotion expenditure is broken down into ATL and BTL expenditure. The plaintiffs' advertising and promotion expenditure is comprised of the following categories: media promotion, media broadcasting, other advertising, consumer promotion, trade promotion, other promotion, public relations, sponsorship, market research and point of sale.[445]
391 There is no dispute between the parties that media production and media broadcasting comprise ATL expenditure. Bega contends that other advertising contains both ATL and BTL expenditure and that all other components of the plaintiffs advertising and promotion expenditure is BTL expenditure.[446]
392 Mr Potter identified the ATL component of the plaintiffs' advertising and promotion expenditure (expenditure on media production, media broadcasting and other advertising) as follows:
393 Mr Potter identified the BTL component (excluding discretionary trade spend and discretionary co-op spend) of the plaintiffs' advertising and promotion expenditure, after excluding media production, media broadcasting and other advertising, as follows:
394 Although Mr Potter was instructed to prepare his report on the basis that 'other advertising' includes both ATL and BTL expenditure, he allocated all 'other advertising' to ATL. The plaintiffs' financial records do not contain a breakdown of 'other advertising' expenditure which permits a breakdown of this expenditure as between BTL/ATL.
395 Mr Potter gave evidence of the plaintiffs' discretionary trade spend in respect of Branded Products in the retail sector and FSS as follows:
396 Mr Potter also gave evidence regarding the plaintiffs' total co-op spend in the retail sector and FSS. His evidence does not provide a breakdown as between the retail and FSS sectors because the plaintiffs' financial data which he relied upon in preparing his report does not distinguish between the two sectors.[450]
397 The evidence of Mr Potter, which was not challenged by the plaintiffs, supports a finding that during the 2012 to 2018 financial years the plaintiffs expended very large sums on the promotion of Branded Products in the retail sector and the FSS. The plaintiffs' total expenditure on promotion of Branded Products in the retail sector and FSS, both ATL and BTL, was [redacted]. When this figure is adjusted to exclude the period 1 July 2011 to 22 March 2012, the total expenditure was [redacted]. This equates to an average of [redacted] per annum for the six year period from 30 June 2012 to 30 June 2018. During the same period sales of Bega Branded Products increased from [redacted] to [redacted]. Sales of Branded Products in the retail sector were [redacted] in 2012 and [redacted] in 2018. Sales of Branded Products in FSS were [redacted] in 2012 and [redacted] in 2018.[452]
398 The royalties paid to Bega by the plaintiff in accordance with clause 4.2 of the TMLAs increased from [redacted] in the 2012 financial year to [redacted] in the 2018 financial year.[453]
399 Mr Potter's evidence, which I accept, strongly supports a finding that the plaintiffs promoted and developed sales of Bega Branded Products in both the retail sector and the FSS during the period March 2012 to June 2018. The plaintiffs' ATL and BTL expenditure in the FSS was significantly less than in the retail sector. The allocation of the plaintiffs' advertising and promotion budget (both ATL and BTL) is a matter within the plaintiffs' discretion and does not constitute a breach of any contractual obligation, express or implied, under the TMLAs.
The plaintiffs have promoted and developed sales of the Branded Products broadly consistent with the AMPs
400 There are four agreed marketing principles in Schedule 2 of the TMLAs:
401 Bega alleges in paragraphs [49] and [50] of its Counterclaim that the plaintiffs failed to market the Branded Products in a manner consistent with their status as premium products. This allegation is based on the marketing principle: 'the cheese is a premium product' ('the premium product principle').
402 Bega does not allege that the plaintiffs acted inconsistently with the other three marketing principles. The conduct alleged to be inconsistent with the premium product principle is twofold. First, that since 2015 the plaintiffs heavily discounted Branded Products marketed and sold within the 'sliced cheese' and 'natural block' product segments.[454] Second, that from at least 2014 the plaintiffs have positioned Bega branded cheese as an 'everyday' cheese brand whilst simultaneously positioning Mainland cheese as a premium brand cheese.[455]
403 It is not in issue that during the period March 2012 to June 2018 the Australian retail cheese market was divided into two categories: fixed weight cheese ('FWC') and random weight cheese ('RWC'). FWC is sold in a pre-packaged form and in fixed portion sizes such as 250 g, 500 g or 1 kg. The FWC retail cheese market in Australia is divided into two main product segments: natural cheese and processed cheese.
404 In the retail market for FWC, cheeses are marketed as 'branded products' or 'private label'. Branded products are sold in packaging bearing the trade mark or logo of the supplier: Bega, Coon, Devondale or Mainland for example. Private label products are packaged in labels identifying the retailer: Coles, Woolworths or Aldi.
405 During the period March 2012 to June 2018 the tiers 'Good, Better and Best' were used by the plaintiffs and Bega in marketing plans and presentations to retailers to delineate the segment of the FWC market in which brands (private label, Bega, Coon, Devondale and Mainland) and products marketed under particular brands, compete. It is not in dispute that marketing plans prepared by the plaintiffs placed Bega cheese in the 'Better' tier alongside Coon and Devondale, with private label in 'Good' and Mainland in 'Best'.[456]
406 Bega submits that in order to comply with their contractual obligation to market Bega cheese as a premium product, the plaintiffs were required to position the premium brand within the 'Best' tier of the FWC retail market. Bega submits that the plaintiffs' contention that Bega is a premium product when compared to private label, Coon and Devondale 'ignores the fact that in the FWC everyday segment, better is not premium, best is'.[457] I reject this submission.
407 The AMPs require the plaintiffs' marketing activity to be conducted in a manner broadly consistent with the premium product principle. This principle is concerned with the quality of the product, not the positioning of the Bega brand within the FWC retail market. The distinction between 'brand' and 'product' is significant. A brand is not a product. The distinction between 'brand' and 'product' is evident in the third of the AMPs: 'the brand has a heritage dating back over 100 years'. The remaining three AMPs, including the premium product principle are concerned with the product, not the Bega brand.
408 I accept the evidence of Professor O'Sullivan, who was called by the plaintiffs, that a brand is not a product and that a premium brand is not a premium product.[458] I also accept Professor O'Sullivan's evidence that the term 'premium' read in conjunction with 'product' carries two related meanings: superior quality as perceived by the consumer and higher price - both of which should be judged relative to competing offerings in the same product category.[459] This evidence is consistent with the ordinary meaning of the phrase 'premium product'. There is no reference to brand positioning or the three tiers 'Good, Better, Best' in the AMPs. There is no evidence that the existence of these three tiers was an objective background circumstance when the TMLAs were signed in May 2001.
409 I accept the plaintiffs' submission that the two brands with the closest market share and most similar product portfolio to Bega, are Coon and Devondale. As such, these products, together with private label products are an appropriate reference point for determining whether Bega cheese products are sold at a price premium.
410 The packaging in which Bega cheese products are marketed is one of the factors which influences consumers' perception as to whether the cheese is a quality product. Dr Honeywill, who gave evidence on behalf of Bega, accepted that the packaging of Bega Branded Products was consistent with the cheese being marketed as a premium product.[460]
411 During the first half of 2015 the plaintiffs marketed Bega cheese via the 'Real Town, Real Cheese' advertising campaign. The advertisement featured images of rolling hills, lush green pastures and a family of farmers tending their cows.[461] The focal point of the advertisement, Ron Apps, identifies himself as someone who considers himself a 'blow in' even though he's been farming in the Bega Valley for approximately 50 years.[462] I have no hesitation in concluding that the 'Real Town, Real Cheese' advertising campaign is consistent with all four AMPs, including the premium product principle.
412 During the period March 2012 to March 2018 Bega Branded Products have consistently been sold at a higher price than Coon and Devondale. The average price of Coon products per kilogram has fallen from $14.40 in financial year 2012 to $12.50 in financial year 2018. This price has been lower than Bega in each year during this period save for 2013. In 2016 to 2018 the average retail price per kilogram of Coon cheese was $13.60, $13.10 and $12.50. The corresponding price for Bega was $14.80, $15.30 and $15.10. The average price of Devondale products per kilogram has increased from $11.10 in financial year 2012 to $11.30 in financial year 2018. The price has been lower than Bega in each year since 2012 with Bega selling at a price premium of 30 per cent compared to Devondale in each of the financial years for 2017 and 2018.[463]
413 I accept the plaintiffs' submission that as well as comparing the price of Bega cheese to Devondale and Coon, it is also appropriate to have regard to the price differential between Bega cheese and private label cheese. When asked by the Court whether consumers were getting a 'quality product' with private label, Dr Honeywill replied, '[n]o question'.[464] This answer is plainly correct. In part it reflects the fact that as well as manufacturing cheese which is sold under the Bega Trade Mark by the plaintiffs, Bega also manufactures and supplies cheese to Coles supermarkets which is marketed under Coles private label, albeit that the cheese is produced pursuant to a different recipe than for Bega Branded Products.[465]
414 In the 12 months to May 2018 private label cheese accounted for 43.9 per cent by volume and 29.6 per cent market share by value of the FWC market.[466] Coles private label brand has the highest market share of any cheese sold in the FWC market despite only being available in Coles supermarkets.[467]
415 Private label cheese is the dominant player in the Australian FWC retail market. The significant price premium between Bega branded cheese and private label cheese is a factor which supports a finding that the plaintiffs have marketed Bega cheese as a premium product.
416 On 3 November 2017 Mr Ben Hill, who at the time was Bega's most senior marketing employee, wrote an email under the heading 'Premium Brands'. The email included the following:
Firstly, it needs context. In the world of Yellow Cheese, Bega is a premium brand. Compared to a triple Brie from the south of France, it is not. A brand is considered premium only when we believe it is worth the price. Bega is a premium priced offer in the supermarket with strong equity and sales performance so clearly consumers view it this way (we also saw some of this play out in the responses during our research into Peanut Butter branding with Bega).[468]
417 In response to this email, Bega's chief executive officer, Paul van Heerwaarden replied:
Hi Ben
We are looking at this in the context of how Fonterra are positioning or marketing the brand. Fonterra are required to market Bega as a premium cheese brand. From the couple of one page documents sent through from Kiril, they are positioning Bega as an everyday cheese brand. They included competitors [sic] as Coon, Devondale and private label. Note they have not included Mainland which is the brand they have stated on previous occasions is their premium brand. On the emotion wheel (??) document you forwarded they were not positioning Bega as premium.
We need to mount an argument that they are in breach of the license agreement.
Can you give this some further thought.[469]
418 I infer that when Mr Hill wrote his email which elicited the response from Mr van Heerwaarden he was not aware of the context that Bega was seeking to mount an argument that the plaintiffs were in breach of the TMLAs. His email is significant because it records the belief of a senior marketing executive that Bega is both a premium product and a premium brand. I infer that as the most senior marketing executive within Bega he was aware when he wrote the email that the plaintiffs were marketing Bega cheese within the 'Better' tier of the FWC market. Notwithstanding this knowledge his clearly stated view was that Bega is a premium brand. Further, his email is consistent with him holding the view that Bega is a premium product.
419 Mr Hill, without explanation, was not called to give evidence on behalf of Bega. I infer that had he been called as a witness his evidence would not have assisted Bega's claim that the plaintiffs have breached the premium product marketing principle.
420 Mr Hill's email refers to 'our research into Peanut Butter branding with Bega'. I infer that the research which Mr Hill referred to is a market research report, 'Bega Brand Strength' undertaken by Interbrand in 2017.[470] The purpose of the research undertaken by Interbrand was to assist Bega in making a decision whether it should market the recently acquired Kraft peanut butter and ambient cheese products under the Bega brand. One of the key objectives of the research was to determine what equity existed in the Bega brand.[471] Under the heading '[t]he extent to which the brand delivers meaningful benefits to its customers both functionally and emotionally' the report records:
The brand is seen as a top tier 'everyday' brand (not premium) - better than private label, but still affordable.[472]
421 Under the heading '[t]he extent to which the brand's content is perceived as being relevant and meaningful' the report records:
The brand has most resonance with families and older demographics who see Bega as a quality Australian brand, with good nutritional value that's worth paying a bit extra for.[473]
422 Under the heading '[c]onsistent high quality of experience or interaction across channels and touchpoints' the following appears:
From the business being grounded in supporting farmers, to the proposition around quality and natural ingredients, to the taste and texture, all components of the brand deliver on the same narrative and feel very focused.[474]
423 Under the heading '[t]he extent to which the brand is seen as credible and genuine' the following appears:
The brand's association with Australian ingredients and a real place, creates a perception of trust and a halo of quality - Bega is often seen to be 'held to a higher standard'. Bega's continued support for farmers, especially during the pricing issues in 2017 has made them a supplier of choice in the community.[475]
424 Despite the enormous quantity of documents produced in the course of this litigation no documents were produced by Bega disclosing the basis upon which a decision was made to launch an extensive range of products under the Bega brand from October 2017.[476] I infer that Bega's decision to launch an extensive range of non-cheese products under the Bega brand was based in part on its acceptance of the findings in the Interbrand report. This includes the findings referred to above which are consistent with the plaintiffs having marketed Bega cheese as a premium product, which consumers perceive as being worth paying extra for.
425 In Bega's 2018 Annual Report, the Chief Executive Officer's review, included a statement by Mr van Heerwaarden:
Strong brands such as Bega continue to be sought after by consumers looking for a trusted product of premium quality.[477]
426 This statement is inconsistent with Bega's contention that the plaintiffs failed to comply with the premium product principle. Further, two cheese quality witnesses called by Bega attested to the plaintiffs' marketing of Bega cheese as a premium product. Mr Klekowski agreed that Bega branded cheese was a quality product based on the way it has been presented by the plaintiffs in the market place.[478] Mr Norrie, who has 40 years' experience working in the cheese industry and who has been the head cheddar cheese judge for the Dairy Industry Association of Australia gave the following evidence:
MR CREIGHTON-SELVAY: And your view based on this experience is that the Bega brand is promoted, marketed and sold by Fonterra as a premium cheese brand?
MR NORRIE: Yes.
MR CREIGHTON-SELVAY: And that was your experience when you were employed by Fonterra?
MR NORRIE: Yes, it was.
MR CREIGHTON-SELVAY: And it remains your view today?
MR NORRIE: It does.[479]
427 Bega also submits that the plaintiffs have breached the premium product principle by engaging in excessive discounting. I reject this submission. First, the funding of discounting of branded products by retailers is an unavoidable cost of doing business. Mr Murray Johnston, a retailing expert called by Bega, gave evidence that Coles and Woolworths have always considered discounting of FWC products to be 'vital'. In order to have their products ranged a supplier such as the plaintiffs must agree to fund discounts.[480] Second, there is no inconsistency between offering Bega cheese for sale at a discount, whilst simultaneously marketing the cheese as a premium product. When Bega cheese is offered for sale at a discount it is marketed in the same packaging which emphasises the quality of the product. Third, throughout the period March 2012 to June 2018 Bega cheese has consistently been offered for sale at a significant price premium to private label cheese,[481] and Coon and Devondale cheese.[482]
428 I reject Bega's submission that the plaintiffs have breached clause 6.1 by reason of their failure to conduct marketing activity in a manner broadly consistent with the premium product principle.
Clause 6.1(b): Have the plaintiffs failed to ensure that when using any of the Trade Marks on or in relation to any Product the good name and image of the Trade Marks is maintained and not harmed?
The Licensee must, consistent with the Agreed Marketing Principles; ...
(b) when using any of the Trade Marks on or in relation to any Product, ensure that the good name and image of those Trade Marks is maintained and not harmed.
430 Clause 6.1(b) does not impose an unqualified obligation on the plaintiffs to ensure that the good name and image of the Trade Marks is maintained and not harmed. The obligation is enlivened when the plaintiffs use any of the Trade Marks on or in relation to any Product in a way which damages the good name and image of the Trade Marks.
431 Bega's claim that Fonterra breached clause 6.1(b) is not based on any alleged unauthorised use of the Trade Marks by the plaintiffs. [483] Indeed, the alleged breach of clause 6.1(b) is not based on any use of the Trade Marks whatsoever. Rather, the primary basis upon which Bega submits there has been a breach of clause 6.1(b) is the plaintiffs' alleged failure to position Bega as a premium brand.[484]
432 I have set out earlier in this judgment my conclusion that the plaintiffs were not subject to any contractual obligation to position Bega in the 'Best' tier of the FWC retail market. Further, the plaintiffs' positioning of the Bega brand in the 'Better' tier of the FWC retail market does not involve a use of the Trade Marks on or in relation to any Product in a way which attracts the operation of clause 6.1(b). Further, Bega has failed to establish that the positioning of the Bega brand in the 'Better' tier of the FWC market has harmed the good name and image of the Trade Marks.
Clause 6.3: Have the plaintiffs conducted their business operations in accordance with appropriate business standards applying in the Territory from time to time and in a manner not to damage the value of the Trade Marks, such conduct extending but not limited to promotional, marketing and advertising policies and content?
433 I have concluded that the plaintiffs were not subject to any contractual obligation to engage in ATL advertising and were not required to position the Bega brand within the 'Best' tier of the FWC market. I have concluded the plaintiffs have significant discretion as to the quantity and nature of marketing activity they engage in to promote and develop sales of Branded Products. However, although the plaintiffs are not subject to a contractual obligation to engage in any particular quantity or form of marketing, the plaintiffs' promotional, marketing and advertising policies and content must not damage the value of the Trade Marks. It follows that if the plaintiffs' BTL marketing, including discretionary trade spend and funding of retailer discounting has damaged the value of the Trade Marks, the plaintiffs will be liable to pay Bega damages for breach of clause 6.3.
434 In this section of the judgment I shall make reference to expert evidence which was led in the proceeding. The principal expert witnesses were Professor O'Sullivan (on behalf of the plaintiffs) and Dr Honeywill (on behalf of Bega). Professor O'Sullivan is a professor of marketing at the University of Melbourne. He was the only expert witness with academic qualifications in marketing. He has over 20 years' experience as an academic in the field of marketing. His research work has been published in the Journal of Marketing, the Journal of Academy of Marketing Science, the International Journal of Research in Marketing and the Strategic Marketing Journal. His research has had a particular focus on the impact of marketing activities and assets on company performance.[485] The areas of marketing that he teaches include marketing strategy and brand management.[486] He regularly teaches senior executives, including those employed in the Australian food and grocery industry.[487] He has worked as a consultant with branch managers and company personnel on how to develop and implement effective marketing strategies.[488] Industry engagements take up approximately one quarter of his time with the balance spent on research and teaching. The companies he has worked with include global consumer product companies such as Johnson & Johnson, LVMH, Moèt, Hennessy, Louis Vuitton, Nestlè and Mars.[489]
435 Professor O'Sullivan was a very impressive witness. I reject Bega's criticism of his evidence to the effect that his opinions proceeded from a theoretical or hypothetical perspective driven by academic studies.[490] First, much of the evidence given by Professor O'Sullivan (as with the evidence of Dr Honeywill and Mr Field) addressed marketing theory and concepts such as brand strength, brand equity and share of voice. Second, Professor O'Sullivan has had substantial relevant industry experience working as a consultant. I also reject Bega's criticism that Professor O'Sullivan tended to overstate certain conclusions and was something of an advocate for Fonterra.[491] He gave his evidence in a straightforward manner and made appropriate concessions.
436 Dr Honeywill does not have academic qualifications in marketing and has never been published in a peer reviewed marketing journal or publication.[492] Dr Honeywill is an adjunct professor of the School of Business and Economics at the University of Tasmania. However, he has not conducted any research or teaching that is relevant to the opinions expressed in this case.[493] Dr Honeywill has had experience conducting consumer research and working with businesses in relation to marketing issues. However, he has never provided such services to any supplier of fast moving consumer goods to supermarkets.[494]
437 To the extent that the evidence of Professor O'Sullivan and Dr Honeywill conflicts, I prefer the evidence of Professor O'Sullivan. To the extent that their conflicting evidence concerned matters of marketing theory (such as the concepts of brand equity and brand strength and the impact of ATL/BTL on brand equity), I prefer the evidence of Professor O'Sullivan.
438 Dr Honeywill does not have academic qualifications in marketing. The probative value of his evidence rests primarily on his practical experience in marketing and consumer behaviour. None of that experience is in the grocery/fast moving consumer goods sector.
439 Dr Honeywill gave evidence regarding damage to the Bega brand arising from the failure of the plaintiffs to position Bega cheese in the 'Best' tier in the FWC market. His evidence was not based on any relevant practical experience relating to the sale of dairy products in the grocery sector. Nor was it based on any relevant academic experience. There was an air of unreality in respect of some of the opinions which Dr Honeywill expressed regarding premium and sub-premium products. For example, Dr Honeywill states that '[o]ne feature of pricing premium products is that you will rarely, if ever, see words like "discount", "sale" or "price reduction" associated with them.'[495] Dr Honeywill points to Apple and Mielè as examples of premium products which are never discounted.[496] I consider these examples to be of very limited relevance to the marketing of cheese products in the FWC sector in supermarkets.
440 Dr Honeywill describes Bega as a 'fragile brand'. He states that:
A fragile brand is one that confuses consumers about what it stands for, when it becomes unclear where it sits in consumers' functional and emotional brains, and when it occupies an at risk position in its segment. In my opinion this describes Bega under Fonterra's custodianship.[497]
441 In response to Professor O'Sullivan's observation that he was not aware of any evidence supporting this opinion,[498] Dr Honeywill referred to the Interbrand report[499] commissioned by Bega in 2017 to assess the strength of the Bega brand. In reference to the Interbrand report, Dr Honeywill stated:
The Interbrand report that Professor O'Sullivan refers to provides Brand Strength Scores for the Bega brand. What the it [sic] actually reveals is a clarity score for the Bega brand of 3 out of 10.
On the basis that Interbrand has given Bega a clarity score of only 3, I regard that as evidence supporting my opinion.[500]
442 The 'clarity' score in the Interbrand report measures:
(a) The degree to which management and employees at all levels understand how to deliver the defined brand experience in their day to day roles [and] ...
(b) The degree to which management and employees at all levels can articulate the key elements of the brand, for example, purpose, positioning, proposition, the target audience, or the insight at the heart of the brand.[501]
443 The Interbrand clarity score did not measure where the Bega brand sits in consumers' functional and emotional brains. Rather, the criteria addressed the mindset of Bega's own management and employees. Contrary to Dr Honeywill's evidence the Interbrand report does not provide any support for his opinion that Bega has become a fragile brand under the plaintiffs' custodianship.
444 Dr Honeywill's attempt to answer Professor O'Sullivan's criticism by recourse to the clarity score and Interbrand report is consistent with a tendency on his part to be an advocate for Bega's position.
445 In his first expert report Dr Honeywill made extensive reference to the concept of 'premium NEO consumers'.[502] In response, Professor O'Sullivan gave evidence that 'there is no evidence in social science research that would support Dr Honeywill's claims regarding the existence or prevalence of NEO consumers'.[503] Professor O'Sullivan was not challenged on this evidence.
446 Dr Honeywill was cross-examined regarding his reliance on the concept of 'Premium NEO'. I accept the plaintiffs' submission that the cross-examination established the following matters:
(a) the basis of his conception of NEO consumers was confidential data which has never been published,[504] and involved the application of '194 factors [that] are never revealed to anyone';[505]
(b) his conception of NEO consumers is based on the application of an algorithm which has never been published;[506]
(c) to the extent that his conception of NEO consumers has been the subject of 'peer review', it was the subject of a single review which occurred in 2000[507] by a single academic,[508] which was limited to the outcomes generated by the algorithm and not the algorithm itself,[509] and the results of that review were never published;[510]
(d) his conception of NEO consumers has never been the subject of any review in any academic marketing journal[511] and 'it's not on any course, in any university in the world';[512] and
(e) his conception of NEO consumers has only be referred to in three books,[513] each of which he authored or co-authored,[514] and has never been the subject of any book which he did not at least part-author.[515]
447 In response to this submission Bega submitted as follows:
Secondly, at FCCS [182] Fonterra criticises Dr Honeywill's reference to Premium NEO consumers in his first report. Fonterra alleges that the conception of such consumers has no relevance to any allegation in this proceeding and that 'the entirety of the evidence given by Dr Honeywill, which depends upon his conception of Neo consumers, should be given no weight.'
The short answer to this criticism is that Dr Honeywill's conception of Premium NEO consumers were not central to the opinions, and his opinions do not 'depend[s] [sic] upon his conception of NEO consumers'. As noted by Dr Honeywill in his third report:
In truth, I used NEOs sparingly in my expert report, and then only to illuminate research data and to humanise examples of premium consumption.
Similarly, in cross-examination, Dr Honeywill gave the following evidence:
The entire use of NEOs in this report, which is, as I say, quite limited, is to really provide the opportunity to have some kind of benchmark about who is a premium consumer and is Bega a premium brand, and what I'm doing in terms of what you have just quoted was using Roy Morgan research to measure against the use of, or the purchase of what's known as the incidence of purchase of Bega branded cheese products against NEOs and against traditionalists, and against the population.[516]
448 It is significant that Bega makes no attempt to refute the criticisms of Dr Honeywill's evidence insofar as it relies on the concept of premium NEO consumers. Rather, Bega submits that Dr Honeywill's conception of Premium NEO consumers were not central to his evidence. First, there are numerous references to NEO consumers throughout Dr Honeywill's report. Second, in circumstances where Bega places heavy reliance upon Dr Honeywill's evidence, no attempt is made by Bega to refute Professor O'Sullivan's criticism of NEO consumers. Its failure to do so reinforces my conclusion that wherever there is any inconsistency between the evidence of Professor O'Sullivan and Dr Honeywill, the evidence of Professor O'Sullivan is to be preferred.
449 Mr Peter Field gave evidence on behalf of Bega about the interaction between 'share of voice' ('SOV') and 'share of market' ('SOM') and the role of these concepts in determining an appropriate level of advertising spend.[517] Mr Field defined 'share of voice' as:
the percentage of category advertising expenditure accounted for by the brand. In practice this measurement is limited to those media that are audited: usually traditional 'offline' media such as TV and radio. Newer 'online' media do not allow expenditure of their platforms to be audited, so it is impossible for a brand to know what its competitors have spent. However, brands' share of voice in these online media appears to broadly reflect their offline share of voice and so empirically measurable SOV continues to correlate strongly with market share. In fact, the IPA analysis reveals that the correlation is strengthening over time.[518]
why, in my expert opinion, 'share of voice' is an essential marketing budget metric. I am asked to examine its correlation with market share (and thus how share of voice drives growth), and is set out the methodology underpinning this expert opinion.[519]
451 The evidence of Mr Field was entirely theoretical, addressing the correlation between share of voice and share of market. Mr Field was not provided with any instructions regarding, or any documents which recorded, marketing and promotional activities undertaken by the plaintiffs. He was not provided with any brand health or market share data. During the course of cross-examination Mr Field agreed that:
(a) prior to preparing his report he had not been provided with any data which permitted him to undertake an assessment of the extent to which the mental availability of the Bega brand had increased or decreased over time;[520]
(b) he had not been provided with any data which enabled him to assess to which any increase or decrease in the mental availability of the Bega brand had been attributable to any ATL or BTL activity;[521]
(c) his expert report contained 'general comments on the wisdom of advertising as a driver of growth';[522] and
(d) he accepted that in order to assess the extent to which the SOV/SOM equilibrium rule applied to any particular goods in any particular country, it would be necessary to undertake detailed category level econometric modelling, and he had not undertaken any such modelling in relation to the FWC market in Australia.[523]
452 Mr Field has no relevant academic qualifications. Mr Field lives in England. He has never worked in Australia and has no practical work experience in the fast moving consumer goods sector or the FWC market. Professor O'Sullivan was highly critical of Mr Field's expert report:
In paragraphs 1 and 2 of his report, Mr Field refers to a number of papers and 'real-life case studies' and states that 'there is only one "rule" that is empirically validated by this real-world data'.
453 I accept these criticisms of Mr Field's report.
454 I also accept the plaintiffs' submission that Mr Field's oral evidence was characterised by lengthy, non-responsive and argumentative answers to straightforward questions.[525]
455 Mr Murray Johnston, who was called by Bega, has 38 years of experience working in supermarkets, including 20 years managing grocery, dairy and frozen categories for Woolworths. Mr Johnston gave his evidence in a candid, straightforward manner. It must be observed, however, that there were significant differences between Mr Johnston's written and oral evidence. In his written evidence Mr Johnston stated that from 2010 Bega's brand strength has been seriously harmed.[526] However, his oral evidence was that Bega is 'a market-leading brand',[527] that 'the inherent strength of the Bega brand, ah, appears to be strong',[528] that 'below-the-line spend has been keeping the Bega brand alive and well',[529] and that the Bega brand had 'successfully profited from' the decline of Coon and Kraft.[530]
456 In his written evidence Mr Johnston stated that he 'would have been "frustrated"' as a retailer with the plaintiffs' lack of ATL spend on the Bega brand and also gave evidence that ATL spend helps to ensure ranging.[531] In his oral evidence Mr Johnston stated that: 'Fonterra's in a tough position and I think what they've done with Bega is okay. They've promoted Below the Line because the retailer's happy';[532] that BTL spend 'actually helps the brand';[533] and that retailers have been 'wanting more and more below the line.'[534]
457 To the extent that there is any inconsistency between Mr Johnston's written and oral evidence, I place greater weight on his oral evidence.
458 Mr Daniel Williams, called by the plaintiffs, is currently general manager, merchandise for JB Hi Fi Ltd. He was employed by Coles supermarkets between 2004 and 2018. From 2009 to 2012 he led the Dairy and Deli team at Coles. From 2012 to 2018 he led the Vegetable and Fruit team. These are separate categories from Dairy and Deli. However, between 2012 and 2016 Mr Williams attended weekly meetings at which supplier strategies and sales numbers in the Dairy division were discussed.[535] Mr Williams was an impressive witness with a straightforward approach to answering questions. His evidence was based on his direct experience as a senior manager in Coles. Although called to give evidence on behalf of the plaintiffs, I did not consider him to be in the least bit partisan. His evidence regarding the preference of Coles for BTL promotion and its perceived advantages over ATL promotion was entirely credible.[536]
459 Bega submits that the plaintiffs' breaches of their 'marketing and promotion obligations' has caused damage to the brand equity of the Bega brand and the goodwill associated with the Bega Trade Marks.[537] Bega submits that the plaintiffs have damaged the brand equity of the Bega brand by focusing too much on short term sales focussed promotions and have failed to engage in sufficient brand building through ATL advertising. Bega submits that the plaintiffs' 'excessive and deep discounting' has eroded Bega's brand equity.[538]
460 In support of its contention that the plaintiffs have not conducted their business operations in accordance with appropriate business standards and in a manner not to damage the value of the Trade Marks 'Bega refers to the expert evidence which makes it clear that a sustained failure to engage in ATL is damaging to brand equity'.[539] During the trial the parties led a substantial amount of expert evidence regarding the relationship between brand equity, brand strength and ATL advertising/BTL promotional activity. However, none of the expert evidence specifically addressed the question of whether the plaintiffs' promotional, marketing and advertising policies and content had damaged the value of the 22 Trade Marks listed in Schedule 1 of the TMLAs.
461 The terms 'brand strength', 'brand equity', and 'brand value' do not appear in the TMLAs. Clause 6.3 directs attention to whether the value of the Trade Marks has been diminished. The relevant period for addressing this question is March 2012 to June 2018. None of the expert witnesses gave evidence addressing any diminution in the value of the Trade Marks. None of the experts gave evidence that they were qualified to or had experience in the valuation of Trade Marks.
462 Michael Potter, a chartered accountant, gave expert evidence on behalf of Bega. His report includes a section 'Value of Impact on Brand'.[540] However, Mr Potter did not undertake an independent valuation of the Trade Marks. Rather, he made calculations based on assumptions the reasonableness of which he did not consider, as to both lost royalties and a hypothetical royalty rate of 2.5 per cent. He did not express any opinion in relation to the assumptions which underpin his report.[541] His role with regard to Bega's claim for lost royalties (and the impact of those lost royalties on the value of the Bega brand) was as a 'calculator'.[542]
463 In Mr Potter's report he makes reference to 'IVS210: The international valuation standards for valuation of intangible assets'. IVS210 is a publication of the International Valuation Standards Council which prescribes the methodology for valuing intangible assets. The Bega Trade Marks are registered trade marks and are therefore intangible assets.[543] As to the relationship between intangible assets, including trademarks, and brands, IVS210 states:
There are many types of intangible assets, but they are often considered to fall into one or more of the following categories (or goodwill):
(a) Marketing-related: Marketing-related intangible assets are used primarily in the marketing or promotion of products or services. Examples include trademarks, trade names, unique trade design and internet domain names.
(b) Customer-related: Customer-related intangible assets include customer lists, backlog, customer contracts, and contractual and non-contractual customer relationships.
(c) Artistic-related: Artistic-related intangible assets arise from the right to benefit from artistic works such as plays, books, films and music, and from non-contractual copyright protection.
(d) Contract-related: Contract-related intangible assets represent the value of rights that arise from contractual agreements. Examples include licensing and royalty agreements, service or supply contracts, lease agreements, permits, broadcast rights, servicing contracts, employment contracts and non-competition agreements and natural resource rights.
(e) Technology-based: Technology-related intangible assets arise from contractual or non-contractual rights to use patented technology, unpatented technology, databases, formulae, designs, software, processes or recipes.
Although similar intangible assets within the same classes will share some characteristics with one another, they will also have differentiating characteristics that will vary according to the type of intangible asset. In addition, certain intangible assets, such as brands, may represent a combination of categories in para 20.3.[544]
464 Dr Honeywill gave the following evidence as to what constitutes a brand:
A brand is what differentiates one company's range of products from its competitors. For example, both Volkswagen and Mercedes sell cars, but the Mercedes-Benz brand instantly differentiates it from a VW, and from all other car brands.
A contemporary brand is, however, much more than its visual image or logotype (the Mercedes-Benz 'star', for example). Beyond its visual identity, a brand is both functional ('a Mercedes is expensive but well-engineered') and emotional ('a Mercedes makes me feel great, like a winner').[545]
465 In Kraft Foods Group Brands LLC v Bega Cheese Ltd[546] the Full Court of the Federal Court stated:
At the level of a business as a whole, goodwill will take on different shapes and have different sources depending on the nature of the business. It might, depending on the facts, be generated through the use of differing sources such as the locations, people, efficiencies, systems, processes and techniques of the business. Goodwill will have different aspects or components corresponding to its sources. Trade marks, registered or unregistered, can be an important source of the overall goodwill of a business. A given business might operate multiple product lines, each with varying or over lapping trademarks. Each trade mark will make some contribution to the build-up of the goodwill of the business as a whole.[547]
466 The Full Court's reference to a business operating 'multiple product lines, each with varying or overlapping trade marks' is directly applicable to the plaintiffs' use of the Bega Trade Marks. The plaintiffs market a range of cheese products with varying trade marks. Each of those trade marks makes some contribution to the goodwill of the plaintiffs' business as a whole.
467 The Bega Trade Marks are an intangible asset. The Trade Marks are a component of the Bega brand. However, the Bega brand and the goodwill associated with the brand consists of more than the Trade Marks. IVS210 identifies five categories of intangible assets which may comprise a brand. The Bega Trade Marks are an element of the Bega brand but do not comprise the brand.
468 Bega submits that the plaintiffs have damaged the brand equity of the Bega brand and have thereby damaged the value of the Trade Marks. The incorrect assumption which underpins this submission is that the value of the Bega Trade Marks is co-extensive with the value of the Bega brand. A finding of damage to Bega's brand equity does not necessitate a finding that the value of the Bega Trade Marks has also been damaged.
469 Dr Honeywill gave evidence of damage to Bega's brand equity arising from the plaintiffs' failure to position the Bega brand in the 'Best' tier of the FWC market. Dr Honeywill defines brand equity as 'a rich, emotional set of associations that are the source, the substance, the inputs to a consequent higher evaluation'.[548] Dr Honeywill disagreed with Professor O'Sullivan's opinion that brand equity refers to the economic value of a brand.[549] In light of Dr Honeywill's understanding that brand equity does not refer to the economic value of a brand, his evidence that the plaintiffs have damaged the Bega brand is not evidence of damage to the economic value of the Trade Marks.
470 It is apparent from Dr Honeywill's written and oral testimony that he did not direct his mind to the question of the monetary value of the Trade Marks in March 2012, and whether their value had diminished by June 2018. He was not asked to address this question in the letters of instruction provided to him prior to the preparation of his expert report. Further, I am not satisfied that Dr Honeywill has any relevant expertise, either academic or practical, which qualifies him to provide probative evidence of whether the value of the Trade Marks was diminished during the period March 2012 to June 2018.[550]
471 In addition to the evidence of Dr Honeywill Bega also relies upon the evidence of Mr Potter to quantify the damage to the value of the Trade Marks. Mr Potter applied the relief from royalty valuation method for valuing the Bega brand. This is a discounted cash flow method of valuation which is applied to the cash flow that the owner of an intangible asset could receive through licensing the asset to a third party. Applying a royalty rate of 2.5 per cent to lost royalty payments calculated in accordance with four discrete assumed scenarios, Mr Potter calculated the value of the lost royalties which equate to the reduction in the value of the Bega brand.[551]
472 Mr Potter's valuation was based on four scenarios. Scenario 1A assumed that the Bega brand achieved the same increase in branded market share as Perfect Italiano during the period 30/6/2012 to 30/6/2019. Scenario 1B applied the same assumption as Scenario 1A but included the FSS sector in the model. Scenario 1C adopted the same model as Scenario 1A but assumed that the wholesale sales for Mainland cheese for each financial year should replace the wholesale sales value for the FSS for Bega and be adopted in recalculating the wholesale sales value for the FSS for Bega.[552] Scenario 1D required Mr Potter to prepare the same model as Scenario 1A but to make different assumptions in relation to FSS. Mr Potter was instructed to:
(a) calculate the sum of the total wholesale sales of Mainland, Perfect Italiano and Bega;
(b) using IRI data, calculate the sum of total sales of Bega, Mainland and Perfect Italiano (in the grocery sector) and the percentage that the Bega sales represent of that total; and
(c) calculate the wholesale sales (FSS) for Bega by multiplying the percentage for each financial year ended June calculated in (b) by the total of wholesale sales of Mainland, Perfect Italiano and Bega calculated in (a) above.[553]
473 Mr Potter did not express any opinion as to the reasonableness of the four assumptions which underpinned his calculations. His report is not probative evidence as to the diminution in the value of the Bega Trade Marks if the assumptions underpinning Scenarios 1A to 1D are not legitimate. Bega submits that the assumptions are reasonable having regard to the way in which the plaintiff breached the alleged marketing and promotion obligations and what would have been likely to occur had the plaintiffs complied with their obligations and adequately promoted the Bega brand in the retail sector. Bega submits that the plaintiffs' approach to the promotion of Perfect Italiano and the growth in that brand stands as a proxy to allow the Court to reach a view on what would have occurred had the Bega brand been similarly promoted.[554]
474 Scenarios 1A to 1D must be rejected because they incorrectly assume that the Court has found the plaintiffs liable for a breach of the pleaded marketing and promotion obligations. All of Bega's claims based on the marketing and promotion obligations have been rejected. If the Court had concluded that:
(a) the TMLAs contained the NUPT; and/or
(b) the plaintiffs were required to engage in 'adequate' levels of ATL;
there may have been a legitimate foundation for using the growth in market share of Perfect Italiano as a basis for applying the discounted cash flow method for calculating damage to the value of the Trade Marks. I have rejected Bega's contention that the TMLAs contain the NUPT and that the plaintiffs were required to engage in adequate levels of ATL. There is therefore no legitimate foundation for using the growth in the market share of Perfect Italiano as a basis for calculating damage to the value of the Trade Marks.
475 Mr Potter's evidence as to the impact on the value of the Bega brand attributable to lost royalties calculated in accordance with Scenarios 1A to 1D, must also be rejected. This conclusion does not reflect adversely on Mr Potter. In his first report he noted that he considered his engagement with respect to brand value to be a 'limited scope' valuation engagement.[555] He stated that he expressed no opinion as to the reasonableness of the assumptions underpinning Scenarios 1A to 1D.[556]
476 In light of the conclusions set out above it is unnecessary to address the plaintiffs' submission that the assumptions which Mr Potter was instructed to make are without foundation. Nevertheless, I accept the plaintiffs' submission that the evidence does not support a finding that an increased investment in ATL advertising during the period 2012 to 2018 would have resulted in increased sales of Bega Branded Products.
477 Professor O'Sullivan gave the following evidence:
Annexure UI Marketing Mix Cheese - Final Pres 8 10 15 - FON.002.002.1877 sheds light on the weakness of the relationship between advertising and Bega-branded cheese sales. Analysis of advertising activity in 2015 (see slide 143 on page 127 of 145) shows that an advertising campaign that cost [redacted] in media spend (costs for creating the advertisement itself are not included) reached (was seen by) 47% of the target market, but had no apparent impact on Bega Cheese's brand image or brand 'health' (health refers to indicators of awareness, consideration, purchase and loyalty). Here, I also note the observation on slide numbered 111 that '[a]dvertising is not working to drive users into the brand, [or to] reconnect with lapsed users.
Of further note, the data in Confidential Annexure T Promotional spending Bega, Mainland and P Italiano shows that Fonterra reduced above-the-line promotional spending for the Bega brand in the subsequent year (from [redacted] in 2015 to [redacted] in 2016). At the same time, Fonterra increased total promotional spend for the Bega brand: total A&P & Discretionary Trade Spend increased from [redacted] in 2015 to [redacted] in 2016. Said differently, Fonterra increased promotional spend but reduced reliance on above-the-line activity. In my opinion, this shift in emphasis reflects the failure of advertising to drive sales in the previous year and the sensitivity of sales to trade spend (discussed in paragraphs 150-152 below).
Fonterra has achieved greater success in driving sales through below-the-line promotional activity (ie through campaigns using promotional offers such as rewards for buying multiple Bega-branded cheese products in a single transaction, supported by in-store promotional activity and online promotion). For example, Confidential Annexure UI 2018 Post Analysis 3 TMS - FON.002.001.1279 and Confidential Annexure UI Bega Cheese BTS burst 2 PCA - FON.002.002.2135 review the impact of a 'back to school' promotion in 2018. The promotion gave consumers 'back to school' bags when they purchased two Bega-branded cheese products in one transaction. The promotional offer had a 'gift pool' capped at [redacted] (I take it from this, that the cost of providing the 'back to school' bags was capped at that amount). Digital media (featuring the campaign on various websites) costs [redacted] and reached 6.87 million consumers. Amongst those who engaged in the campaign there was a 41% increase in purchase intention.[557]
478 I accept Professor O'Sullivan's evidence that the plaintiffs have maintained high levels of sales of Bega Branded Products by investing in BTL promotional activity. Professor O'Sullivan's evidence is that to develop sales of every day food brands that appeal to consumers' functional needs, firms should focus marketing resources on product quality, distribution and price promotion and less on advertising.[558] Professor O'Sullivan gave evidence that in determining Bega's advertising and promotion budget, the plaintiffs would be mindful that Bega is one of Australia's best known cheeses and has 'high top of mind' awareness.[559] Established brands may rationally decide to decrease their A&P budget relative to sales.[560] Further, the plaintiffs' marketing mix modelling for the Bega brand indicates that sales of Bega Branded Products are primarily driven by pricing activity, quality and availability.[561] This provides a basis for the plaintiffs to focus on trade promotion and ensure high levels of availability.[562]
479 In respect of Professor O'Sullivan's evidence at [148]-[150] of his Report which is extracted above, Bega submitted:
The focus here is clearly only on increasing sales.
However, Bega's case is that Fonterra was required to engage in ATL advertising to support the long term brand equity and goodwill of the Bega brand. From this perspective, an increase in short term sales is not the measure of success of an ATL advertising campaign.[563]
480 Bega's submission accepts, at least implicitly, the plaintiffs' successful use of BTL promotion to drive increases in sales. I do not accept that an increase in ATL advertising, particularly if funded by reallocating funds which would otherwise be used for BTL promotion would result in increased sales of Branded Products.
482 Further, the products sold under the Perfect Italiano and Bega brands are entirely different. Perfect Italiano is a culinary cheese brand. The primary cheeses sold under the brand are parmesan, mozzarella, ricotta and romano.[566] Bega and Perfect Italiano operate in different segments of the FWC market. Mainland cheese is a more appropriate proxy than Perfect Italiano for assessing damage to the value of the Trade Marks. Mainland, like Bega, is a cheddar cheese operating in the same sector of the FWC market. It is subject to the same competitive pressures flowing from the growth in sales of private label products.
483 The assumptions underpinning Mr Potter's valuation evidence are both legally and factually flawed. I place no weight on his evidence as establishing that the plaintiffs have damaged the value of the Trade Marks.
484 Bega has failed to establish that the plaintiffs have contravened clause 6.3. There is no evidence which supports a finding that the value of the 22 Trade Marks licensed to the plaintiffs has been damaged by the plaintiffs' conduct. I do not accept that the Bega brand is co-extensive with the Bega Trade Marks. I do not accept that a finding that the plaintiffs' conduct damaged Bega's brand equity translates into a finding that the value of the Trade Marks has been damaged. If I am wrong in reaching this conclusion, it is necessary to address the question of whether the plaintiffs have damaged the brand equity in the Bega brand. Addressing this question requires consideration of the expert evidence led on behalf of the parties.
485 Professor O'Sullivan defines brand equity as follows:
In marketing scholarship and practice, the term brand equity normally refers to the economic value of a brand (ie the future revenue streams that can be realised from using the brand to promote products) - arising from how favourably the brand is viewed, sales generated from products sold under the brand, the profit margin achieved on those sales and levels of customer loyalty to the brand.
Marketing scholars and practitioners view the terms brand equity and brand value as equivalent.[567]
486 Brand equity can be achieved through a wide array of marketing initiatives, including through ATL and BTL. These are not the sole means of achieving brand equity. A brand's close association with products that consumers perceive to have strong functional attributes (such as good taste) can achieve brand equity. So too can high levels of retail availability of and retail support for products marketed under a brand.[568] The terms 'brand strength' and 'brand equity' are largely synonymous.[569]
487 In Professor O'Sullivan's opinion brand equity can be assessed by considering various indicators:
(a) Market share: a brand's share of category sales (expressed as an absolute percentage or in relation to a brand's largest competitor);
(b) Distribution coverage: the percentage of available retail outlets in the market which carry a brand;
(c) Price premium: the percentage by which the selling price of a product marketed under a brand exceeds a benchmark price (such as, for example, the price of a similar but unbranded product);
(d) Loyalty: the extent to which consumers repeat purchase of a brand within a category;
(e) Brand awareness: the proposition of consumers who know of a brand;
(f) Perceived quality: the extent to which a brand is viewed by consumers as a signal of superior performance on product attributes;
(g) Leadership popularity: the extent to which the brand is perceived to be a leader in a category;
(h) Perceived value: the extent to which a brand is perceived to offer value for money; and
(i) Brand personality: the extent to which consumers perceive that a brand has clear and desirable and tangible attributes.
488 In Professor O'Sullivan's opinion Bega is a strong brand in the cheese category:
The Bega cheese brand enjoys a high level of awareness, a positive brand image, high market coverage and high market share.[570]
489 Dr Honeywill disagrees with Professor O'Sullivan's definition of 'brand equity'. His definition of brand equity 'is more aligned to marketing scholarship and practice that view it as a rich, emotional set of associations that are the source, the substance, the inputs to a consequent higher valuation'.[571] When cross-examined as to the difference between himself and Professor O'Sullivan as to the meaning of 'brand equity', Dr Honeywill stated that Professor O'Sullivan's definition of brand equity is 'totally different to mine'.[572]
490 The disagreement between Professor O'Sullivan and Dr Honeywill as to the meaning of 'brand equity' is significant because of the nexus drawn by Bega between alleged damage to the Bega brand and the goodwill associated with the Bega Trade Marks. Bega seeks to equate damage to brand equity with damage to the value of the Trade Marks. Bega submits that damage to brand equity 'forms the basis for Bega's claim to damages for diminution in the value of the goodwill in the marks'.[573]
491 If Dr Honeywill's definition of 'brand equity' equated with Professor O'Sullivan's, there would be some basis for Bega to contend that damage to brand equity equates with damage to the value of the Bega Trade Marks. However, when Dr Honeywill refers to damage to brand equity, he is not referring to damage to the economic value of the brand. Rather, he is referring to the 'rich, emotional set of associations that are the source, the substance, the inputs to the consequential higher valuation'.
492 I accept the evidence of Professor O'Sullivan that in marketing scholarship and practice, the term 'brand equity' normally refers to the economic value of a brand (the future revenue streams that can be realised from using the brand to promote products) arising from how favourably the brand is viewed, sales generated from products sold under the brand, the profit margin assessed on those sales and the level of customer loyalty to the brand.[574]
493 Mr Potter gave evidence that the wholesale sales for Bega branded products in the FSS and grocery sector increased from [redacted] in financial year 2012 to [redacted] in financial year 2018.[575] This significant growth in sales has been achieved notwithstanding considerable growth in the sales of private label cheese. In the 12 months to May 2018, private label cheese accounted for 43.9 per cent market share by volume and 29.6 per cent market share by value.[576] I accept Dr Honeywill's evidence that private label products 'have exploded in the Australian dairy segment since 2003, disrupting the market, particularly in the Good supermarket tier'.[577] Dr Honeywill describes the growth of private label as an 'onslaught'[578] and a 'juggernaut' that 'dominates the segment'.[579]
494 The private label cheese products that threaten the dominance of market leaders like Bega 'frequently come out of the same factories with the explicit development goal of matching the quality and taste attributes of the market leader'.[580] Michael Hampson gave evidence that Bega supplied private label cheese to Coles from 2012 to 2017 and supplied private label cheese to Woolworths from 2016 to the present time[581] and that such cheese has been sold at significantly lower prices than Branded Products.[582]
495 The substantially increased market share of private label cheese has come at the expense of Bega's competitors in the FWC segment:
(a) Mainland has fallen from [redacted] in 2004 to [redacted] in 2018 by value and from [redacted] in 2004 to [redacted] in 2018 by tonnage;
(b) Coon has fallen from [redacted] in 2004 to [redacted] in 2018 by value and from [redacted] in 2004 to [redacted] in 2018 by tonnage;
(c) Kraft has fallen from [redacted] in 2004 to [redacted] in 2018 by value and from [redacted] in 2004 to [redacted] in 2018 by tonnage; and
(d) Devondale has fallen from [redacted] in 2004 to [redacted] in 2018 by value and from [redacted] in 2004 to [redacted] in 2018 by tonnage.[583]
During the same period, Bega branded cheese has increased its share of the fixed weight segment from [redacted] per cent in 2004 to [redacted] per cent in 2018 by value and from [redacted] per cent in 2004 to [redacted] per cent in 2018 by tonnage.[584]
496 Mr McNamara, the Executive General Manager of Bega Foods, accepted that the Bega brand has been able to resist the advance of private label better than its competitors.[585] He accepted that private label had gained significant market share at the expense of Bega's competitors, Mainland, Coon, Devondale and Kraft.[586] Mr Hampson described Bega as 'certainly the number one brand' in the FWC sector.[587]
497 Mr Williams, the former head of Dairy and Deli at Coles, gave evidence that when preparing his expert report[588] he had an expectation that Bega's brand would have declined in the face of the significant growth of private label.[589] He gave evidence that for Bega to have held market share broadly in line with the last decade 'is a pretty good performance' and 'above expectation for a mainstream brand'.[590]
498 Having reviewed market research data, Professor O'Sullivan gave evidence that the Bega cheese brand:
(a) has a large share of the market;[591]
(b) has extensive distribution coverage;[592]
(c) is sold at 'a premium relative to competing cheese brands';[593]
(d) is bought regularly by consumers;[594]
(e) has high levels of brand awareness, especially when compared to Coon, Devondale, Mainland and private label brands;[595]
(f) is perceived by consumers as a signal of quality in the cheese market;[596]
(g) is perceived as '"worth paying more for"';[597] and
(h) generally outperforms competitors on various brand attributes and is perceived by consumers as possessing 'clear and desirable intangible attributes'.[598]
510 I reject Bega's contention that the plaintiffs have breached clause 6.3.
511 Bega alleges in [86]-[95] of its Counterclaim that the plaintiffs, in breach of clause 8.1 of the TMLAs and clause 13.7 of the 2012 PSA, supplied to Bega for cutting and wrapping, and subsequently sold as Branded Products, cheese which:
(a) did not comply with the applicable Specifications as defined in the PSA and/or the applicable Product Specifications in the TMLAs;
(b) was not of a consistently high and uniform standard, appearance or character; and/or
(c) was not of merchantable quality, fit for purpose and/or had defects in materials and workmanship.
512 Bega's cheese quality claim has three components:
(i) First, Bega alleges breaches of clause 8.1 of the TMLAs and clause 13.7 of the PSA, the subject of the First Cheese Quality Notice ('CQN1')[622] dated 16 March 2018. This set of allegations relates to 15 per cent reduced fat bulk cheese (RF15%) which was supplied to Bega from Fonterra's recommissioned Stanhope factory. Bega relies on express contractual rights to terminate in respect of these alleged breaches and also relies on the breaches as entitling it to exercise common law rights of termination.
(ii) Second, Bega alleges breaches of clause 8.1 of the TMLAs which were the subject of the Second Cheese Quality Notice ('CQN2')[623] dated 20 September 2018. The cheese that was the subject of this set of allegations was set out in an attachment to the breach notice and included a variety of cheese products which had failed Bega's new grading system introduced in July 2018. The cheese has finished goods manufacturing dates between 13 April 2018 and 21 August 2018. Bega relies on its express contractual rights to terminate in respect of these breaches and also relies on the breaches as part of its common law repudiation case.
(iii) Third, Bega alleges breaches of clause 8.1 of the TMLAs and clause 13.7 of the PSA in respect of a variety of cheese products with finished goods manufacturing dates between January 2018 to March 2019. The particulars to this claim bring in and repeat (outside the context of CQN2) the cheese that was the subject of that notice as well as the cheese batches covered by Bega's Cheese Quality Particulars ('CQP'). Those particulars were originally in the form of Annexure B to the Counterclaim and are incorporated into a fuller Excel file (DEF.0009.0001.0183) comprising the CQP.
513 For the reasons set out below I have dismissed each of the three components of Bega's cheese quality claim. The claim based on CQN1 is dismissed because Bega has failed to establish that the RF15% cheese supplied by Fonterra which is the subject of the claim was of poor quality. The claims based on CQN2 and the CQP are dismissed because the grading results produced by the grading system introduced by Bega in July 2018 do not establish that the cheese the subject of CQN2 and CQP was of poor quality. Further, Bega has failed to establish that it has suffered any material adverse effect as a consequence of Fonterra supplying it with the cheese which is the subject of CQN1, CQN2 and the CQP, thereby enlivening the contractual right of termination in clause 16.1(a).
514 Before addressing Bega's claim it is necessary to set out some background regarding the commercial arrangements relevant to the claim. Under the TMLAs Bega granted the plaintiffs a 'sole and exclusive' licence to use the Bega Trade Marks in relation to Products for sale in the Territory. A unit of Product that bears a Trade Mark or in relation to which a Trade Mark is used or applied is a Branded Product. The parties executed a Product Supply Agreement on 8 May 2001 at the same time as the TMLAs were executed. The PSA was subsequently replaced by another PSA executed on 15 November 2012.[624] Under the terms of the 2012 PSA Bega is responsible for cutting and packing all cheese which is packaged as Bega Branded Product. Bega supplies approximately 5,000 tonnes per annum of the cheese which is cut and packed as a Branded Product. The supply of this cheese is governed by clause 13.4 of the Product Supply Agreement. The majority of the cheese cut and packed as Branded Product is supplied by Fonterra from cheese which it manufactures at its factories in Stanhope, Victoria and Wynyard, Tasmania. The cheese manufactured by Bega for inclusion in Branded Products is forwarded to Fonterra for storage and ageing before being resupplied to Bega to be cut and packed. Fonterra is responsible for all the maturation of all cheese which is cut and packed by Bega and packaged as Branded Product.[625]
515 Bega Branded Products are manufactured in accordance with finished goods manufacturing specifications.[626] The specifications for each product include an age range for maturation of the cheese prior to its cutting and packing. There are four Bega branded types of natural cheese offered for sale by the plaintiffs which are the subject of Bega's cheese quality claim: Bega Colby, Bega Farmers' Tasty, Bega Strong & Bitey Vintage and Bega Country Light.[627] If bulk cheese supplied by Fonterra to Bega to be cut and packed does not fall within the age range specified in the applicable Product Specification, Fonterra can issue an 'authority to vary' ('ATV') which authorises Bega to proceed to cut and pack the cheese notwithstanding that it falls outside of the specified age range.[628]
516 Bega alleges that the plaintiffs breached clause 8.1 of the TMLAs and clause 13.7 of the PSA. Clause 8.1 of the TMLAs provides:
The Licensee must ensure that the Branded Products:
(a) are of a consistently high and uniform standard, quality, appearance and character; and
(b) comply with the Product Specifications.
Product Specifications means the specifications relating to Branded Products which are to be agreed between the parties prior to the Commencement Date having regard to:
(a) the existing specifications for Products manufactured by Bonlac at its York Street Facility and Cororooke Facility and by Bega at its Ridge Street Facility; and
(b) changes to those specifications which are necessary having regard to new plant or technology which may be involved in the manufacture of those Products at the Ridge Street Facility,
but failing agreement by the Commencement Date, will be the existing specifications used by Bonlac or Bega (as the case may be) in relation to the relevant Product.
All Bulk Commodity Products which FBA supplies or procures for supply to Bega or which Bega provides under clause 13.4 must:
(a) comply with the relevant Specifications;
(b) be merchantable, fit for the purpose for which they are intended and free from contamination or defects in materials or workmanship;
(c) be safe for human consumption; and
(d) not contain any foreign substance inconsistent with the relevant label or product specification or any material which has not been used, handled, or stored in accordance with the manufacturer's guidelines or applicable industry best practice.
Subject to clauses 24.1 and 24.14, each of the parties indemnifies the other against all liability, loss, damages, costs and expenses which the other may incur or suffer as a result of any breach of this clause by it.
519 The parties agree that the 'relevant Specifications' under the TMLAs and the 'Product Specifications' under the 2012 PSA are identified in Annexure A to the witness outline of David Mellor dated 27 August 2019.[629]
520 On 16 March 2018 Bega served CQN1 on Fonterra. The notice stated that Fonterra's non-compliance with clause 8.1 of the TMLAs and clause 13.7 of the PSA 'have a material adverse effect on Bega Cheese, and in particular, risk consumer dissatisfaction, product withdrawal and damage to the Bega brand'.[630]
521 The notice stipulated 30 June 2018 as the date by which Fonterra was to remedy the breaches of clause 8.1 of the TMLAs and clause 13.7 of the PSA.
522 CQN1 relates to RF15% bulk cheese supplied to Bega from Fonterra's recommissioned Stanhope factory. The factory had been destroyed by fire in 2014 and was recommissioned in August 2017.[631] CQN1 relates to the RF15% cheese manufactured by Fonterra at Stanhope in October and November 2017 and which was supplied to Bega in January 2018.[632]
523 On 31 January 2018 Bega issued a corrective action request in respect of the RF15% cheese which had been supplied by Fonterra. The corrective action request stated: 'During slicing the product it was very slippery and unable to stack "squarely"'.[633] The bulk cheese which is the subject of the corrective action request was manufactured by Fonterra on 25 October 2017 with batch number 1729861500.[634]
524 Following the issuing of the corrective action request, on 23 February 2018 Bega undertook an evaluation from cheese samples from batch number 1729861500.[635] The trial (Project Venice) involved a comparison between the samples from batch number 1729861500 and reduced fat cheese which Fonterra had been sourcing from Warrnambool Cheese and Butter and supplying to Bega prior to the recommissioning of the Stanhope Factory.[636] The trial did not involve a comparison of the RF15% cheese against the finished product specification for sliced 50 per cent reduced natural fat tasty cheese (which is the Bega Branded Product which is produced using RF15%).[637]
525 Bega's report of the evaluation of the RF15% cheese stated that the 'sensory evaluation of trial slices versus standard product from [Warrnambool Cheese and Butter] (best before 8 September 2018) showed the Stanhope cheese had no flavour development, the texture was very dry and leathery'.[638]
526 Bega provided the trial report to Fonterra together with samples for its evaluation.[639] In response, Fonterra undertook its own evaluation of the RF15% cheese. The evaluation was undertaken on 27 February 2018.[640] The evaluation was undertaken by David Mellor, Fonterra's Cheese Maturation Technologist, Anna Ventrice, Corporate Quality Manager - Cheese and Third Party Manufacturing and Michael Kalma, S & OP Category Manager.[641]
527 Mr Mellor's assessment of the cheese was that 'overall, I was happy with the flavour of the 15 per cent reduced fat cheese from Stanhope and satisfied it was suitable to be released into the market'.[642] In their written outlines of evidence both Ms Ventrice and Mr Kalma stated that 'the flavour was acceptable, typical of reduced fat cheese'.[643] However, as discussed below, when cross-examined Ms Ventrice gave evidence which is inconsistent with her witness outline.
528 On 28 February 2018 Edna Collantes, a Fonterra Quality Manager, emailed various Bega employees, including Mr Hampson and Ms Carter advising, inter alia, that 'Fonterra is comfortable with the flavour profile of the Stanhope cheese'.[644] On 6 March 2018 Ms Collantes emailed Ms Carter and requested confirmation as to which batches of bulk RF15% cheese Bega was rejecting based on sensory issues.[645] On 7 March 2018 Ms Carter emailed Ms Collantes and told her that Yasser Mohamed would be responding to her inquiry 'as I have not seen all the quality assessments'.[646] On 7 March 2018 Mr Mohamed emailed Ms Collantes and advised:
We have used [26 September 2017] and [25 October 2017] in block and shred & both of them are graded with 'A' for all parameters.[647]
529 In March 2018 Bega's cheese grading system comprised three grades: 'A' - Acceptable; 'B' - Borderline; and 'C' - Fail.[648]
530 Ms Carter agreed that Bega had manufactured block and shred products from the RF15% bulk cheese manufactured by Fonterra at Stanhope and had assessed the cheese as an 'A', its highest sensory grade. Ms Carter also confirmed this was the same cheese manufactured on 25 October 2017, which had been assessed by Bega on 23 February 2018 as having no flavour development and having a very dry and leathery texture.[649]
531 The plaintiffs submit that Bega's assessment of the RF15% cheese as graded 'A' for all parameters is fatal to its contention that the plaintiffs breached clause 8.1 of the TMLAs and clause 13.7 of the PSA. In response, Bega submits:
The grade in the Mohamed email is not determinative. It was allocated using a basic system involving three grades: 'A' (acceptable), 'B' (borderline) and 'C' (fail). As Ms Carter said under cross-examination 'the current A, B, C system that we had was, um, very basic'. Fonterra does not quibble with the 'very basic' nature of the A, B, C system.
Such was the very basic nature of the system that it has not been relied upon by Bega for any of its claims in this proceeding. It was not detailed, was not part of Project Venice and did not involve grading of cheese with the same rigour as occurred with respect to the Project Venice trial conducted on 23 February 2018 by Ms Valliard (and witnessed by Ms Ventrice).
In fact, Ms Carter was not asked whether or not she agreed with the grade that had been allocated in the Mohamed email. Though she was taken to the email, all she was asked about it was whether the document said what it said.
As is apparent from Ms Carter's evidence about the A, B, C system generally (ie it was very basic), the result stated in the Mohamed email cannot be preferred to the detailed evidence with respect to the Project Venice trials conducted on 23 February 2018, and Mr Klekowski's assessment of the RF15% cheese.
The Project Venue trials (the methodology of which was agreed between Bega and Fonterra) were specifically purposed to test the functionality and flavour of Stanhope RF15%. As Mr Mellor accepted, the Project Venue trial was not just for show; Fonterra would be wanting to seriously assess the results from it. Extensive details about the trial [were] set out in Ms Valliard's trial report. The trial report of the trial conducted on 23 February 2018 is reliable and to be preferred over the grade premised on a very basic system in the Mohamed email.[650]
532 Bega submits that for the reasons set out above, the 'A' grade referred to in the Mohamed email is irrelevant.[651]
533 Irrespective of whether the 'A, B, C' system for grading cheese was very basic, the RF15% cheese received Bega's highest grading. The 'A, B, C' grading system had been utilised by Bega since at least 2014.[652] It would be a commercial nonsense if cheese supplied to Bega by Fonterra could be graded 'A' by Bega but nevertheless be in breach of clause 8.1 of the TMLAs. The 'A' grading of the RF15% cheese constituted an acceptance by Bega that the cheese was of the requisite quality to satisfy the obligations imposed on the plaintiffs by clause 8.1.
534 As discussed below, the 'A, B, C' system was replaced by a new grading system in July 2018. It is not possible to reconcile the assessment recorded in Mr Mohamed's email of 7 March 2018 with the 'Project Venice' assessment of 23 February 2018 which recorded no flavour development and a very dry and leathery texture. Such an assessment should have result in a grading of 'C' (Fail) under the 'A, B, C' system with the result that the cheese should have been rejected. This is not what occurred. Rather, the cheese was used for both block and shred cheese.
535 Bega's internal 'A' grade for the RF15% cheese is consistent with the evidence of Messrs Mellor and Kalma that the RF15% cheese was suitable for release to the market and that the flavour was acceptable. On the other hand, Bega's internal grading is not consistent with the evidence of Ms Ventrice in respect of the assessment of the RF15% cheese undertaken by Fonterra on 27 February 2018.
536 Document FON.012.001.4934 is a table which, at face value, records both the assessment of the RF15% cheese undertaken by Bega as part of Project Venice on 23 February 2018 and the assessment undertaken by Fonterra on 27 February 2018, 2 March 2018 and 6 March 2018. The document records both Bega and Fonterra having assessed the cheese on 'Day 1' as 'Flavourless and dry texture'.
537 When cross-examined Ms Ventrice agreed with the proposition 'Bega and Fonterra had the same view about the flavour and texture of that cheese'.[653] Ms Ventrice was recalled to give further evidence regarding FON.012.001.4934 and confirmed that the record of Fonterra's assessment of the cheese on 'Day 1' was correct apart from suggesting that Fonterra undertook its assessment on 26 February 2018 when in fact the assessment had been undertaken on 27 February 2018.[654]
538 Although Ms Ventrice's evidence supports a finding that on 27 February 2018 Fonterra came to the same conclusion regarding the quality of the cheese as that reached by Bega on 23 February 2018, the same cannot be said of the subsequent assessment undertaken by Fonterra on 6 March 2018 which is also recorded in document FON.012.001.4934. In respect of the assessment undertaken on 6 March 2018 FON.012.001.4934 records the RF15% cheese as having 'flavour typical of reduced fat cheese'.[655] This assessment is in respect of the same batch of RF15% cheese manufactured on 25 October 2017 which had been sampled earlier on 27 February 2018. Ms Ventrice' evidence was that this assessment reflected a final consensus of all who participated in the assessment on 6 March 2018.[656]
539 Fonterra submits that the entries under the heading 'Fonterra results' in FON.012.001.4934 are a cut and paste from the Bega grading results on 23 February 2017 and do not accurately reflect the outcome of the assessment undertaken by Fonterra on 27 February 2018. There is some force in this submission. First, it is clear that contrary to what is recorded under 'Fonterra grading results' there was no 'Day 1' or 'Day 3' grading undertaken by Fonterra. The Bega grading was undertaken on 23 February 2018 which was 'Day 1'. The Fonterra grading was undertaken on 27 February 2018 which is 'Day 4'.[657] Second, the references to the functional aspects of the cheese 'slicing well', 'peels ok' make little sense. The assessment undertaken by Fonterra on 27 February 2018 took place at Fonterra's Richmond office where there is no slicing equipment. The products had already been sliced when they were assessed.[658]
540 Fonterra submits that the Court should reject Ms Ventrice's evidence that when Fonterra sampled the RF15% cheese on 27 February 2018 it came to the same conclusion as Bega regarding the quality of the cheese, on the ground that Ms Ventrice became 'seriously confused during her cross examination on these matters and her evidence was simply wrong'.[659] I do not consider Ms Ventrice was confused when giving her evidence. However, I do not accept her evidence in relation to the assessment undertaken by Fonterra on 27 February 2018 establishes that the RF15% cheese had no flavour and a dry leathery texture. First, there is no inconsistency between Ms Ventrice's evidence and that of Messrs Mellor and Kalma as to the quality of the Stanhope RF15% cheese as at 6 March 2018. That assessment was that the cheese was acceptable to go to market with a typical flavour for reduced fat cheese. Second, I place significant weight upon the assessment which was undertaken by Bega in accordance with its own grading system which rated the cheese as an 'A'. Other than describing the grading system as 'very basic' Bega has not impugned the integrity of its own assessment of the cheese. The description of the grading system as 'very basic' does not impugn the results. If, as contended by Bega the RF15% cheese was of poor quality it would have failed sensory assessment and been graded a 'C'.
541 Insofar as Ms Ventrice's evidence regarding the assessment undertaken on 27 February 2018 is inconsistent with the evidence given by Mr Mellor, Bega submits that 'it is open to the court to find that Mr Mellor was prepared to say whatever was necessary to defend Fonterra'.[660] I reject this submission. Mr Mellor was an entirely credible witness. He did not seek to be an advocate for Fonterra. I accept that he had a genuinely held belief that he was happy with the flavour of the RF15% cheese which he sampled on 27 February 2018 and that he considered the cheese was suitable to be released to market.
542 Mr Mellor is a cheese maturation technologist. In February 2018 he was the only cheese maturation technologist employed by Fonterra. In 2013 he completed a dairy science and foods technology degree from the University of Chester in England.[661] Prior to commencing employment with Fonterra in September 2017 Mr Mellor had worked continuously as a cheese grader for the previous seven years. Mr Mellor was a highly qualified and credible witness. I prefer his evidence as to the quality of the RF15% cheese as at 27 February 2018 to the evidence given by Ms Ventrice. Ms Ventrice has no formal cheese grading qualifications. The only cheese grading which Ms Ventrice had undertaken prior to April 2018 was a very basic online training course.[662]
543 Michael Kalma was Fonterra's Sales and Operations Planning Manager between February 2014 and August 2019 at which point he changed roles as part of a restructure to be Plan and Execution Manager.[663] Prior to joining Fonterra Mr Kalma did not have any experience in the cheese industry.[664] He is not a cheese grader and has not been trained in cheese grading.[665] However, he regularly tasted and compared different samples in cheese tasting sessions during the course of his employment.[666] Mr Kalma's evidence is that the flavour of the RF15% cheese was typical of reduced fat cheese.[667] Mr Kalma was not challenged on this evidence. It was not put to him that it was not his genuinely held assessment. Mr Kalma was an impressive witness. He was not an advocate for Fonterra. Although not a qualified cheese grader his assessment of the RF15% cheese is consistent with both Mr Mellor's assessment and Bega's 'A' grade assessment.
545 Bega submits that no weight should be placed upon the reference to various 'tasting sessions' and that the true position is that there was only one session which occurred on 27 February 2018.[670] Mr Mellor's evidence does lend some support to this submission.[671] On the other hand, Ms Ventrice was not challenged on her evidence that she participated in a tasting session on 6 March 2018 and that the consensus opinion of the Fonterra employees participating in that session was that the RF15% cheese was acceptable and had a typical reduced fat cheese flavour.[672] The cross-examination of Ms Ventrice in respect of the tasting session on 6 March 2018 did not call into question the fact that the tasting session occurred on that date and was in addition to the tasting session which occurred on 27 February 2018.
546 Mr Klekowski undertook a sensory assessment of three samples of RF15% cheese on 14 March 2018. His assessment was that the cheese had 'barely any flavour' and was of inferior quality to the equivalent Warrnambool Cheese and Butter reduced fat cheese.[673] Mr Klekowski did not apply a grading system in reaching his assessment. Rather, he assessed the cheese on the basis that 'strong flavour' was desirable.[674] The relevant specification for RF15% cheese does not require a strong flavour, but rather a 'slightly acid and distinct cheddar flavour'.[675]
547 When cross-examined, Mr Klekowski accepted that it is often the case that two people can taste the same product and form different views of its flavour profile. Cheese grading is a subjective exercise.[676] Plainly, Mr Klekowski had a different view of the quality of the RF15% cheese compared to the internal Bega cheese graders, who graded the cheese as 'A' applying Bega's grading system. I do not accept that Mr Klekowski's assessment of the RF15% cheese is determinative of the question of whether the plaintiffs breached clause 8.1 of the TMLA and clause 13.7 of the PSA. Mr Klekowski's evidence is to be weighed against the evidence referred to above. That evidence favours a conclusion that the plaintiffs did not breach clause 8.1 or clause 13.7.
548 The plaintiffs submit that the level of customer complaints which Fonterra received in respect of the RF15% Branded Products is inconsistent with Bega's contention that the cheese was of poor quality. Fonterra received:
(d) 2 organoleptic complaints in January - June 2019.[677]
549 Bega submits that the Court cannot make any findings based on the data set out above because the complaints include RF25% cheese, which was not the subject of CQN1. I do not accept this submission. In 2016 and 2017 Bega did not manufacture any RF Branded Product with RF cheese from Stanhope. Bega started doing so in January 2018. During 2018 when Bega manufactured cheese using the RF15% cheese, the complaints received by Fonterra were nearly half the level received in 2016 when Bega was using RF15% cheese supplied by Warrnambool Cheese and Butter. There is no evidence of any complaint having been made by Bega to Fonterra in 2016 regarding the quality of the RF15% cheese supplied by Fonterra sourced from Warrnambool Cheese and Butter. The volume of RF15% Stanhope cheese delivered to Bega prior to CQN1 was substantial, totalling 203,540 kgs.[678] If the quality of the cheese was as poor as is contended by Bega, this would have been likely to have been reflected in an increased volume of consumer complaints. This did not occur.
550 Further, sales data for reduced fat Branded Products is inconsistent with Bega's contention that the plaintiffs breached clause 8.1 of the TMLAs and clause 13.7 of the PSA. During the 2018 calendar year, total sales of RF branded products increased in both value and tonnage, even though the total sales of reduced fat fixed weight cheese reduced in Australia, by both value and tonnage.[679]
551 Bega has failed to establish that the RF15% Stanhope cheese which was supplied to it by the plaintiffs in January 2018, and which was graded 'A' under Bega's own grading system, was in breach of clause 8.1 of the TMLAs and/or clause 13.7 of the PSA.
552 On 20 September 2018, Bega served CQN2 on Fonterra. This notice alleged a breach of clause 8.1 of the TMLAs. No breach of the PSA was alleged. The covering letter attached to the notice included the following:
Due to Bega's concerns about the quality of the cheese that was being provided, we recently implemented a process where we have had the samples of the cheese supplied by Fonterra graded. A systematic approach, using internal and external assessors was implemented. We wanted to ascertain the extent of the issue, whether it was ad hoc or systemic. It has transpired to be extensive.[680]
553 A 'Breach Notice Grading Summary' was attached to CQN2. This summary recorded the grading of cheese supplied to Bega by Bega's internal and external (Mr Norrie and Mr Klekowski) cheese graders in accordance with a new grading system developed by Bega between April and June 2018.
554 The plaintiffs submit that Bega's new cheese grading system is fundamentally flawed and that the Court should reject CQN2 because of its reliance upon this grading system. The plaintiffs advanced the same submission in respect of Bega's reliance upon its CQP. The CQP also records assessment of cheese provided to Bega by Fonterra based on the new grading system introduced in mid-2018.
555 On 18 June 2018, Bega issued the first version of its Quality Procedure Manual ('QPM1').[681] Since 18 June 2018, all sensory assessment of the cheese in Bega Branded Products which has been undertaken by Bega has been in accordance with QPM1 and the updated versions, Quality Procedure Manual 2 ('QPM2')[682] and Quality Procedure Manual 3 ('QPM3').[683]
556 QPM1 states that 'critical sensory characteristics will be assessed in four categories; appearance, odour, body/texture, flavour'.[684] The internal and external cheese graders undertaking assessment in accordance with QPM1, QPM2 and QPM3 are required to complete a grading score sheet. The grading score sheet lists 12 criteria against which cheese is to be assessed: colour; visual splitting; lactate crystals; foreign matter; separability (slice only); appearance; odour; body; mouth feel; flavour intensity; unexpected (flavour) defects; and bitterness.
557 The grading range in the grading score sheet is one to nine. QPM1 states that all high quality Bega Branded Products should achieve a score of five for each category, but scores of four to six are considered within acceptable levels.[685] Branded Products are assessed by reference to six sub-criteria to arrive at an 'Overall Appearance Score'; three sub-criteria to arrive at an 'Overall Body/Odour Score', and three sub-criteria to arrive at an 'Overall Flavour Score'. The worst score in respect of any sub-criteria under the categories appearance, odour, body/texture and flavour is taken as the overall score in respect of the category. The worst of the overall appearance/body-odour and flavour scores is then taken as the 'Overall Product Acceptance Score'. Further, if one of three graders undertaking an assessment fails the cheese, the cheese will fail sensory assessment, even though the other graders consider the cheese acceptable.[686]
559 Ms Carter was questioned about an assessment of Bega Branded Product (Colby) undertaken by four Bega cheese graders. The Colby cheese was given a score of five, four or six on 59 of 60 criteria. One grader, Mr Tadzenko, assessed the cheese as failing on one of the criteria, body, with a score of three. The other three cheese graders disagreed with that assessment. Mr Tadzenko scored the cheese at 'five' for the other 11 sub-criteria.[692]
560 I asked Ms Carter, who led the development of the new grading system,[693] whether she thought the outcome of the assessment was wrong. The exchange between Ms Carter and myself was as follows:
HIS HONOUR: Well, do you accept that that's a mistake?
MS CARTER: Um.
HIS HONOUR: Given what Mr Creighton-Selvay has just put to you, 59 out of 60 - ?
MS CARTER: Yeah.
HIS HONOUR: - and it's been given a fail. So you accept that's wrong?
MS CARTER: No, I don't accept that it's wrong. I think, um, there's always going to be some variation between graders. It's never going to be a system - or any assessment system like that, you're never going to end up with the graders getting the same scores all the time, because it is that little bit subjective and dependent on, you know, people's experiences and strengths and weaknesses, so, yeah, it's always going to be a little bit different. We did discuss, um, whether particular items in the grading sheet should be weighted so that, you know, for example, should flavour be worth more, so to speak, than, um, body, for example. You know, however, we just - we decided that that perhaps wasn't the right approach, so we left it as being an unweighted score sheet.
HIS HONOUR: But three graders disagreed with the one grader who failed it. Why isn't it three against one? Why would the one outweigh the three? I don't understand that?
MS CARTER: Yeah, um, I guess this was, um - yeah, look, I'm - I'm not sure, Your Honour.[694]
561 Ms Carter was unable to advance any plausible explanation as to why the assessment of a single grader, inconsistent with the majority's assessment, would justify the cheese failing sensory assessment. Bega submits:
Bega does not consider it satisfactory to take a group approach to grading for the reasons in BCCS [1469]-[1478], even if for the sake of getting more numbers on the board (ie graders to agree with each other that cheese should fail).[695]
562 The contention that 'Bega does not consider it satisfactory to take a group approach for grading' is unsupported by any evidence. Indeed, there is no evidence before the Court which provides any justification for a grading system under which dissenting assessment which fails a cheese product should prevail over a majority assessment which passes the cheese.
563 In contrast to Bega's grading system, the Dairy Industry Association of Australia ('DIAA') cheese grading system typically involves a panel of three judges who each score a product out of a total of 20 points, with the scores of the judges averaged to arrive at a product score.[696] The 20 point grade is comprised of ten points for flavour, six points for body and texture, and four points for presentation.[697] The points are then aggregated with a cheese awarded 18 points or higher obtaining a gold medal, and cheese awarded 16.5 points or higher a silver medal.[698]
564 Bega's motivation for introducing a new grading system in mid-2018 is irrelevant to the question whether the plaintiffs breached clause 8.1 of the TMLA. The question for determination is whether the grading results recorded in the attachment to CQN2 and the CQP support a finding that the plaintiffs breached clause 8.1 of the TMLA. That question must be answered in the negative.
565 Bega accepts that the allocation of one fail grade (from the 12 grading criteria) by one grader is sufficient for the particular cheese to fail the grading system. The practical consequence of this is a significant increase in the number of cheese products which will fail assessment compared to a system (such as that of the DIAA) involving aggregation of scores and the averaging of the scores of multiple judges. The practical effect of Bega's system is to significantly increase the likelihood that Bega Branded Product will fail sensory assessment. This conclusion bears directly on the question of whether the results of the grading system, as set out in the attachment to CQN2 and the CQP, discharge Bega's evidentiary burden of establishing Fonterra's breach of clause 8.1 of the TMLA.
566 There were only five samples in the Annexure to CQN2 which were assessed by Mr Norrie, Mr Klekowski and all of Bega's internal graders as having failed sensory assessment.[699] Bega does not dispute this, but submits that 66 per cent of all products that failed Bega's new grading system were failed by two or more graders.[700] It follows that one third of the failed grades involved a single grader in circumstances where the majority of the graders passed the cheese.
567 Bega accepts that the new grading system is such that the allocation of one fail grade by one grader is sufficient for the particular cheese to fail the grading system.[701] However, Bega submits:
Whereas having a more comprehensive set of criteria (12) has given Fonterra room to contend that a fail on 1 attribute out of 12 seems unreasonable. Properly viewed in context, the number of attributes in the template sheet has not had a material impact on what graders have chosen as the key attribute of concern - 94% failed for flavour ...[702]
The figure of 94 per cent has to be viewed in the context that a cheese will fail for 'flavour' if allocated a score outside of the range of 4-6 by one grader on any one of the three flavour sub-criteria: flavour intensity/unexpected defects/bitterness.
568 Between 1 April 2018 and 20 September 2018, Fonterra received a total of ten complaints from Bega regarding cheese quality. All of these complaints related to 'Strong and Bitey' cheese.[703] On each occasion Fonterra retrieved a carton of 'Strong and Bitey' from its New Cold storage facility for testing.[704] The Annexure to CQN2 listed many cheese products other than 'Strong and Bitey' which Bega claimed had failed its grading system. All of these products had been approved by Bega to be released for sale into the market.[705] Fonterra had not undertaken any of its own assessment of these Branded Products prior to receipt of CQN2 because it was not aware that Bega had any concerns regarding the quality of the cheese used to manufacture these Branded Products.[706] In effect, Fonterra was denied an opportunity to undertake its own sensory assessment of the overwhelming majority of the cheese products which Bega alleges, in support of CQN2, were of poor quality.
569 I accept the plaintiffs' submission that both Mr Klekowski and Mr Norrie adopted an approach to grading Branded Products which was inconsistent with the sensory attributes agreed between Bega and Fonterra as recorded in the Food Product Specifications ('FPS').[707] Mr Klekowski gave evidence that he undertook his sensory assessment for Bega on the basis that Tasty Branded Products should have been matured for six months.[708] The FPS record that Tasty 250 g and 500 g block products can be matured for four months; Tasty grated: three months; Tasty sliced: two months; Tasty 1 kg block: three months.[709] Mr Norrie gave evidence that 'tasty cheese which has a smooth mouthfeel reflects a defect'.[710] The FPS for Tasty grated Branded Products refers to a 'full flavoured cheddar cheese with a smooth and creamy texture'.[711]
570 Annexure C to Ms Carter's witness statement comprises all grading sheets completed by internal graders in the period July 2018 to May 2019 which resulted in a score outside the range of 4-6 (ie a fail). When Annexure C is analysed from the perspective of products where a majority of graders failed the product, the position is as follows. Only four samples of all Colby, 250 g/500 g Tasty block (H4), 250 g/500 g Strong & Bitey (H11), 1 kg/750 g Tasty block (T3), Tasty grated (M2), reduced fat (RF15%), reduced fat vintage (RTF7/RFV) Branded Products were assessed by a majority of Bega's graders as failing sensory assessment on any of the 12 criteria and there were only two samples where all graders identified an alleged defect.[712] These grading results support a finding that the cheese supplied to Bega to manufacture Branded Product was of a consistently high standard and complied with clause 8.1 of the TMLAs.
571 The Branded Products which have regularly been identified by Bega's internal graders as failing sensory assessment are Tasty slice (SL2) and Strong & Bitey slice (SL9). The primary reason why SL2 and SL9 products were assessed as failing sensory assessment was lack of flavour.[713] The flavour intensity of SL2 and SL9 products was assessed by reference to the flavour intensity prescribed in QPM1, QPM3 and the grading sheet.[714] Ms Carter accepted that the flavour intensity prescribed by QPM1 and QPM3 was higher than the existing flavour of Branded Products in the market during the period July to September 2018[715] and that it was unsurprising that some Branded Products had failed on the basis of lack of flavour intensity.[716] Ms Carter also agreed that there are some differences between the flavour requirements identified in the applicable FPS and the grading sheet in respect of such products,[717] and that the grading sheet contains a number of requirements in respect of flavour which are not prescribed in the relevant specification.[718]
572 On the basis of the matters set out above, the internal assessment resulting in failure of some SL2 and SL9 products on the grounds of lack of flavour does not establish that the products were not of high quality such as to constitute a breach of clause 8.1 of the TMLAs.
573 Mr Klekowski gave evidence that he assessed the flavour of Branded Products by reference to the flavour intensities prescribed by QPM1, QPM2 and QPM3 and the grading sheet[719] and that he expected Tasty Branded Products to have been matured for six months and Strong & Bitey products to have been matured for in excess of 12 months.[720] Mr Klekowski accepted that if he had graded Bega branded cheese on the basis that it was not required to have a moderately strong flavour intensity but a milder flavour intensity, many of the scores of three that he gave for flavour may have been scores of four or five.[721]
574 Ms Carter accepted that in the period post-July 2018, total customer complaints received by Fonterra in relation to sliced Branded Products have 'plummeted'.[722] Ms Carter attributed this decline to a significant reduction in mould complaints.[723] Nevertheless, Ms Carter accepted that there had been no increase in organoleptic complaints to offset the decline in mould complaints.[724] Organoleptic complaints by consumers in respect of SL2 and SL9 products fell from 84 in 2017 to 56 in 2018, to 24 in the first half of 2019.[725]
575 Ms Carter accepted that about one month after Bega introduced its new grading system in July 2018, it became apparent that there were discrepancies between the grading results of Bega's internal graders and those provided by the external graders, Mr Norrie and Mr Klekowski.[726] Ms Carter accepted that notwithstanding Bega was made aware of the inconsistent grading results produced by its internal and external graders, it relied on those results to issue CQN2 on 20 September 2018.
576 On 26 October 2018, Bega's internal and external graders attended a 'calibration session'.[727] Ms Carter's calendar invitation relating to the session stated: 'Looking at our external grade results compared to our internal results at times there is quite a gap which we need to bridge'.[728] Mr Klekowski agreed that the purpose of the calibration session was to attempt to get the grading results of the internal graders more closely aligned with those of himself and Mr Norrie because the results had been 'wildly divergent'.[729] The reason for the divergence was that Mr Klekowski was a 'much tougher marker' on flavour than Bega's internal graders.[730]
577 There were a number of instances of 'fundamental difference[s]' and 'fundamental disagreement[s]' between sensory assessments of Branded Products undertaken by Mr Klekowski and Mr Norrie.[731] The divergence of opinion between Mr Norrie and Mr Klekowski is illustrated by the following examples:[732]
(a) Mr Norrie assessed a sample as having 'excessive large splits' but a 'well developed flavour with a clean finish',[733] whereas Mr Klekowski assessed the same sample as having a perfect appearance but 'little flavour';[734]
(b) Mr Norrie assessed a sample as being 'slightly pale', having a 'weak body' and 'lacks flavour development',[735] whereas Mr Klekowski assessed the same sample as having perfect colour, body and flavour;[736]
(c) Mr Klekowski assessed a sample as having 'large splits across the stack',[737] whereas Mr Norrie assessed the same sample as perfect on appearance;[738]
(d) Mr Norrie assessed a sample as having a 'nice colour' and 'firm body',[739] whereas Mr Klekowski assessed the sample as 'pale in color [sic]' and 'body is on curdly [sic] side';[740]
(e) Mr Norrie assessed two samples as perfect 5s on flavour and commented that those samples had 'reasonable flavour' and 'reasonable flavour development',[741] whereas Mr Klekowski failed those samples on flavour and commented 'very light in flavour' and 'light in flavour to meet the profile';[742] and
(f) Mr Norrie assessed a sample as having a 'clean flavour',[743] whereas Mr Klekowski assessed the same sample as having a 'strange aftertaste'.[744]
578 Mr Norrie agreed on the basis of the H4 tab of the CQP that Bega's internal graders often disagreed with either himself or Mr Klekowski and that their scoring had been consistently different.[745]
579 Mr Klekowski and Mr Norrie are highly experienced cheese graders, but there are many instances in which they disagreed in their sensory assessment of Branded Products, including whether the products passed or failed sensory assessment.[746] This finding is not a criticism of either Mr Norrie or Mr Klekowski. Rather, it reflects the subjective nature of cheese grading. Under Bega's grading system, the allocation of a fail grade on one of 12 criteria by one grader is sufficient for that particular cheese to fail assessment. The grading results produced by this system fall well short of establishing that the plaintiffs failed to comply with the obligation under clause 8.1 to ensure that Branded Products are of a consistently high and uniform standard, quality, appearance and character and comply with the product specifications.
(a) Fonterra breached clause 8.1 of the Fonterra TMLA and clause 13.7 of the PSA; and
(b) Bonland breached clause 8.1 of the Bonland TMLA
581 This conclusion renders it unnecessary to address the question of whether Bega has established that it suffered a material adverse effect as the result of the alleged breaches in CQN1 and CQN2 which enlivened a right to terminate the TMLAs and the PSA. Nevertheless, for the sake of completeness, I shall address this issue.
582 If, contrary to the conclusions set out above, Bega had established that the plaintiffs breached clause 8.1 of the TMLAs and clause 13.7 of the PSA on the basis of the matters contained in CQN1 and CQN2, they would not be entitled to terminate the TMLAs pursuant to clause 16.1 of the Fonterra TMLA or the PSA pursuant to clause 20. The right of termination is contingent upon Bega establishing that the breaches of clause 8.1/13.7 'ha[d] a material adverse effect on Bega'. Bega has not established that the breaches had a material adverse effect upon it.
583 The phrase 'material adverse effect' means a significant adverse effect. This is consistent with the ordinary meaning of 'material'. Relevantly, the Oxford English Dictionary defines 'material' as: '[o]f evidence or a fact: significant or influential, esp. in having affected a person's decision-making'.[747] It is also consistent with authority which has considered the meaning of 'material adverse effect' and 'material breach'.[748] The relevant inquiry is whether the plaintiffs' failure to observe or perform any terms of the agreement 'has a material adverse effect on Bega'. The word 'has' denotes a material adverse effect which has occurred in contradistinction to an adverse effect which may occur at some time in the future.[749] The assessment of materiality is directed not to the conduct which constitutes a failure to observe or perform any terms of the TMLA and/or PSA. Rather, the assessment is directed to the effect of the conduct on Bega, and in particular, whether the effect has been significantly adverse.
584 Bega alleges that Fonterra's breach of clause 8.1 of the Fonterra agreement and clause 13.7 of the PSA and Bonland's breach of clause 8.1 of the Bonland TLMA 'has damaged or, if it continues, will damage the Bega brand and its associated goodwill'.[750]
585 Bega has failed to establish that any breach of clause 8.1 of the TMLAs and/or clause 13.7 of the PSA has damaged the Bega brand and its associated goodwill.
586 Sales data does not support Bega's contention. During the 2018 calendar year, total sales of reduced fat Branded Products increased in both value and tonnage even though total sales of reduced fat fixed weight cheese reduced in Australia, by both value and tonnage.[751] Sales of all Branded Products increased in value from [redacted] in FY 2017 to [redacted] in FY 2019[752] and increased in volume from [redacted] tonnes in FY 2017 to [redacted] tonnes in FY 2019.[753]
Fonterra's breaches have had a material adverse effect on Bega in that the sale of Bega branded RF15% cheese with significant and unacceptable levels of inconsistency in flavour and texture has damaged the Bega brand. It has also likely led to lost sales as customers who purchased RF15% were likely to be disappointed with flavourless and significantly more likely to try competitor brands or private label cheese, with little prospect of returning. Bega's submissions about the effects of inconsistency [sic] quality of cheese (below from paragraphs 1881 below) apply with equal force to RF15% cheese.[754]
Graders' results in the CQP evidence inconsistency in the quality of cheese sold by Fonterra under the Bega brand. Bega submits that the inconsistency in and poor quality of Bega branded cheese sold by Fonterra has had a material adverse effect on Bega in the form of brand damage and also likely lost sales (resulting in lost royalties). Bega has not been able to quantify its losses because the number of customers who have decided, or will decide, to stop purchasing Bega-branded cheese products as a result of poor or inconsistent quality cheese is unknown. This, however, ought not preclude a finding of material adverse effect in light of the evidence about the adverse effects of inconsistency in quality discussed below.[755]
589 In response to Fonterra's reliance upon evidence of increased sales of Bega Branded Products, Bega submits:
It is not to the point, when assessing breach, that sales increased between FY17 and FY19. There were other factors that bore upon the increase in sales, in particular Bega's extensive advertising campaigns when it purchased the Mondelez grocery business which generated a lot of goodwill for the Bega brand and enhanced sales of Bega branded cheese.[756]
590 I accept that Bega's advertising campaign following its acquisition of the Mondelez grocery business may have made a positive contribution to sales of Bega Branded Products. However, I reject Bega's submission that this advertising campaign is the sole or principal reason for the increase in sales. Bega's primary contention, which I accept, is that the marketing of poor quality cheese products will almost certainly translate into reduced sales. Irrespective of how much money was spent by Bega promoting the Bega brand following the acquisition of the Mondelez grocery business, if the cheese marketed under the Bega brand was of poor quality, this would be likely to translate into reduced sales.
591 Dr Honeywill was asked to address the following question:
Assuming that, from at least June 2018 to present, the quality of the cheese used in Bega branded cheese products has been inconsistent in the manner described in paragraphs 6 and 7 of Schedule 2, what impact, if any, is this likely to have, or have had, on the Bega brand in the short, medium and long term?[757]
In response to this question, Dr Honeywill gave the following evidence:
By packaging and distributing Bega branded cheese products with significant and unacceptable levels of variation or inconsistency in flavour, appearance, odour, smell, and texture Fonterra is damaging the Bega brand.
In the short-term that damage will likely express as a negative impact on sales.
In the mid-term the damage to the Bega brand will likely be experienced as increasing negative impact on sales and the erosion of brand equity.
Should the inconsistency not be remedied by Fonterra, the long-term damage to the Bega brand will likely be experienced as continuing negative impact on sales and permanent damage to Bega brand equity.[758]
592 In reply, Professor O'Sullivan gave the following evidence:
In responding to SIXTH SET OF QUESTIONS Questions 1-4, Dr Honeywill makes statements about the impact of any inconsistency in the quality of a branded product.
I broadly agree with the statements that Dr Honeywill makes regarding the importance of maintaining consistent quality of the products marketed under a brand.
In a marketing context, quality is determined by the consumer. That is, products have or lack quality to the extent that consumers perceive that products have or lack quality. This is particularly the case when it comes to attributes - such as taste, appearance, odour and texture - where assessments of quality are highly subjective. A mature cheese that is full flavoured may be positively viewed by one consumer but not by another.
So, when Dr Honeywill states that 'Failure to maintain consistent quality and taste levels that consumers expect is one of the key elements in brand destruction' (paragraph 477 of his report), I agree, with the qualification that quality and taste levels are as judged by the customer.
Therefore, while cheese products marketed under the Bega brand name may have failed sensory tests (paragraph 481 of his report), unless consumers were disappointed by the taste, appearance, odour, smell and texture of the products, it is difficult to see how harm would be caused to the brand.
Unless there is a material fall-off in customer evaluation of and/or purchase of, Bega branded cheese due to the sensory qualities of the products marketed under the brand, there will not be any damage to the brand.[759]
593 Dr Honeywill specifically identifies negative impact on sales as a likely consequence of the sale of poor quality cheese. Professor O'Sullivan is broadly in agreement with this opinion, subject to the qualification that it is the assessment of quality as judged by the customer which is the key consideration in terms of potential damage to the brand. The sales data is unequivocal. There has been no reduction in sales of Branded Product during the period Bega alleges the plaintiffs have been in breach of their obligations under clause 8.1 of the TMLAs and clause 13.7 of the PSA. The sales data points strongly to the conclusion that, contrary to Bega's allegations, the cheese supplied by Fonterra has had no material adverse effect on the Bega brand. Bega has no right to terminate the TMLAs pursuant to clause 16.1(a) of the Fonterra TMLA.
594 Bega alleges that since in or around 2008 Fonterra and Bonland represented to consumers that all cheese in the Branded Products is made in the Bega Valley ('the Representation').[760] Bega alleges that the Representation was and is not true in that not all cheese in the natural cheddar cheese and Colby cheese Branded Products was made in the Bega Valley.[761] Bega contends that the cheese in natural Branded Products is made at the place where milk and other products are converted into bulk cheese.[762] It is common ground that during the relevant period of time not all of the bulk cheese in natural cheddar and Colby Branded Products was converted from milk into bulk cheese in the Bega Valley.[763]
Subject to Bega's obligations under the Product Supply Agreement, the Licensee will be solely responsible for ensuring compliance with all legal, statutory, regulatory and other requirements relating to labelling, packaging, advertising, distribution, sale, manufacture and other such like matters in connection with the Products and the Trade Marks.
596 Bega alleges that the plaintiffs conveyed the Representation to consumers by three means:
(a) through 'promotion, advertising and marketing campaigns', namely:
(i) by statements made in television advertisements broadcast as part of the 'Famous For' campaign between 2008 and 2011;[764]
(ii) by statements made in television advertisements (known as the 'Ron Apps' and 'Ubrihien' advertisements) broadcast as part of the 'Real Farmers' advertising campaign in 2009 and 2010, one of which, a version of the Ron Apps advertisement was rebroadcast in 2015;[765]
(iii) by statements, including the 'Real Town, Real Cheese' slogan, said to have been made in two print advertisements, being one in the Weight Watchers magazine in 2014 and another in the Buy Australian magazine in 2014;[766]
(iv) by the statement 'Real Town, Real Cheese' used 'in promotional material displayed at the 2017 Sydney Royal Show'.[767]
(b) through content at the website at www.bega.net.au (which is managed by Fonterra);[768] and
(c) through the packaging of the Branded Products.[769]
597 Bega seeks a declaration that the plaintiffs have breached ss 18 and 29(1)(k) of the ACL, but does not seek damages or an injunction. Bega contends that it is entitled to terminate the TMLAs because the plaintiffs have breached clauses 6.1, 6.3 and 7.3 of the TMLAs. Bega submits that it is entitled to terminate the TMLAs on three bases:
(i) pursuant to the notice served under clause 18.1(a) of the TMLAs on 30 October 2018 which alleged a breach of clause 7.3 based on a contravention of the ACL ('Provenance Notice');
(ii) for alleged breaches of clauses 6.1(b), 6.3 and 7.3 of the TMLAs on the basis that the breaches were breaches of a condition or a sufficiently serious breach of an intermediate term; and
(iii) that by making the Representation in conjunction with the other breaches alleged in the Marketing and Promotion claim and the Cheese Quality claim, the plaintiffs repudiated the TMLAs.
598 For the reasons set out below I reject Bega's contention that the plaintiffs breached clauses 7.3, 6.1(b) or 6.3 of the TMLAs. The alleged breach of clause 7.3 is contingent upon a finding that the plaintiffs contravened s 18 and/or s 29(1)(k) of the ACL. Bega has failed to establish that the plaintiffs breached these provisions. Further, if Bega had done so, it has failed to establish that any breach of clause 7.3 has had a material adverse effect upon it. As a result it has no right of termination pursuant to clause 16.1(a) of the TMLAs. Bega's claim that the plaintiffs have breached clauses 6.1 and/or 6.3 is based on the contention that the Representation was false and untrue. Bega has failed to establish that the Representation was conveyed to consumers by the impugned conduct. Further, Bega has failed to establish that the good name and image of the Trade Marks was harmed by the impugned conduct (clause 6.1(b)) or that the value of the Trade Marks has been damaged by the impugned conduct (clause 6.3).
599 Section 18(1) of the ACL provides as follows:
A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
600 Section 29(1)(k) of the ACL provides:
A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services;
(k) make a false or misleading representation concerning the place of origin of goods.[770]
601 For the purpose of determining whether the impugned conduct is misleading or deceptive or entails the making of a false or misleading representation concerning the place of origin of goods it is necessary to adopt a two-step analysis:
(i) consider whether the pleaded representation is conveyed by the impugned conduct; and
602 For the purpose of both the first and second steps it is necessary for the Court to have regard to the following matters. First, the class of consumers likely to be affected by the conduct must be identified.[772] The class of consumers likely to be affected by the impugned conduct are consumers of fixed weight cheese, purchased in Australian supermarkets. Second, it is necessary to consider who comes within that class, including the astute and the gullible, the intelligent and not so intelligent, the well-educated and the poorly educated.[773] The effect of the conduct must be tested against ordinary or reasonable members of the class.[774] To consider the reaction of a reasonable class member is to consider the reaction of a significant proportion of the target audience or at least a not insignificant proportion.[775] Whether a representation is false, misleading or deceptive is a question of fact to be decided objectively by the Court having regard to the particular circumstances of the case.[776]
The 'Famous For' television advertising campaign
603 Bega alleges that the Representation was conveyed in the 'Famous For' television advertising campaign:
(a) by the express statement 'Bega is famous for Bega. Bega is made in the town of Bega for over 100 years'; and
(b) impliedly by the statement 'Bega is famous for Bega'.[777]
604 The 'Famous For' advertising campaign concluded in January 2011, more than six years prior to the commencement of the counterclaim on 23 March 2018. The relief claimed for breach of clauses 6.1, 6.3 and 7.3 of the TMLAs based on the 'Famous For' advertising campaign is statute barred.
605 Bega submits that the 'Famous For' advertisements are relevant because they form part of the background to the conduct occurring within the limitation period which continued and leveraged off messaging previously put into the public domain.[778] I reject this submission. First, Bega does not plead that the 'Famous For' advertising campaign had any ongoing effect. The pleaded allegation that pre-2012 conduct had an ongoing effect is confined to the 'Real Town, Real Cheese' campaign. Bega pleads that website content is 'reminiscent of the "Real Town, Real Cheese" campaign'[779] and that the black and white images on packaging are 'similar to, or the same as, the images used in the "Real Town, Real Cheese" campaign'.[780]
606 It is a question of fact whether an earlier advertisement is likely to affect the understanding of a consumer in respect of subsequent impugned conduct.[781] There is no evidence that the 'Famous For' campaign had an ongoing effect upon the understanding of reasonable consumers of the plaintiffs' subsequent impugned conduct. Further, there is no basis for drawing an inference that the campaign would have had any such ongoing effect.
607 There were seven advertisements in the 'Famous For' campaign.[782] Each advertisement featured individuals who were located in different towns around Australia, explaining that those towns are not famous for the things with which they share the same name. A man holding two brooms stated: 'Broome isn't famous for brooms'. A boy holding collectables stated: 'Collector is not famous for collectors'. A man holding a tambourine stated: 'Tambourine is not famous for tambourines'. Each advertisement concluded with a man, woman or child holding a Branded Product stating: 'But Bega is (or 'Bega's') famous for Bega', followed by a male voice over making a reference to the particular product displayed in the advertisement.
608 The statement 'Bega is famous for Bega. Bega is made in the town of Bega for over 100 years', was made in one of the seven advertisements. The actual statement which was made is 'Bega, made in the town of Bega for over 100 years'.[783] The commercial was last broadcast on 7 July 2009.[784] Given the passage of time, it is unlikely that a reasonable consumer would have any recollection of the commercial.
609 Bega also relies upon one of the seven advertisements which featured a voice over 'Bega Strong & Bitey, made in Bega for over 100 years', while a block of Strong & Bitey is held.[785] It is common ground that the bulk cheese for 250 g and 500 g Bega Strong & Bitey and Bega Farmers' Tasty is made by Bega in the Bega Valley.[786]
610 The pleaded Representation 'all cheese in the Branded Products is made in the Bega Valley' is not conveyed to consumers by the 'Famous For' advertisements. The statement: 'Bega, made in the town of Bega for over 100 years' was only made in relation to Bega Farmers' Tasty 250 g. The statement is accurate because this product is made from milk converted into bulk cheese in the Bega Valley.
611 The Representation was not implied by the statement, 'Bega is famous for Bega'. A reasonable consumer of fixed weight cheese would consider that the town of Bega is famous for Bega cheese. The statement 'Bega is famous for Bega' is literally true. A statement which is literally true may nevertheless be misleading if it conveys 'something more than the literal meaning which the words spelled out'.[787] Whether something more than the literal meaning has been conveyed by a statement is a question of fact and involves consideration of the surrounding circumstances.[788]
612 The statement 'Bega is famous for Bega' conveys the heritage of the Bega brand derived from the strong association between the brand and the Bega Valley. However, the statement does not convey to a reasonable consumer of fixed weight cheese the pleaded Representation that all of the cheese in Branded Products is made, in the sense of milk and other products being converted into bulk cheese, in the Bega Valley. The dominant message[789] of the advertisements is the strong association between the Bega brand and the Bega Valley. This would not convey to a reasonable consumer of fixed weight cheese the additional message that all cheese in Branded Products is made in the Bega Valley. The context of the statement is not the location of the manufacturing plant where milk is converted into bulk cheese. Rather, the context is the source of the milk which is used to make Branded Products and the dairy farmers in the Bega Valley who produce that milk. There is no nexus between this context and the pleaded Representation. Bega does not allege that the 'Famous For' campaign contravened ss 18 and/or 29(1)(k) of the ACL because it conveyed a misrepresentation about the source of the milk used to make the cheese in Branded Products and the location of the dairy farmers who produce that milk. Rather, Bega's allegation of misrepresentation is confined to the location where the milk and other products are converted into the bulk cheese which is subsequently cut and wrapped as Bega Branded Product. The 'Famous For' advertising campaign does not convey the pleaded Representation.
'Real Town, Real Cheese' advertising campaign
613 Bega alleges that the Representation was conveyed by express statements in the 'Real Town, Real Cheese' advertising campaign to the effect that Bega is a 'real town' and this is where the 'real cheese' comes from.[790]
614 The 'Real Town, Real Cheese' campaign consisted of two sets of television advertisements. One of the advertisements featured Ron Apps. The other advertisement featured Peter and Ray Ubrihien.[791] There were 60 second and 30 second versions of each advertisement. The advertisement featuring Peter and Ray Ubrihien was broadcast for two weeks between 11 to 25 April 2010.[792] Both the 60 second and 30 second version of the Ron Apps advertisement was broadcast during March 2010. The 30 second version of the advertisement was broadcast on one day in September 2010.[793] A 30 second version of the Ron Apps advertisement was rebroadcast on television between 25 January and 11 July 2015.[794] The 30 second versions of the Ron Apps advertisement differ. At the conclusion of the advertisement, the 2010 version showed a Bega Strong & Bitey block whereas the 2015 version showed a Bega Farmers' Tasty 250 g block. The Ron Apps advertisement has not been broadcast on television since July 2015.[795]
615 Save for the Ron Apps advertisement broadcast between January and July 2015, Bega's claim for relief based upon the 'Real Town, Real Cheese' advertising campaign is statute barred. Putting this to one side, the advertisements do not convey the Representation. The 'Real Town, Real Cheese' advertisements feature Bega Valley dairy farmers and their families. The advertisements are on all fours with the Agreed Marketing Principles:
616 The focus of the advertisements is the source of the milk and the 'salt of the earth' dairy farmers who produce the milk which goes into Bega cheese. The word 'Real' in 'Real Town, Real Cheese' is not directing the consumer's attention to the existence of a cheese manufacturing plant in the town of Bega. Rather, it directs the consumer's attention to the lush green pastures of the Bega Valley and the dairy farmers who supply the milk which goes into Bega Branded Product.
617 Bega does not allege that the 'Real Town, Real Cheese' advertisements convey a misleading representation that all of the milk in Bega Branded Products is sourced from the Bega Valley. Further, Bega does not allege that the 'Real Town, Real Cheese' advertisements are misleading by reason of conveying a representation that all cheese in Branded Products is sourced from dairy farmers located in the Bega Valley. As Bega does not plead this representation, there is no utility in addressing the question of whether the advertisements are misleading by reason of conveying that representation.[796]
618 Bega submits that when it commissioned a study 'it found that nearly half of respondents thought that Bega cheese was made in Bega, and the proportion who thought that leapt to 78 per cent after seeing the "Real Town Real Cheese" commercial'.[797] The study was market research conducted by Harvest Insights which was commissioned by Bega in May 2018.[798] The finding of the Harvest Insights study that 78 per cent of respondents thought that Bega cheese was made in Bega after seeing the 'Real Town, Real Cheese' commercial is of no probative value. Whether conduct is misleading or deceptive, or is likely to mislead or deceive is an objective question which the Court must determine for itself.[799] Evidence that a consumer has in fact been misled is neither required nor conclusive.[800] Evidence of opinions based on market research and expert views of consumer behaviour will 'rarely be of assistance in litigation where the Court's primary concern is with the behaviour to be expected of, and the judgments likely to be made by, ordinary (even if it might be thought, somewhat credulous) members of the community intent on making a relatively modest purchase in a conventional way'.[801]
619 Professor O'Sullivan was highly critical of the methodology underpinning the findings of the Harvest Insights research, including deficiencies in research design and the 'priming' of participants who were asked, 'Where do you think this cheese is made, that is the location where the milk is turned into cheese?', prior to being shown the 'Real Town, Real Cheese' commercial.[802] I accept these criticisms.
620 Dr Honeywill relied upon the Harvest Insights report for the purpose of his opinion that 'following a viewing of Fonterra's "Real Town, Real Cheese" advertising campaign for Bega, 78 per cent of respondents said Bega cheese was made in Bega or the Bega Valley'.[803] Professor O'Sullivan considered that this statement by Dr Honeywill was misleading because:
(a) the Harvest Insights research methodology is flawed;
(b) prior to being shown the advertisement, 46 per cent of respondents mentioned Bega in response to the question - where do you expect this cheese is made? Acknowledgement of this 46 per cent starting point is important when assessing the impact of the advertisement on consumer perception;
(c) there appears to be an implication of exclusivity in how Dr Honeywill interprets the findings - ie, that survey respondents believed the cheese was exclusively made in Bega or the Bega Valley; and
(d) it is unclear whether respondents were expressing the view that they expect Bega branded cheese is (a) made in Bega, or (b) made exclusively in Bega. The former would be consistent with the idea that the campaign underlined the centrality of Bega (the place) to the heritage of the brand and the brand's continued relationship with that place. The latter would be consistent with the idea that the campaign suggested that Bega branded cheese is made exclusively in the Bega Valley. It is difficult to say whether none, some or all of the 78 per cent of respondents expected that Bega branded cheese was made exclusively in Bega.[804]
621 Dr Honeywill was cross-examined regarding Professor O'Sullivan's criticism of his opinion based on the Harvest Insights report. Dr Honeywill stated that he agreed with Professor O'Sullivan's criticism of his opinion in connection with provenance and the extent to which he could rely on the Harvest Insights report.[805]
622 Whether an advertisement makes a false or misleading representation concerning the place of origin of a product requires consideration of the nature of the product itself and the expectations and likely understanding of purchasers.[806] In Australian Competition and Consumer Commission v Kingisland Meatworks and Cellars Pty Ltd ('Kingisland Meatworks')[807] Murphy J concluded that:
By its shop signage, its newspaper advertisements, its use of the Logo, and its use of its domain name and website King Island Meatworks conveyed the representation that all, or at least a significant proportion, of the meat that it sold was grown or raised on or was otherwise from King Island. This was not the case as from July 2008 until February 2011 none of the meat it sold was sourced from King Island, and thereafter only very limited sales were made.[808]
623 Each case turns on its own facts. The product which was the subject of the Court's findings of contravention of the ACL in Kingisland Meatworks was meat. As a result of the promotional activities engaged in by King Island Meatworks the expectation and likely understanding of consumers was that all, or at least a significant proportion of the meat was grown or raised or was otherwise from King Island.
624 The product which is the subject of Bega's allegation of contravention of the ACL is cheese. A reasonable consumer of fixed weight cheese would understand that the primary component of cheese is milk, but would otherwise have little, if any, understanding of the manufacturing process by which milk is added to other products and converted into cheese. The dominant message of the 'Real Town, Real Cheese' advertisements is not the location of the place where milk is converted into bulk cheese. Rather, the dominant message is the origin of the milk which is the primary component of Bega cheese Branded Product.
625 In Australian Competition and Consumer Commission v Trivago NV[809] Moshinsky J stated:
The second step involves an objective determination by the Court of the effect of the representations on the ordinary or reasonable members of the class of consumers to whom the conduct is directed. Conduct is misleading or deceptive, or likely to mislead or deceive, if it has a tendency to lead into error. As Allsop CJ held in Coles at [39], "[t]he causing of confusion or questioning is insufficient; it is necessary to establish that the ordinary or reasonable consumer is likely to be led into error". As this passage indicates, and as the High Court held in Campomar at [105], the focus of the inquiry is on the meaning that would be conveyed to a hypothetical ordinary or reasonable member of the relevant class of consumers. In that context, it is relevant to consider: whether any of the alleged reactions are extreme or fanciful such that they should not be attributed to the ordinary or reasonable members of the class of consumers; and whether a not insignificant number of consumers are likely to have been led into error.[810]
626 I do not accept Bega's contention that as a result of viewing the Ron Apps commercial an ordinary or reasonable consumer of fixed weight cheese is likely to erroneously believe that all cheese in Bega Branded Products is made, in the sense of the milk being converted into bulk cheese, in the Bega Valley. The 'Real Town, Real Cheese' advertising campaign does not convey the Representation.
'Real Town, Real Cheese' print advertisements
627 Bega submits that the Representation was conveyed by the use of the 'Real Town, Real Cheese' slogan in print advertisements, including in the Weight Watchers magazine and the Buy Australian magazine.[811] I reject this submission.
628 As with the use of the slogan in television advertisements, the use of the 'Real Town, Real Cheese' slogan in the print advertisements does not convey a representation that all of the cheese in Bega branded products is made, in the sense of milk and other products being converted into bulk cheese, in the Bega Valley.
629 Bega alleges that an advertisement for Bega 'Stringers' in a Buy Australian magazine dated January 2014 conveys the Representation. However, in its reply submission, Bega withdrew this allegation:
As Bega's provenance case is that the Representation was misleading in relation to natural cheddar and Colby cheese (Defence [74]) it accepts that advertisements solely regarding processed cheese products (which are made in Bega) should be disregarded.[812]
Bega's submission footnotes Fonterra's submission 'regarding Stringers advertisement'.[813] Bega accepts that its reliance upon the advertisement for cheese Stringers in the Weight Watchers magazine is irrelevant to its claim.
630 Bega also alleges that the Representation was conveyed by a document recorded in the electronic court book as FDI.012.070.9567_0001. This document is recorded in the electronic court book as having a date of 8 December 2010. Bega does not take issue with this date, nor with Fonterra's submission that Bega's claim for relief based on the document is statute barred. The advertisement is for cheese Stringers and is, in any event, the subject of Bega's concession set out above that it makes no claim for relief based upon advertisements for cheese Stringers. The document, which features a child holding a packet of Bega Stringers, appears to be a proposal from an advertising agency to Fonterra. There is no evidence that the image depicted in the proposal was ever actually published as an advertisement.
631 Fonterra also relies upon a document recorded in the electronic court book as FDI.012.045.9360. This is an advertisement which features a person holding a block of Bega Country Light Tasty 50% less fat cheese. The packaging features a 'Weight Watchers' endorsement. The advertisement features the Bega logo and the statement 'Real Town, Real Cheese'. The prominent message of the advertisement is the statement: IT HAS THE PROPOINTS OF TWO RICE CAKES: (THAT DOESN'T MEAN IT HAS TO TASTE LIKE TWO RICE CAKES). The Representation conveyed by the advertisement is that Bega Country Light Tasty 50% less fat cheese tastes good even though it is low in fat. The advertisement does not convey the Representation.
632 Bega pleads that the slogan 'Real Town, Real Cheese' has continued to be used by Fonterra in promotional material after the 2015 Ron Apps television campaign, including promotional material displayed at the 2017 Sydney Royal Show. The document which Bega relies upon in support of this submission is recorded in the electronic court book as FDI.012.001.8685_0001. This is an email from Fonterra to a media agency (APR Creative) which includes an image of two hands holding a Strong & Bitey 250 g block. The text of the email states:
Re: 9981 - Bega Sydney Royal Corner Store Signage
Hi Raewyn
Thanks for this. Unfortunately, what I have attached is as big as the image gets. You may need to reduce its size on the corflute if the quality is sh!t [sic], when it gets too large. With regards to the dimensions - you are right, and my mock up was out of scale. Do you by chance have the high res image of the ad we have run shown below?
633 The email is not evidence that the artwork was used at the Sydney Royal Show. If the artwork was published it was not misleading because Strong & Bitey cheese is made from milk converted into bulk cheese in the Bega Valley. Bega's own witness, Mr Hampson, accepted that there was nothing misleading about the artwork because Strong & Bitey cheese is made in the Bega Valley.[814]
634 The print advertisements in which the 'Real Town, Real Cheese' slogan appeared and upon which Bega relies, do not convey the Representation.
635 Bega submits that the Representation was implied by:
(a) the home page banner of the website (which is Fonterra's website for the Bega brand)[815] displayed until at least 6 November 2019[816] the statement 'Proudly Australian: Our Heritage' against a black and white backdrop of a rural setting which is reminiscent of images used in the 'Real Town, Real Cheese' campaign. The banner rotated to an image of a pack of Farmers' Tasty Slices being held by a pair of hands in exactly the same way as the advertisement in the 'Real Town, Real Cheese' campaign;
(b) the 'Bega Heritage' section where, against a black and white backdrop of a rural setting which is reminiscent of the 'Real Town, Real Cheese' campaign, the following statements appear:
(i) under 'About us': 'Bega Cheese is an Australian owned and operated cheese located in the beautiful Bega Valley ... The company was founded as a dairy co-operative in 1899 and many of the current owners of Bega Cheese are the 100 plus dairy farmers'. Bega submits that the impression a consumer may fairly take is that the company located in the beautiful Bega Valley with the stated heritage makes the cheese (not just some of it);
(ii) under 'Proudly Australian': 'Bega Cheese is a truly Australian company, employing over 500 staff in the Bega Valley';
(c) The 'Our Farmers' section where, against a backdrop of a young child seated in front of cows in a farm yard, the following statements appeared:
(i) 'Bega Farmers, the people who make our cheese possible';
(ii) 'Bega Farmers. Behind every great Bega Cheese is a bunch of great farmers';
(iii) 'Twenty-four/seven, they look after the cows that give the milk that goes into our cheese. Most raise them from calves, and have been working and caring for the lush green pastures for generations'; and
(d) the content of three videos featuring 'Bega's Real Farmers' which could be reached by links in the website (up until at least 27 February 2018). The videos each contain similar content to the 'Real Town, Real Cheese' television advertisements described above: one of them was the same as the Ron Apps advertisement; the other two featured different farmers.
Bega submits that a reasonable consumer may, viewing the contents of the website, conclude that Bega Branded Cheese is made in the Bega Valley. That impression would be wrong, and on that basis, Bega contends that the website also conveyed the Representation in breach of the relevant provisions of the ACL.[817]
636 Bega's submissions include a reference to three videos: the Ron Apps advertisement and 'the other two featured different farmers'. Of these three advertisements, only the Ron Apps advertisement is in evidence.
637 I reject Bega's submission that the contents of the website conveyed the Representation. None of the matters referred to by Bega, either individually or collectively, convey the Representation. In particular, the contents of the website would not lead a reasonable consumer of fixed weight cheese to erroneously believe that all cheese in Bega Branded Products is made in the Bega Valley. Rather, the dominant message of the website is the heritage of Bega cheese, and in particular, the long-standing connection between Bega, the company, and the dairy farmers of the Bega Valley. The dominant message conveyed by the 'Our Farmers' section of the website is the source of the milk from which Bega Cheese is made. The express statement is that 'twenty-four/seven, they look after the cows that give the milk that goes into our cheese.' This representation is correct. Bega makes no allegation that the website conveys an implied false representation that Bega dairy farmers produce all of the milk which is used in Bega Cheese.
638 Bega submits that the Representation was implied by:
(a) the following statements on Bega packaging:
(i) 'What makes Bega ... Bega? Over 100 years of dairying heritage resulting in the unique Bega taste you know and love';
(ii) 'Bega, since 1899' and 'Proudly Australian owned';
(iii) 'Made in Australia from at least 99% Australian ingredients';
(iv) 'To find out more about our cheese and the Bega Valley, visit bega.net.au'.
Bega submits that these statements fairly convey that all of the cheese - 'Our cheese' - is connected with the Bega Valley. In the context of the statement noted above linking taste to the Bega heritage, it conveys that 'Our cheese' comes from Bega (not just that some of the cheese comes from Bega).
(b) the packaging of the Branded Products with black and white images of farmers and cows which Bega submits are similar to, or the same as, the images used in the 'Real Town, Real Cheese' campaign.[818]
639 I reject Bega's submission that the Representation is implied by the statements on the packaging of Branded Product referred to above. None of the statements on the packaging convey the Representation. A reasonable consumer of fixed weight cheese would not be led to erroneously believe as a result of the statements contained on the packaging that all cheese in Branded Products is made in the Bega Valley.
640 Bega submits that the statement: 'to find out more about our cheese and the Bega Valley, visit bega.net.au', fairly conveys that all of the cheese is connected with the Bega Valley. The pleaded Representation is not that all of the cheese is 'connected with the Bega Valley'. Rather, the Representation is that all of the cheese in Branded Products is made in the Bega Valley. Bega cheese is 'connected with the Bega Valley'. A statement which conveys this representation is not misleading. Five thousand tonnes of the cheese which is in Bega Branded Products is manufactured in the Bega Valley. Eighty to 85 per cent of the milk in that cheese is sourced from dairy farmers in the Bega Valley.[819] All of the cheese in 250 g and 500 g Farmers' Tasty and Strong & Bitey Branded Product is made in the Bega Valley. All of the cheese in Branded Product is cut and packed in the Bega Valley.
641 Bega submits that the black and white images of farmers and cows on the packaging of Branded Products is 'similar to, or the same as, the images used in the "Real Town. Real Cheese" campaign'. These images do not convey the Representation. Rather, the dominant message is the source of the milk and the dairy farmers who are involved in the production of the milk.
642 I reject Bega's contention that the Representation was conveyed through Fonterra's promotion, advertising and marketing campaign in relation to the Branded Products, the hosting of the website www.bega.net.au in relation to the Branded Products, and the packaging of the Branded Products. Consequently, I reject Bega's contention that the plaintiffs have breached ss 18 and/or 29(1)(k) of the ACL. The alleged contravention of these provisions underpins Bega's contention that the plaintiffs breached clause 7.3 of the TMLAs. As I have rejected Bega's contention that the plaintiffs breached ss 18 and/or 29(1)(k) of the ACL, Bega's claim that the plaintiffs breached clause 7.3 of the TMLAs must also be rejected.
643 If I am wrong in reaching this conclusion, I would, in any event, have concluded Bega has no right to terminate the TMLAs under clause 16.1(a). The right of termination is contingent upon the plaintiffs' breach of clause 7.3 having a material adverse effect on Bega.
644 Bega contends that the material adverse effect from the plaintiffs' failure to observe or perform its obligations under clause 7.3 of the TMLAs arises from:
(a) the regulatory risk that the ACCC will take enforcement action in relation to misleading provenance advertising of the Bega brand. Bega submits that the inevitable reputational damage that such action would cause to the Bega brand directly affects Bega, which retains ownership of the Bega brand, sells Bega Branded Products other than cheese products covered by the agreements, conducts its corporate activity under the name 'Bega' and receives royalties under the agreements which are directly tied to the sales of Bega branded cheese products;
(b) the regulatory risk is heightened in circumstances where the representation has had the effect of creating a perception and belief amongst Australians that all cheese in the Branded Products is from the Bega Valley. Bega submits that 78 per cent of the cohort or approximately 300 consumers surveyed by the market research company, Harvest Insights, in or around May 2018 believed, after being shown the 'Real Town, Real Cheese' advertisement run by the defendants by counterclaim, that the cheese was made in Bega or the Bega Valley; and
(c) Bega submits that the promotion of the Bega brand by the plaintiffs on a false premise has caused, or will cause, inherent, if latent, damage to the Bega brand that will be realised with or without regulatory action by the ACCC.[820]
645 Bega also submits that material adverse effect lies in 'the inherent damage to the Bega brand and the value of the goodwill in the Bega marks by Bega products having been sold by Fonterra on a misleading basis'.[821]
646 I have set out earlier in this judgment my conclusion that under clause 16.1(a) material adverse effect means a significant adverse effect on Bega which has occurred. The regulatory risk that the ACCC will take enforcement action in relation to misleading provenance advertising of the Bega brand does not constitute a material adverse effect on Bega. There is no evidence that the ACCC has commenced any investigation into Fonterra's provenance advertising. Assuming an investigation is commenced, there will be more than 12 months' delay between the commencement of the investigation and the initiation of legal proceedings. This time frame was accepted by Dr Button QC.[822]
647 Most of the impugned conduct upon which Bega relies for its provenance claim would be statute barred by the time any ACCC investigation was completed. There is little prospect of the ACCC taking any action in respect of any of the television campaigns which concluded with the Ron Apps commercial broadcast between January and July 2015.
648 The fact that the majority of the cheese in Branded Products is made by Fonterra outside of the Bega Valley has been a matter of public record since at least 29 June 2017 when evidence to that effect was given to the ACCC as part of a hearing conducted under Pt VIIA of the Competition and Consumer Act 2010 (Cth).[823] The allegations of breach of ss 18 and 29(1)(k) ACL have been pleaded in the present proceeding since March 2019. Despite the matters which underpin Bega's provenance claim having been on the public record since mid-2017 there is no evidence that the ACCC has commenced any investigation into Fonterra's provenance advertising.
649 The prospect of ACCC enforcement action is diminished by steps which have been taken by the plaintiffs which make clear the source of the cheese in Branded Products. In April 2018 Fonterra added the words 'proudly packed in Bega from cheese sourced from around Australia' to the heritage page of the bega.net.au website.[824] Further, as a result of an agreement between Fonterra and Bega post-June 2019 the packaging of Branded Products now includes the words 'proudly packed in Bega from cheese sourced from New South Wales, Victoria or Tasmania'.[825] The Bega website (which is managed by Fonterra) and the packaging of Bega products makes clear that the cheese in Branded Products is not sourced exclusively from the Bega Valley.
650 Bega submits that irrespective of whether the ACCC takes enforcement action against the plaintiffs, the material adverse effect lies in the inherent damage to the Bega brand and the value of the goodwill in the Bega Trade Marks as a result of Bega Products having been sold by the plaintiffs on a misleading basis.[826] In support of this submission Bega relies upon the following evidence of Dr Honeywill:
I have been asked to explain the nature and extent of any impact including short-and long-term impact there would be on the Bega brand should consumers become aware that the majority of the cheese in fact comes from outside of the Bega Valley. In my opinion, the impact would be significant and sustained.
The May 2018 research referred to above also asked respondents, if 'Bega cheese was no longer made in Bega, but instead made in different locations in Australia, how would this impact your likelihood to consider purchasing Bega in the future?' One in four (23%) respondents said they would be less likely to consider purchasing Bega.
The direct relationship between food and human health makes it a large target for media attention, and consumers are consequently much more likely to remember negative publicity on food products or food brands than non-food brands. The nature of any impact would, therefore, be dramatic and produce an immediate leap in the brand's level of distrust.
We saw earlier that 'ethics' can refer to the quality of ingredients, the legitimacy of their production and origin, and the legitimacy of claims or promises made in relation to quality, production, and origin.
Were the Bega brand to be exposed for misleading consumers on the place of origin of its branded products' ingredients, the material impact would be swift. Trust would dip, but distrust, the toxic element in brand equity, would soar. Trust is a brand equity asset. Distrust is a brand equity liability. And when liabilities outweigh assets an entity faces the risk of insolvency - or in this case Bega would become a fragile brand with all the consequences that flow from 'ethical bankruptcy'.
Distrust also has a material impact on a brand when we discover to our horror that we were foolish to trust too much. That's the position Bega would find itself in.
Consumers would feel foolish that they trusted the marketing promises of clean green pastures in the Bega Valley.
Soaring distrust can bring a previously robust brand to the brink. But how long does this fragility last? This is known as toxic latency or the time it takes for the material consequences of soaring distrust to dissipate.
When the product brand, for example Mainland Cheese, is quarantined from the master or corporate brand, for example Fonterra, the toxic impact and material consequences of a dramatic exposure are relatively short lived.
When, however, the product brand, for example Bega, is also the master brand, for example Bega, AND the product brand and master brand are also the provenance brand linked to the location of origin, for example Bega Valley, then the toxic latency is high.
In other words, the reputational impact and material impact on Bega would be slow to dissipate. It would, in my opinion, be significant and sustained.
It could even be said that after such a brand shock, once distrusted there's no coming back to Bega.
Another serious reputational and material risk to the Bega brand as a consequence of Fonterra misleading Australian consumers is what is known as a 'Food Fraud.' When we buy food, we take it on faith that the product matches both the label information and the veracity of promotional claims.[827]
651 Insofar as Dr Honeywill's evidence is based on the Harvest Insights report of May 2018, I place no weight upon it. Further, I do not accept the balance of Dr Honeywill's evidence as supporting a finding that the plaintiffs' impugned conduct has damaged the Bega brand and the value of the goodwill in the Bega Trade Marks. Dr Honeywill's opinion does not take account of the fact that 5,000 tonnes per annum of cheese made in the Bega Valley is used in Branded Products and that 250 g and 500 g Farmers' Tasty and Strong & Bitey are made exclusively from cheese made in the Bega Valley. Nor does his opinion address the fact that Bega cheese has a long-standing connection with Bega and that all cheese in Bega Branded Product is cut and packed in the Bega Valley. Further, the language in which Dr Honeywill expresses his opinion ('we discover to our horror that we were foolish to trust too much') reflects Dr Honeywill's tendency to be an advocate for Bega.
652 Bega has failed to establish that it has suffered any material adverse effect as a consequence of any breach by the plaintiffs of clause 7.3 of the TMLAs.
653 Bega alleges that by making the Representation the plaintiffs have breached clauses 6.1 and/or 6.3 of the TMLAs by:
(a) failing to ensure that the good name and image of the Trade Marks is maintained and not harmed when using the Trade Marks on or in relation to Branded Products; and
(b) failing to conduct its business operations in accordance with appropriate business standards applying in the Territory from time to time in a manner not to damage the value of the Trade Marks.[828]
654 The allegation of breach of clauses 6.1 and 6.3 (in contrast to clause 7.3) does not require the Court to make a finding that the plaintiffs' conduct breached the ACL. However, it does require the Court to make a finding that the conduct was, as alleged, 'false and untrue'. Further, the allegation of breach of clauses 6.1 and 6.3 does not require Bega to establish a material adverse effect because the right of termination for breach of clauses 6.1 and/or 6.3 is not based upon clause 16.1(a) of the TMLAs.
655 Bega submits that a finding of breach of clauses 6.1 and/or 6.3 is not contingent upon the Court finding that the Trade Marks have been damaged. It submits that a finding of breach does not depend on damage 'because the obligation attaches to the manner of the conduct of Fonterra's business operations, not the consequences of such conduct'.[829] Bega submits that it is not the intention of clauses 6.1 and 6.3 'that it is necessary for the parties to sit by and wait for damage to occur before breaches of these clauses can be actionable'.[830]
656 I reject Bega's submission that it is unnecessary, in order to establish a contravention of clauses 6.1 and/or 6.3, to establish that the plaintiffs' impugned conduct:
(a) has caused harm to the good name and image of the Trade Marks (clause 6.1(b)); and
(b) has damaged the value of the Trade Marks (clause 6.3).
657 Bega's submission is inconsistent with the plain meaning of the words used in clauses 6.1(b) and 6.3. A finding of breach of clause 6.1(b) is contingent upon a finding that the good name and image of the Trade Marks has been harmed. A finding of breach of clause 6.3 is contingent upon a finding that the value of the Trade Marks has been damaged.
658 Bega's allegation that the plaintiffs have breached clauses 6.1 and 6.3 relies upon the same conduct which underpins its claim that the plaintiffs breached clause 7.3 by engaging in conduct which contravened ss 18 and 29(1)(k) ACL. Bega's claim that the plaintiffs breached clauses 6.1 and 6.3 fails for two reasons. First, the impugned conduct which Bega relies upon did not convey the Representation which Bega contends was false and untrue. As the Representation was not made, the question of whether it was false and untrue does not arise. Second, Bega has not established that the good name and image of the Trade Marks has been harmed or that the value of the Trade Marks has been damaged.
659 As to whether the value of the Trade Marks has been damaged, as set out earlier in this judgment, save for the evidence of Mr Potter, no expert witness specifically addressed the question of whether the value of the 22 Trade Marks had been diminished as a consequence of the plaintiffs' conduct. Professor O'Sullivan and Dr Honeywill did address the impact of the plaintiffs' conduct on Bega's brand equity and brand strength. However, as set out earlier in this judgment, the Bega brand is not co-extensive with the Bega Trade Marks. The only evidence addressing any diminution in the value of the Trade Marks was provided by Mr Potter. That evidence was based on four assumed scenarios. The validity of the assumptions underpinning the scenarios was not addressed by Mr Potter. Earlier in this judgment I have rejected the validity of the assumptions.
660 Bega submits that 'even if Fonterra is correct that Bega must prove harm in order to establish a breach of clauses 6.1(b) or 6.3, a risk of "harm" in the sense of facing a future financial threat is, in itself, "harm"'.[831] Bega cites Alucraft Pty Ltd (in liq) v Grocon Ltd (No 2)[832] as authority for the proposition that a risk of exposure to a future financial threat is compensable by way of damages. Bega's submission fails to engage with the text of clauses 6.1 and 6.3. Bega has failed to establish that the good name and image of the Trade Marks will be harmed in the future (clause 6.1(b)) or that the value of the Trade Marks will be damaged in the future (clause 6.3).
661 Bega's allegation that the plaintiffs breached clauses 7.3, 6.1(b) and/or 6.3 of the TMLAs is dismissed.
662 Bega has failed to establish that the plaintiffs breached any of the provisions of the TMLAs which underpin the Marketing and Promotion claim, the Cheese Quality claim and the Provenance claim. Bega's counterclaim is dismissed.
663 As a result of this finding it is unnecessary to address:
(i) whether the effect of clause 16.1 of the TMLAs is to exclude Bega's common law rights of termination;
(ii) whether the notices of termination served under clause 16.1 were invalid;
(iii) whether Bega is precluded from relying upon the notices of termination because it elected to affirm the TMLAs;
(iv) whether Bega is estopped from relying upon the notices of termination; and
(v) whether Bega's claim for declarations that it is entitled to terminate the TMLAs should be refused because the relief claimed is hypothetical.
Although the resolution of these questions does not impact upon any of the findings I have made earlier in this judgment, I shall address them for the sake of completeness.
DOES CLAUSE 16.1 OF THE TMLAs EXCLUDE BEGA'S COMMON LAW RIGHTS OF TERMINATION?
664 Clause 16.1 of the TMLAs confers rights of termination upon Bega. Of particular relevance are clauses 16.1(a) and (e) of the Fonterra TMLA which provide:
Bega may, by giving not less than 90 days prior written notice to the Licensee, (with the exception of an event described in subclause (b) below which only requires 15 Business Days' prior written notice) terminate this Agreement if any of the following events occur:
(a) the Licensee fails to observe or perform any of the terms of this Agreement (other than where sub-clause (f) applies) which has a material adverse effect on Bega, and to remedy the same within the period specified in a notice given by Bega to the Licensee calling for a remedy, being a period of not less than 90 days;
...
(e) the Royalty or Agreed Minimum Payment is not paid (or, where there is a Dispute in relation to the amount of the Royalty or Agreed Minimum Payment, the amount not in dispute is not paid) on the due date and the Licensee fails to pay such amount to Bega within 15 Business Days after Bega has given notice to the Licensee calling for a remedy.[833]
665 Clause 16.2 confers a right of termination upon Fonterra. Clause 16.2(a) provides:
The Licensee may, by giving not less than 90 days prior written notice to Bega, (with the exception of an event described in subclause (b) below which only requires 15 Business Days' prior written notice) terminate this Agreement if:
(a) Bega fails to observe or perform any of the terms of this Agreement which has a material adverse effect on the Licensee, and to remedy the same within the period specified in a notice given by the Licensee to Bega calling for a remedy, being a period of not less than 90 days ...
666 The plaintiffs submit that the effect of clause 16 is to exclude Bega's common law rights of termination for breach, including repudiation:
Common law rights of termination may be supplemented or displaced, in whole or in part, by the terms of a contract. In particular, the right of a party to a contract to terminate the contract for breach can be defined exhaustively by the terms of the contract, which can exclude common law rights to terminate for breach, including repudiation.
The effect of a contractual provision relating to termination on common law rights of termination is, ultimately, a matter of construction. While it has been held that 'clear words are needed' to rebut the presumption that a contracting party does not intend to abandon remedies for breach of contract arising by operation of law, express words are not required.[834]
667 The plaintiffs submit that clause 16.1 should be construed as comprehensively defining the circumstances in which Bega may terminate the TMLAs for breach, to the exclusion of any common law rights to terminate for breach, including repudiation, for the following six reasons:
(iii) Clause 16.1 only permits termination where a breach has a 'material adverse effect' on Bega, and it would be inconsistent with this express requirement for Bega to nevertheless be permitted to terminate the TMLAs for a breach, or a combination of breaches, which did not have a material adverse effect.[839]
(iv) As in Amann Aviation, the TMLAs are 'intended to persist through a substantial period of time and to involve considerable reciprocity of action', and the fact that the TMLAs were intended to be long term, potentially perpetual, contractual arrangements, strongly favours a construction of clause 16.1 as comprehensively defining the circumstances in which the TMLAs may be terminated.[840]
(v) The TMLAs were executed as part of a series of 'Transaction Documents', and there are cross-termination rights in the Fonterra TMLA (clause 16.1(c)),[841] 2001 PSA (clauses 19.1(c) and 19.2(c)) and 2012 PSA (clauses 20.1(c) and 20.2(c)), which enable each of those agreements to be terminated, upon the termination of any other of those agreements. The termination clauses dealing with breach, in both the 2001 PSA (clauses 19.1(a) and 19.2(a)) and 2012 PSA (clauses 20.1(a) and 20.2(a)) each only permit termination in the event that a breach has a 'material adverse effect'. Thus, the plaintiffs submit that the 'material adverse effect' requirement in clause 16.1(a) of the TMLAs (and the equivalent requirements in the PSAs) is intended to provide commercial certainty, consistent with the long-term nature of the contracts, the termination of which would have significant ramifications for both the plaintiffs and Bega, with a commercial intention to replace rights of termination at common law with a right to terminate which is conditioned on showing that the breach in question 'has a material adverse effect' on Bega.[842]
(vi) Clause 16.1 provides Fonterra (and clause 16.2 provides Bega) with a substantial period of time (90 days) in which to remedy any breach, with the evident commercial purpose to provide the party in default an opportunity to remedy the alleged breach, so as to preserve the enduring status of the TMLAs. That purpose would be frustrated if Bega could terminate the TMLAs in reliance upon its common law right to terminate without providing a notice period. The plaintiffs submit that as in Biscayne Partners Pty Ltd v Valance Corp Pty Ltd,[843] the parties have 'conditioned their entitlement to' terminate upon 'the giving of the notice provided for' in clause 16.1 (save as expressly provided for in clauses 16.1(b)-(f)).[844]
668 Bega submits that clause 16.1 was not intended to preclude the parties to the TMLAs from relying upon their common law rights of termination. It submits:
Bega is entitled to the benefit of the established presumption that a contracting party does not intend to abandon any remedies for breach of the contract arising by operation of law. Plainly, clause 16.1 does not contain the necessary clear and unambiguous words necessary to rebut this presumption.
Further and contrary to Fonterra's submission, the language of clause 16.1 is not comprehensive in the sense considered in the Amann case, and it plainly does not cover 'all potential circumstances which were likely to give rise to termination'. One need look no further than the terms of the TMLA itself to see that clause 16.1 was not intended to 'cover the field'. For example, clause 17 deals with the consequences of termination, and clause 17.1(b) provides that 'On termination or expiration of this Agreement ... other than where terminated under clause 16.1 ... Bega will pay to the Licensee a lump sum (or as otherwise agreed) the Fair Value as determined by the Expert whose reasonable costs will be paid by the licensee.' Plainly this provision is not limiting termination to the circumstances provided for in clause 16.
Finally, to borrow from Carter's analysis of the decision in Schuler there is nothing in the cases to support the view that agreement to a 'material' breach termination procedure is sufficient to displace the right to terminate which arises at common law on a sufficiently serious breach of an intermediate term. In any event, Fonterra's submission at FCCS [1981]-[1982] are based on various assertions as to the 'plain commercial intention' and the provisions having been 'drafted with an eye to', none of which have any foundation in the evidence.[845]
669 At common law parties to a contract may terminate for breach of a condition or essential term or because of the repudiation of the other party. The parties to a contract may displace these common law rights of termination through the terms of the contract.[846] Whether a termination clause expressly or impliedly displaces common law rights of termination is a question of construction. However, it is a recognised principle of construction that 'clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of the contract arising by operation of law'.[847]
670 Before addressing the application of these principles to clause 16.1, it is necessary to consider Bega's submission that the plaintiffs should not be permitted to advance a submission that Bega's common law rights of termination are excluded by clause 16.1, because the submission was raised for the first time in the plaintiffs' closing submissions.
671 Whether clause 16.1 precludes Bega from having recourse to common law rights of termination raises an important question of construction of the TMLAs. Subject to the requirements of procedural fairness being met the Court is entitled to reach its own conclusion regarding the true construction of clause 16.1.[848] Bega does not contend that it would be denied procedural fairness if the plaintiffs are permitted to advance the submission that clause 16.1 excludes common law rights of termination. Whether this is the effect of clause 16.1 turns on the proper construction of the provision. Whilst the question was raised for the first time in the plaintiffs' closing submissions, Bega has had the opportunity to address the question in detail in its written submissions in reply. I reject Bega's submission that the plaintiffs should be not permitted to advance a submission that clause 16.1 excludes Bega's common law rights of termination.
672 In Wallace-Smith v Thiess Infraco (Swanston) Pty Ltd[849] French J set out the principles governing the interpretation of termination clauses as follows:
Clauses restricting or barring termination are to be construed '... according to [their] natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity': Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500 at 510; [1986] HCA 82; 68 ALR 385 at 391. That formulation is subsumed in the principles generally applicable to the construction of contractual terms and conditions: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 350; 41 ALR 367 at 373; Pacific Carriers Ltd v BNP Paribas (2004) 208 ALR 213; [2004] HCA 35 at [22]. As appears from the latter case the genesis of the transaction, and the background, context and market in which the parties are operating may all be considered in ascertaining 'the commercial purpose of the contract'.[850]
673 When identifying the intention of clauses dealing with termination for breach of contract it is necessary to keep in mind that clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of contract arising by operation of law.[851] Further, the construction of clauses limiting rights of termination should avoid absurdity which would defeat the main purpose of the contract.[852]
674 There are a number of contextual matters which support the plaintiffs' submission that clause 16.1 excludes Bega's common law rights of termination. Clause 17.1(b) provides:
On termination or expiration of this Agreement:
(b) other than where terminated under clause 16.1, Bega will pay to the Licensee in a lump sum (or as otherwise agreed) the Fair Value as determined by the Expert whose reasonable costs will be paid by the Licensee.
675 The reference to 'Fair Value as determined by the Expert' is a reference to the valuation of the plaintiffs' rights to the Bega Trade Marks in accordance with Schedule 4 of the TMLAs. Pursuant to clause 17.1(b) if the TMLAs are terminated under clause 16.1, Bega does not have to pay the plaintiffs any amount referable to the value of the Trade Marks, the rights to which are returned to Bega upon the termination of the TMLAs. The commercial purpose of clause 17.1(b) is that where the TMLAs are terminated by reason of the plaintiffs' failure to observe or perform any of the terms of the Agreements, there is no justification for them receiving a payment referrable to the value of the rights relinquished as a consequence of their own wrongdoing.
676 If common law rights of termination are not excluded by clause 16.1 and Bega exercised such rights to terminate the agreements as a result of the plaintiffs' wrongdoing, it would nevertheless be liable to pay the plaintiffs the value of the Trade Marks. This would be an absurd outcome. The same conduct can underpin both termination at common law and termination under clause 16.1(a). There is no justification for imposing upon Bega a liability to compensate the plaintiffs for the value of the Trade Marks if the TMLAs are terminated pursuant to common law rights, if no such liability would arise where the TMLAs are terminated pursuant to clause 16.1. The commercial purpose of clause 17.1 would be rendered inutile if Bega was liable to pay the plaintiffs the value of the Trade Marks in circumstances where the TMLAs are terminated pursuant to common law rights of termination enlivened by the plaintiffs' wrongdoing.
677 Bega submits that clause 17.1(b) supports its submission that clause 16.1 is not intended to 'cover the field' because the phrase 'other than where terminated under clause 16.1' indicates that the provision is not limiting termination to the circumstances provided for in clause 16.[853] I reject this submission. The phrase 'other than where terminated under clause 16.1' refers to termination by effluxion of time or termination under clause 16.2 at the initiative of the plaintiffs in circumstances where Bega fails to remedy a breach within a specified notice period. In either of these circumstances, Bega is liable to pay the plaintiffs an amount equal to the value of the Trade Marks.
678 Clause 16.2 confers rights of termination upon the plaintiffs. The terms of clause 16.2(a) are relevantly indistinguishable from clause 16.1(a). The two provisions must be read harmoniously, such that if clause 16.1 does not exclude Bega's common law rights of termination, then equally clause 16.2 would not do so. If the plaintiffs' common law rights of termination are not excluded they could terminate the TMLAs without giving Bega 90 days' notice to remedy a breach. If terminated in these circumstances Bega would nevertheless be required to pay the plaintiffs Fair Value for the Trade Marks in circumstances where it might otherwise have been able to avoid such liability if given an opportunity under clause 16.2 to remedy a breach.
679 If clause 16.1 does not exclude common law rights of termination, Bega could immediately terminate for a fundamental breach in circumstances where Fonterra does not pay the royalty or Agreed Minimum Payment on the due date. Clause 16.1(e) of the Fonterra TMLA and clause 16.1(c) of the Bonland TMLA provide for an express right to terminate in such circumstances, but only if the plaintiffs fail to pay the royalty or Agreed Minimum Payment within 15 Business Days after Bega has given notice calling for a remedy.
680 Clause 19.1 of the 2001 PSA contemplates Bega only being able to terminate the TMLAs pursuant to clauses 16.1 or 16.3. Clause 19.1 provides:
Bega may, by giving not less than 90 days prior written notice to ConsumerCo ... terminate this Agreement if any of the following events occur:
(c) if the Bega Trade Mark Licence Agreement is terminated by Bega pursuant to clause 16.1 or 16.3 of the Bega Trade Mark Licence Agreement.
681 The initial term of the TMLAs is 25 years with potential for renewal for multiple further terms of 25 years. The TMLAs were signed simultaneously with a Master Agreement and a PSA. Under the terms of these agreements Bonlac agreed to shut down its York Street facility in South Melbourne with all cutting and packing of Fonterra cheese being undertaken at Bega's Ridge Street facility. These arrangements are reflected in clause 16.1(f) of the Fonterra TMLA which confers a right of termination upon Bega if the York Street facility has not ceased operating as a cut and pack facility for Cheese Products by a specified date. I accept the plaintiffs' submission that the TMLAs are intended to persist through a substantial period of time and involve considerable reciprocity of action. Objectively construed, the intention of clause 16.1 is to provide certainty to the parties by replacing common law rights of termination with rights:
(a) contingent upon the existence of a material adverse effect as a result of a breach; and
(b) providing the party in default with an opportunity to remedy the breach and thereby keep the TMLAs on foot.
682 Clause 16.1 provides a comprehensive procedure for the termination of the TMLAs in all of the circumstances which Bega relies upon as enlivening common law rights of termination.[854] These circumstances include Bega's right to terminate for repudiation for repeated breaches of the TMLAs as alleged in paragraphs [96] and [97] of the Fifth Further Amended Defence to the Second Further Amended Statement of Claim and Counterclaim. Clause 16.1 of the TMLAs excludes Bega's common law rights of termination. Bega does not allege the plaintiffs repudiated the TMLAs by anticipatory breach. It is therefore not necessary to express any concluded view as to whether clause 16.1 excludes Bega's right to terminate for anticipatory breach.[855]
683 Bega served four notices of breach on Fonterra pursuant to clause 16.1(a):
(i) a notice dated 16 March 2018 alleging breach of clause 8.1 in respect of Stanhope Reduced Fat Cheese (CQN1);
(ii) a notice dated 8 June 2018 alleging breaches of clause 6.1(a), 6.1(b) and 6.3 ('M&P Notice');
(iii) a notice dated 20 September 2018 alleging breach of clause 8.1 in respect of cheese products as set out in a 'breach notice grading summary' annexed to the notice (CQN2); and
(iv) a notice dated 29 October 2018 alleging a breach of clause 7.3 based on false or misleading representation as to the place of origin of the cheese in Bega Branded Products (Provenance Notice).
684 The plaintiffs submit that the M&P Notice, the Provenance Notice and CQN1 and CQN2 are invalid because they fail to identify a remedy which, if implemented would cure the breach identified in each notice.[856] The plaintiffs also submit that the Provenance Notice and CQN1 and CQN2 are invalid by reason of their failure to identify the alleged breaches with sufficient specificity.[857]
685 The plaintiffs submit that the legal principles governing the validity of a notice of termination are as follows:
In order for a breach notice to enliven a contractual right to terminate, the notice should give 'particulars of the steps' required to remedy the breach(es) alleged, and which 'could be reasonably effected within' the time period specified in the notice. If a breach notice fails to 'give notice of the remedy reasonably required' then it will not 'trigger the contractual right of termination'. Put another way, 'in order to be a valid notice', a breach notice must 'clearly direct the respondent's attention to the alleged default with sufficient specificity that the default was capable of being readily identified by the respondent' and 'it cannot be left to the respondent to winkle out an alleged default from an equivocal, vague or imprecise notice'.[858]
686 Bega submits that on its proper construction clause 16.1(a) does not require Bega to specify a particular manner in which a breach should be remedied.[859] As to the level of specificity with which a notice should identify the relevant breach, Bega submits that the test is as follows:
(a) Objectively assessed (applying the standard of objective reasonableness), how would a reasonable recipient, with the understanding and expertise of the recipient, have understood the notice, having regard to the surrounding circumstances?
(b) What is the extent to which there was antecedent correspondence by which issues about compliance with the recipient's contractual obligations or performance were raised?
(c) Did the recipient, upon receipt of the notice, complain about the adequacy of particulars provided in the notice or request clarification? If the recipient did not, it may be assumed that the recipient understood what was being alleged against it. That is, it reveals from an objective viewpoint that the notice was reasonably comprehensible to the recipient.
(d) Did the recipient demonstrate by post-notice correspondence that it understood the assertions made in the notice? In particular, refutation of allegations in a notice by a recipient strongly indicates that the recipient understood what their obligations were.
(e) It is also relevant to consider the terms of the contractual provision pursuant to which the notice was issued. Here, clause 16.1(a) of the TMLA does not require particularisation of default in a manner akin to particulars of a pleading. Consistent with the authorities, the question is whether each notice directed the recipient's mind to 'what is said to be amiss'.[860]
687 The validity of the notices turns upon the construction of clause 16.1 of the TMLAs.[861] Clause 16.1(a) provides:
Bega may, by giving not less than 90 days prior written notice to the Licensee, (with the exception of an event described in subclause (b) below which only requires 15 Business Days' prior written notice) terminate this Agreement if any of the following events occur:
(a) the Licensee fails to observe or perform any of the terms of this Agreement (other than where sub-clause (f) applies) which has a material adverse effect on Bega, and to remedy the same within the period specified in a notice given by Bega to the Licensee calling for a remedy, being a period of not less than 90 days ...
688 The plaintiffs submit that in order for a notice to be valid it must identify a remedy which, if implemented, would cure the breach identified in the notice. I reject this submission.
689 Clause 16.1(a) requires a notice to specify the period within which the plaintiff must remedy the breach which has had a material adverse effect upon Bega. Bega is required to give the plaintiffs a notice 'calling for a remedy'. However, clause 16.1(a) does not require the notice to stipulate the particular remedy which, if implemented, would cure the breach identified in the notice.[862]
690 The plain meaning of the words of clause 16.1(a) does not warrant the conclusion that the phrase 'calling for a remedy' requires Bega to stipulate the actual remedy which, if implemented, would cure the breach. Further, when the TMLAs were executed it was an objectively known circumstance that the plaintiffs would assume responsibility for all marketing and promotion of Branded Products and for manufacturing the majority of the cheese in Branded Products. As a result, from the time of the execution of the TMLAs the plaintiffs were in a significantly better position than Bega to identify and implement remedies to address alleged breaches of the TMLAs related to the manufacturing process and the marketing and promotion of Branded Products. The M&P Notice, the Provenance Notice and CQN1 and CQN2 are not invalid by reason of failure to identify a particular remedy which Fonterra was required to implement.
691 The plaintiffs also submit that the Provenance Notice and CQN1 and CQN2 are invalid because they failed to identify the alleged breaches with sufficient specificity.
692 In Yan v Zhang[863] Kennedy J (as her Honour then was) set out the principles as to the degree of specificity required by a notice, as follows:
First, as stated by Lord Steyn in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd, the construction of a notice must be approached objectively. The issue is how a reasonable recipient would have understood the relevant notice, ie the issue is what reasonable persons in the same circumstance as the actual parties were, would have had in mind.
Second, it is important that the notice identify the applicable clause of the contract allegedly breached, ie that the contents of the notice are 'matched' against the relevant requirements in the clause.
Third, it may be enough to direct attention to the provisions of the contract in respect of which default is made. However, particulars may also be necessary with each case depending on its own circumstances.
Finally, it may be relevant to consider any information provided by the drafter of a notice in response to an inquiry by the addressee.[864]
693 In Diploma Construction Pty Ltd v Marula Pty Ltd[865] Newnes JA (Owen and Miller JJA agreeing) stated:
What emerges from the cases is the need for the notice to bring sufficiently to the attention of the recipient what the default is alleged to be; or in the oft-quoted phrase of Megarry J in Houndslow London Borough Council, the notice must 'direct the contractor's mind to what is said to be amiss'. It is also clear that each case must ultimately depend upon its own particular facts.[866]
694 The Provenance Notice and CQN1 and CQN2 identified the alleged breaches with sufficient specificity to direct the plaintiffs' mind 'to what is said to be amiss'. The test is objective: how would a reasonable recipient have understood the notice.
695 I accept Bega's submission that the Provenance Notice did not lack sufficient specificity as it:
696 I also accept Bega's submission that the plaintiffs did not allege that they were under any misapprehension as to the breach specified, that correspondence following the notice confirms the plaintiffs were not under any misapprehension, that in the context of the history and interactions between the parties the plaintiffs were aware of Bega's position, and that correspondence from the plaintiffs' solicitors denied the notice was valid but did not complain of a lack of specificity.[868]
697 The plaintiffs submit that CQN1 is invalid because it failed to clearly direct the plaintiffs' attention to the alleged breach with sufficient specificity to enable the default to be readily identified. The plaintiffs submit that CQN1 did not identify in any precise way the cheese alleged to have been defective.[869] I reject this submission.
698 CQN1 related to all RF15% cheese manufactured at Stanhope and delivered to Bega to cut and wrap by 16 March 2018. The plaintiffs did not require assistance from Bega to identify the impugned batches. Correspondence between the parties reveals that the plaintiffs had no doubt about the cheese which was in issue. When the plaintiffs responded to the notice they did not complain of any lack of specificity, but rather disputed the existence of any underlying breach.[870]
699 The plaintiffs submit that CQN2 is invalid because it failed to clearly direct the plaintiffs' attention to the alleged breaches with sufficient specificity that the default was capable of being readily identified. I reject this submission. In its reply submission Bega submits:
In its response of 14 December 2018, Fonterra advised that it 'had carefully considered the grading results provided by Bega' and were able to ascertain that Fonterra's 'own evaluation and its own Expert grading results are not consistent with the Bega Results'. Fonterra stated that it 'rejects the allegations and claims made by Bega'. Fonterra did not allege that there was a lack of specificity in the Second Quality Breach Notice. Rather, it engaged with, and disagreed with, the contents of the Notice on a substantive basis.[871]
700 I accept this submission. The M&P Notice, CQN1 and CQN2 and the Provenance Notice were valid notices for the purposes of clause 16.1 of the TMLAs.
701 Bega served four breach notices on the plaintiffs:
702 The plaintiffs submit that if they did breach the TMLAs as alleged in CQN1, CQN2, the M&P Notice and/or the Provenance Notice, Bega is not entitled to terminate the TMLAs pursuant to any of the notices. The plaintiffs submit that Bega elected to affirm the TMLAs and as a result is precluded from relying upon the notices.
703 I accept the plaintiffs' submission that Bega elected to affirm the TMLAs by the service of CQN2 on 21 September 2018 and the Provenance Notice on 30 October 2018. As a consequence, Bega is not entitled to terminate the TMLAs in reliance upon CQN1 and the M&P Notice. I otherwise reject the plaintiffs' submission based upon the doctrine of election by affirmation.
704 CQN2 and the Provenance Notice were served after the period stipulated in CQN1 and the M&P Notice for the plaintiffs to remedy the breaches alleged therein. The service of CQN2 and the Provenance Notice involved an actual election by Bega between mutually exclusive rights, namely:
(i) exercising the right of termination which had crystallised 90 days after the service of CQN1 and/or the M&P Notice; or
(ii) affirming the TMLAs by the service of CQN2 and the Provenance Notice which provided the plaintiffs with a period of 90/95 days to remedy the breaches set out therein.
705 In Khoury v Government Insurance Office (NSW)[872] the plurality set out the following principles in respect of the doctrine of election between inconsistent rights:
A person confronted by two truly alternative rights or sets of rights, such as the right to avoid or terminate a contract and the right to affirm it and insist on performance, may lose one or more of them by acting 'in a manner which is consistent only with his having chosen to rely on [the other] of them'. Where an insurer is confronted with such alternative rights and elects to affirm the contract of insurance, he is commonly said to have 'waived' the right to avoid or terminate it. While actual 'prejudice to the other side' may be relevant, particularly in determining whether an election should be imputed to a person who is not shown to have made a conscious decision to elect, it is not necessary that such prejudice be demonstrated to establish a completed election between the right to affirm and the right to avoid a contract. An election, unlike estoppel, is concerned with what a party does and not what he causes the other party to do. At the latest, it is complete or 'final' when made and 'communicated' to the other party.
Where an election is not shown to have been consciously made, the words or conduct relied upon to impute it must unequivocally evidence 'the exercise of one of the two sets of rights and [be] inconsistent with the exercise of the other'. It would seem however that, at least where the alternative rights arise under the terms of the one contract, a party may be held to have elected to affirm it notwithstanding that he was unaware of the actual right to avoid it. Even in such a case however, the party alleged to have elected to affirm the contract must be at least aware of the facts giving rise to the right to avoid the contract.[873]
706 In the case of election between affirmation of a contract or its disaffirmation pursuant to rights conferred by the contract, detriment to the other party is not a necessary element of election.[874]
707 There is a distinction between actual election and imputed election. In Champtaloup v Thomas[875] Mahoney JA explained the difference as follows:
In order to understand the significance of the exercise of such a right in this regard, and what has been said concerning its significance qua election, it is important to bear in mind that the right to elect, whether to affirm or rescind a contract according to its contractual terms, may be found to have been exercised in two ways. First, it may be exercised by a conscious act of election. The party having the right may actually determine on his election and, in so far as communications may be necessary ... communicate it to the other party, and an election is thereby made. A party may make his election in this way in terms, or he may do such acts as satisfy the court that it should be inferred as a fact that he has made it ... But the question in such a case is as to his actual election, not as to whether an election should be imputed to him. And, once the actual election is found to have been made, the election is complete, although there has been no exercise of any contractual right and no act done or detriment produced under the contract.
Second, the party may do some act which is of such a nature that, irrespective of his actual intention or determination, the law treats him as having exercised his election. This imputation of an election may occur even though the party does not subjectively know that he has the right to elect, or even where he does not intend to elect.[876]
708 Actual election includes circumstances where an actual election can be objectively inferred from a party's conduct. Thus, the absence of evidence that Bega consciously made an election to affirm the TMLAs by the service of CQN2 and the Provenance Notice does not preclude a finding of actual election.
709 Bega submits that in order for the innocent party to lose the right to terminate, the party in breach must establish that the innocent party had knowledge of the facts that give rise to that right.[877] Bega submits that the requirement of knowledge will not be satisfied on the basis of an argument that a party ought to have known of a particular fact or could have found out a particular fact. Rather, Bega submits that actual knowledge must be proven.[878]
710 The extent of knowledge of relevant facts necessary for the doctrine of election to apply has been described as 'full knowledge of the material facts'.[879] Where the election is between contracting parties and the contract itself confers inconsistent rights there is no question as to whether a party has knowledge of his/her choice of rights. The party is deemed to know the terms of their own contract and the rights it confers.[880]
711 Both CQN2 and the Provenance Notice were signed by Bega's CFO, Mr Colin Griffin. Each of CQN2 and the Provenance Notice was served on the plaintiffs under cover of a letter signed by Bega's CEO, Mr van Heerwaarden.
712 The TMLAs conferred inconsistent rights upon Bega, namely:
(i) termination of the TMLAs upon expiry of the minimum 90 day period for remedying the breaches alleged in CQN1 (16 June 2018) and the M&P Notice (6 September 2018); and
(ii) the right to serve CQN2 and the Provenance Notice contingent upon offering the plaintiffs 90/95 days to remedy the alleged breaches set out therein.
713 Mr van Heerwaarden and Mr Griffin are deemed to have knowledge of the rights of termination and affirmation conferred upon Bega by the TMLAs.[881]
714 Bega submits that by issuing breach notices it afforded the plaintiffs an opportunity to remedy the specified breaches. It submits that the issuing of a breach notice is a precondition to exercising rights of termination and does not, of itself, constitute conduct affirming the TMLAs.[882] I reject this submission. CQN2 was served on the plaintiffs on 21 September 2018. The Provenance Notice was served on 30 October 2018. Bega's right to terminate the TMLAs pursuant to CQN1 crystallised on or about 16 June 2018. The right to terminate pursuant to the M&P Notice crystallised on 6 September 2018. Bega's right of termination under CQN2 and the Provenance Notice was contingent upon the plaintiffs' failure to remedy the specified breaches within 90 days of service of CQN2 and within 95 days of service of the Provenance Notice. Both CQN2 and the Provenance Notice were premised upon the TMLAs continuing to operate for the 90 day/95 day period within which the plaintiffs were afforded an opportunity to remedy the specified breaches.
715 Bega submits that its right of termination under clause 16.1 of the TMLAs was preserved by an agreement reached with the plaintiffs in December 2018 that it would not, without providing 14 days' notice, take any steps to terminate the TMLAs after the expiry of the 90 day period specified in the M&P Notice (which expired on 6 September 2018) and the 90 day period specified in CQN2 (which expired on 20 December 2018).[883] In June 2018 a similar agreement had been reached in respect of CQN1.[884] I reject Bega's submission that its agreement not to take steps to terminate the TMLAs without first providing the plaintiffs 14 days' notice preserved its right to terminate under CQN1 and the M&P Notice. Bega's agreement to provide 14 days' notice before terminating the TMLAs in reliance on CQN1 and the M&P Notice did not extend the period stipulated in the notices for the plaintiffs to remedy the stipulated breaches.
716 Bega's conduct in issuing CQN2 and the Provenance Notice was an actual election to affirm the TMLAs. I infer that Mr van Heerwaarden and Mr Griffin had actual knowledge of the termination and affirmation rights under the TMLAs, and that the issuing of the notices was inconsistent with the exercise of the rights of termination which crystallised upon the expiry of the 90 day period for remedying the alleged breaches under both CQN1 and the M&P Notice. The right of termination under CQN1 and the M&P Notice had crystallised prior to the service of CQN2 and the Provenance Notice.
717 Bega elected to affirm the TMLAs by the service of CQN2 and the Provenance Notice. As a result, Bega lost the right to terminate in reliance upon CQN1 and the M&P Notice. Further, if I am wrong in concluding that Bega's common law rights of termination were excluded by clause 16.1 of the TMLAs, Bega lost the right to exercise common law rights of termination in respect of the breaches alleged in CQN1 and the M&P Notice.[885]
718 Bega is not entitled to terminate the TMLAs pursuant to clause 16.1 or at common law in respect of the breaches alleged in CQN1 or the M&P Notice. However, this conclusion does not affect Bega's right to rely upon CQN2 or the Provenance Notice. I reject the plaintiffs' contention that Bega elected to affirm the TMLAs prior to serving CQN2 and the Provenance Notice with the result that Bega is precluded from terminating in reliance on those notices. Until the expiry of the 95 day period specified in the Provenance Notice and the 90 day period specified in CQN2, no right of termination arose under the notices. Prior to the right of termination crystallising Bega was not confronted with the choice of exercising mutually exclusive rights, which is the essence of election.[886] There was no unequivocal act by Bega subsequent to the service of CQN2 and the Provenance Notice which constituted an election by Bega to affirm the TMLAs so as to preclude Bega from having rights of termination based on CQN2 and the Provenance Notice.
IS BEGA ESTOPPED FROM TERMINATING THE TMLAs PURSUANT TO CLAUSE 16.1 BASED ON THE PLAINTIFFS' BREACH OF CLAUSE 7.3?
719 I have concluded that the plaintiffs have not breached clause 7.3 by representing that all cheese in Bega branded products is made in the Bega Valley. It is therefore not necessary to address the plaintiffs' contention that Bega is estopped from alleging that the plaintiffs breached clause 7.3 thereby enlivening Bega's right to terminate the agreements pursuant to clause 16.1. However, had it been necessary to address the plaintiffs' estoppel argument, I would have rejected it.
720 The plaintiffs plead their estoppel defence in paragraph [85F] of their Reply and Defence to Counterclaim as follows:
Further or alternatively:
(a) Bega knew of, consented to and/or approved of, the Impugned Promotional Activities[887] (Bega's Consent);
(b) Bega failed, at any time prior to the commencement of this proceeding, to:
(i) make any allegation that the Impugned Promotional Activities involved any breach by the Plaintiffs of their obligations under clause 7.3 of the Agreements;
(ii) make any demand, whether pursuant to clauses 6.4 or 7.1(d) of the Agreements or otherwise, for the Plaintiffs to cease or modify any of the Impugned Promotional Activities; (collectively, Bega's Lack of Allegation/Demand);
(c) in reliance on and/or encouraged by Bega's Consent and/or Bega's Lack of Allegation/Demand, the Plaintiffs arranged and undertook the Impugned Promotional Activities on the assumption and/or expectation that Bega consented to, approved of, and/or did not object to the Impugned Promotional Activities (the Plaintiffs' Assumption);
(d) Bega knew and intended that the Plaintiffs would, in reliance on and/or encouraged by Bega's consent and/or Bega's Lack of Allegation/Demand and/or the Plaintiffs' Assumption, arrange and undertake the Impugned Promotional Activities;
(e) in the premises, it is unconscionable for Bega to now allege, and Bega is estopped from now alleging, that the Impugned Promotional Activities involved a breach by the Plaintiffs of clause 7.3 of the Agreements entitling Bega to terminate the Agreements pursuant to clause 16.1, in circumstances where the allegation, if upheld by the Court, would cause the Plaintiffs to suffer the detriment.
721 The plaintiffs submit that [85F] of the Reply and Defence to Counterclaim is a pleading of both equitable and common law estoppel. I reject this submission. Estoppel by convention (common law estoppel) has five elements:
(i) the plaintiff has adopted an assumption as to the terms of its legal relationship with the defendant;
(ii) the defendant has adopted the same assumptions;
(iii) both parties have conducted their relationship on the basis of that mutual assumption;
(iv) each party knows or intends that the other will act on that basis; and
(v) departure from the assumption will cause detriment to one of them.[888] There is no pleading of a common assumption,[889] or alternatively, an assumption made by one party and acquiesced in by the other.[890]
722 Unconscionability is not an element of estoppel by convention.[891] The plaintiffs plead that it is unconscionable for, and Bega is estopped from alleging, that the plaintiffs' Impugned Promotional Activities breached clause 7.3 of the TMLAs.[892] The plaintiffs' pleading of unconscionability is consistent with the pleaded estoppel being confined to equitable estoppel.
723 The plaintiffs' estoppel defence pleads 'the plaintiffs' Assumption' as:
in reliance on and/or encouraged by Bega's Consent and/or Bega's Lack of Allegation/Demand, the Plaintiffs arranged and undertook the Impugned Promotional Activities on the assumption and/or expectation that Bega consented to, approved of, and/or did not object to the Impugned Promotional Activities ...[893]
724 The plaintiffs' Assumption requires a finding that each of the plaintiffs had a particular state of mind, namely, an assumption or expectation that Bega consented to, approved of and/or did not object to the Impugned Promotional Activities. The plaintiffs did not lead any evidence from any witness capable of supporting a finding that the plaintiffs had the plaintiffs' Assumption. First, it was necessary for the plaintiffs to identify the individual or individuals whose state of mind could be attributable to the plaintiffs. Second, having identified the individual or individuals whose state of mind could be attributed to the plaintiffs, it was necessary for the plaintiffs to lead evidence that the individual or individuals held the plaintiffs' Assumption. The plaintiffs' evidence did not address either of these matters. Further, the plaintiffs did not lead any evidence from any witness to the effect that the plaintiffs undertook the Impugned Promotional Activities in reliance upon Bega's Consent to the activities and/or Bega's Lack of Allegation/Demand that the activities breached clause 7.3 of the TMLAs.
725 It follows from the matters set out above that even if the plaintiffs' estoppel pleading is read as a pleading of common law estoppel, a defence based on common law estoppel is not made out.
726 The plaintiffs submit that their reliance upon Bega's Consent and/or Lack of Allegation/Demand, may be established by inferential reasoning. I reject this submission. I am not prepared to draw any inference in favour of the plaintiffs in circumstances where they could have, but did not lead any direct evidence regarding:
727 If, contrary to this finding, it is appropriate to undertake inferential reasoning, there is no basis for inferring that the plaintiffs undertook the Impugned Promotional Activities in reliance upon Bega's Consent and/or Lack of Allegation/Demand. Under clause 7.3 of the TMLAs the plaintiffs are solely responsible for ensuring compliance with all legal requirements relating to the advertising of Products. The plaintiffs were solely responsible for ensuring that the Impugned Promotional Activities complied with ss 18 and 29(1)(k) of the ACL. Any consent by Bega to the Impugned Promotional Activities, or any failure to object to the Impugned Promotional Activities, does not alter the terms of the TMLAs. In particular, Bega's Consent and/or Lack of Allegation/Demand would not relieve the plaintiffs of their responsibility under clause 7.3 to ensure that the Impugned Promotional Activities complied with ss 18 and 29(1)(k) of the ACL.
728 Further, for a representation to found an estoppel it must be clear and unambiguous.[895] Where, as in the present case, one party relies on the silence of the other party as founding an estoppel, 'the import of the silence must be clear and unequivocal and must be assessed in light of the broader context'.[896]
729 In the present case, the broader context includes the plaintiffs' acceptance under clause 7.3 of the TMLAs of sole responsibility of ensuring the compliance of the Impugned Promotional Activities with all legal and regulatory requirements. This context is also fatal to the plaintiffs' reliance upon estoppel by convention. A course of dealings that is explicable by reference to some equally plausible assumption falls short of establishing that the parties accept the assumption contended for as the basis of their relations.[897] Bega's Consent and Lack of Allegation/Demand in respect of the Impugned Promotional Activities is explicable by Bega having regarded the plaintiffs as being solely responsible for ensuring that the Impugned Promotional Activities complied with all statutory and regulatory requirements.
730 There is no basis for concluding that Bega represented to the plaintiffs that it would not allege that the plaintiffs breached their obligations under clause 7.3, thereby enlivening a right of termination under clause 16.1. Had it been necessary to do so, I would have rejected the plaintiffs' estoppel defence.
THE APPROPRIATENESS OF THE DECLARATORY RELIEF SOUGHT BY BEGA
731 In paragraphs C, D, E, L and M of the prayer for relief in the Counterclaim Bega seeks declarations that it is 'entitled to terminate' the Bonland TMLA and the Fonterra TMLA. In light of my conclusion that the plaintiffs have not breached any of the provisions of the TMLAs there is no basis for making a declaration that Bega is entitled to terminate the TMLAs. However, even if I had concluded that the plaintiffs had breached the TMLAs, a question would have arisen as to whether the Court should refrain from granting declaratory relief in the terms sought.
732 A number of judgments of the New South Wales Court of Appeal support the conclusion that courts should refrain from granting a declaration that a party to a contract is entitled to terminate the contract.
733 In Galaxy Communications Pty Ltd v Paramount Films of Australia Inc ('Galaxy Communications')[898] Stein JA (Meagher JA agreeing) stated:
it is one thing to declare the present contractual rights of the parties, but it is another to declare them contingently on the plaintiff electing to take some course that he has not taken, is not bound to take and may not take. As with Dormer (at 434) the relief here sought is, in substance, that if the opponents elect to give a notice of termination, that notice will be valid and effective to terminate the agreements on the basis of the court's finding on insolvency. I do think that the court should hesitate in lending itself to such potential effects on the contractual position of the parties given the circumstances of the case to which I have already referred.[899]
734 In Urica Library Systems BV v Sanderson Computers Pty Ltd[900] Rolfe J considered Galaxy Communications and other authorities where a declaration had been refused because it was claimed in relation to circumstances that had not occurred and might never happen, before concluding:
However, the present case differs. Urica has, I am satisfied, established, firstly, that there is an event of default and, secondly, that it wishes to rely on it to terminate the Software Agreement. So much was not in issue. The reason it has not pursued its right to terminate, which, of course, can be exercised extra-curially, is the threat that Sanderson would seek an injunction. In the face of this Urica was prepared to have its entitlement decided by the Court in which course Sanderson agreed. Accordingly, there is, in my opinion, a justiciable issue. On the facts it is neither hypothetical nor is it abstract. It would be extraordinary if the parties in commercial litigation could not arrange their affairs so that real disputes are resolved in an orderly way by the Court. That is what has occurred in this case with the concurrence of the parties. It is not open to Sanderson, on the present facts, to assert that there is no entitlement in Urica to the declaratory relief it seeks on discretionary grounds and, I am satisfied, there are no discretionary reasons why I should not grant that relief, if Urica is otherwise entitled to it.[901]
735 Rolfe J's declaration that Urica was entitled to terminate the Software Agreement was set aside on appeal. In Sanderson Computers Pty Ltd v Urica Library Systems BV ('Sanderson')[902] Sheller JA (Mason P and Powell JA agreeing) stated:
For reasons which are described in the judgment of Priestley JA in Galaxy, there will always be a problem where a claimant which has not terminated an agreement, seeks a declaration that it is entitled to do so. The declaration speaks from the time that it is made. Before a notice of termination is given or expires, events may overtake its validity. It is undesirable that questions such as waiver, and even more undesirable that questions about relief against forfeiture, be dealt with at all before there is a completed termination. Even if the respondent presently intends to give a notice of termination, it may delay it and fresh questions about election and waiver may arise. Such considerations firmly support the conclusion that in the present case his Honour's exercise of the discretion to grant such a declaration miscarried. With all respect to his Honour, until such time as the respondent elected to terminate, the question as to whether it was entitled to do so remained hypothetical and abstract.[903]
736 In Brighton Ceiling Pty Ltd v Pocrnja[904] Giles JA (Santow JA and McClellan AJA agreeing) stated:
It is recognised in [47], that it may be declared that conduct which has not yet taken place will not be in breach of a contract or a law, and that such a declaration will not be hypothetical in the sense presently under consideration. But as Sanderson Computers Pty Ltd v Urica Library Systems BV (1998) 44 NSWLR 73 shows, there is a difference between declaring the contractual rights of parties and declaring them contingently on one of the parties to the contract electing to take a course which the party has not taken, is not bound to take, and may not take. The same must apply to declarations of a position in law.[905]
737 The written submissions filed by the parties did not address the judgments of the New South Wales Court of Appeal referred to above. I did not request the parties to file further submissions addressing these authorities. My finding that the plaintiffs did not breach the TMLAs means there is no basis for a declaration that Bega is entitled to terminate the TMLAs. It is not necessary to express a concluded view as to whether, had I concluded that the plaintiffs breached the TMLAs, it would have been appropriate to grant the declarations sought. I have not been able to locate any judgment of the Victorian Supreme Court which has considered the judgment of the New South Wales Court of Appeal in Sanderson. In Golden Sands Pty Ltd v Excel Quarries Pty Ltd,[906] Whelan J (as his Honour then was) appears to have made a declaration of entitlement to terminate without being called upon to consider the issue of whether the declaration was hypothetical.[907] Had I been satisfied that the plaintiffs had breached the TMLAs, in the absence of any relevant judgment of the Victorian Court of Appeal, I would have considered myself bound to follow the approach of the New South Wales Court of Appeal in Sanderson.[908]
738 The plaintiffs' claim and the defendant's counterclaim are dismissed. I shall provide the parties with an opportunity to make submissions on costs.
[2] Plaintiffs, 'Plaintiffs' Closing Submissions on the Claim', 9 April 2020, [102] ('Fonterra Closing Submissions on the Claim').
[4] Fonterra Closing Submissions on the Claim (n 2) [121].
[7] Defendant, 'Fifth Further Amended Defence to the Second Further Amended Statement of Claim and Counterclaim', 31 March 2020, [19(a)], [20A(a)-(c), (e)] ('Defence and Counterclaim').
[8] Plaintiffs, 'Fifth Further Amended Statement of Claim', 12 March 2020, [24] ('Fifth Further Amended Statement of Claim').
[9] Fonterra Closing Submissions on the Claim (n 2) [220]; Fifth Further Amended Statement of Claim (n 8) [B1].
[13] Trade Marks Regulations 1995 (Cth) sch 1.
[18] Transcript of Proceedings, T 2214 L 1-9, T 2259 L 1-20, T 2260 L 10-11, L 24-5, T 2262 L 2-8 (24 February 2020); T 2566 L 9-15, T 2568 L 17-22, T 2575 L 23-9, T 2584 L 23-4, T 2620 L 10-11, T 2629 L 25, 2631 L 19-21 (4 March 2020).
[19] Plaintiffs, 'Fonterra Outline of Opening Submissions', 11 November 2019, [16] ('Fonterra Opening Submissions').
[21] Ibid 116-17 [46]-[52] (citations omitted).
[22] Fonterra Closing Submissions on the Claim (n 2) [19].
[23] Plaintiffs, 'Plaintiffs' Submissions in Reply on the Claim', 18 May 2020, [36] ('Fonterra Reply Submissions on the Claim').
[25] [1960] HCA 80; (1960) 105 CLR 188 ('Fisher').
[30] PTTEP Australasian (Ashmore Cartier) Pty Ltd v Federal Commissioner of Taxation [2014] FCAFC 71; (2014) 222 FCR 592, 594 [8].
[32] Cambridge Credit Corporation Ltd v Parkes Developments Pty Ltd [1974] 2 NSWLR 590, 593.
[33] Fonterra Closing Submissions on the Claim (n 2) [25].
[36] Fonterra Closing Submissions on the Claim (n 2) [29].
[41] Fonterra Closing Submissions on the Claim (n 2) [37].
[46] Fonterra Closing Submissions on the Claim (n 2) [42]-[45].
[48] Ibid 109. This passage was cited with approval by Tate JA in Apple and Pear Australia Ltd v Pink Lady America LLC [2016] VSCA 280; (2016) 343 ALR 112, 141 [98].
[50] Ibid [55] (Macfarlan JA, Young JA and Tobias AJA agreeing).
[53] Jireh International Pty Ltd v Western Export Services Inc [2011] NSWCA 137, [64]-[65] (Macfarlan JA).
[54] Fonterra Reply Submissions on the Claim (n 23) [61].
[56] (1982) 149 CLR 337 ('Codelfa').
[61] Fonterra Reply Submissions on the Claim (n 23) [68].
[65] Fonterra Closing Submissions on the Claim (n 2) [220].
[66] Fifth Further Amended Statement of Claim (n 8) [B1].
[67] [1999] 1 VR 1 ('Leibler').
[68] Ibid 14 [36] (Kenny JA, Winneke P and Phillips JA expressing substantial agreement).
[69] Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329, 336 (Sheller JA); Thiess Pty Ltd v Arup Pty Ltd [2012] QSC 185, [89] ('Thiess'); Acorn Consolidated Pty Ltd v Hawkslade Investments Pty Ltd (1999) 21 WAR 425, 448-9 [105]-[106]; David Hodge_, Rectification: The Modern Law and Practice Governing Claims for Rectification for Mistake_ (Thomson Reuters, 2nd ed, 2016) 472.
[71] Fifth Further Amended Statement Of Claim (n 8) [30].
[72] See Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603, 713 [458]-[459] ('Metcash').
[73] Ibid 712 [451]; Leibler (n 67) 15 [38].
[77] Fonterra Closing Submissions on the Claim (n 2) [69].
[78] (1995) 183 CLR 563 ('Krakowski').
[79] (1976) 15 SASR 270, 279.
[81] Fonterra Closing Submissions on the Claim (n 2) [74].
[85] Meridian Global Funds Management Asia Ltd v Securities Commission [1995] UKPC 5; [1995] 2 AC 500, 512 (Lord Hoffmann); DPP (Vic) Reference No 1 of 1996 [1998] 3 VR 352, 354; Director General Department of Education and Training v MT [2006] NSWCA 270; (2006) 67 NSWLR 237, 244 [23] (Spigelman CJ, Ipp JA and Hunt AJA agreeing); Christian Youth Camps Ltd v Cobaw Community Health Services Ltd [2014] VSCA 75; (2014) 50 VR 256, 284-6 [104]-[110]; Commonwealth Bank of Australia v Kojic [2016] FCAFC 186; (2016) 249 FCR 421, 445-6 [97]-[101] (Edelman J); North Adelaide Service Partnership v Retail Employees Superannuation Pty Ltd (2019) 132 SASR 398, 418 [112] (Blue J).
[86] [2018] VSC 2, [104]-[105] (citations omitted) ('Perpetual').
[88] Perpetual Ltd v Myer Pty Ltd [2019] VSCA 98, [85].
[90] Ibid [198]-[200] (citations omitted).
[91] Thiess Pty Ltd v Arup Pty Ltd [2013] QCA 65.
[94] XCB Pty Ltd v Creative Brands Pty Ltd [2005] VSC 424, [7(3)].
[96] Ibid [198]. See also FSHC Group Holdings Ltd v Barclays Bank plc [2018] EWHC 1558 (Ch), [50]-[51] (Carr J); Hawksford Trustees Jersey Ltd v Stellar Global UK Ltd [2012] EWCA Civ 55, [43].
[97] Lee v Westpac Banking Corporation [2015] FCA 467, [23].
[98] Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 260 CLR 85, 102 [42] (Kiefel J), 117 [104] (Gageler, Nettle and Gordon JJ) ('Simic').
[99] Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329, 332 (Mahoney AP).
[100] Metcash (n 72) 711 [445] (Campbell JA, Allsop P and Giles JA agreeing).
[103] Ibid 95 [19]; FSHC Group Holdings Ltd v Glas Trust Corporation Ltd [2020] Ch 365, 412-13 [167]-[168]; Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603, 632 [136] ('Ryledar'); Newey v Westpac Banking Corporation [2014] NSWCA 319, [173]-[192]; Samm Property Holdings Pty Ltd v Shaye Properties Pty Ltd [2017] NSWCA 132; (2017) 345 ALR 633, 656 [113]-[115]; Kowloon Development Finance Ltd v Pendex Industries Ltd (2013) HKCFAR 336, [20].
[104] Fonterra Closing Submissions on the Claim (n 2) [88].
[106] [2009] UKHL 38; [2009] 1 AC 1101 ('Chartbrook').
[112] Plaintiffs, 'Fonterra's Supplementary Submission - Test for Rectification', 17 June 2020, [10] (citations omitted) ('Fonterra Supplementary Submission - Test for Rectification').
[113] RHG Mortgage Securities Pty Ltd v Elektra Purchase No 19 Ltd [2009] NSWSC 258, [11]; Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2008] NSWSC 274, [29] ('Masterton'). The judgment in Masterton was overturned on appeal in Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; (2009) 261 ALR 382. Einstein J's formulation of the principles concerning rectification at [29] was undisturbed on appeal.
[114] Fifth Further Amended Statement of Claim (n 8) [30].
[115] Fonterra Closing Submissions on the Claim (n 2) [138].
[116] Fonterra Reply Submissions on the Claim (n 23) [98].
[118] Ibid [106] (emphasis in original) (citations omitted).
[123] Fonterra Closing Submissions on the Claim (n 2) [121]-[122].
[124] Transcript of Proceedings, T 790 L 12-16, T 791 L 1-2, L 6-11 (10 December 2019).
[128] Fonterra Reply Submissions on the Claim (n 23) [94]-[95].
[129] Ibid [99] (emphasis in original).
[130] Fonterra Closing Submissions on the Claim (n 2) [141].
[132] Fonterra Reply Submissions on the Claim (n 23) [107].
[133] Transcript of Proceedings, T 674 L 12-13 (9 December 2019).
[134] Transcript of Proceedings, T 693 L 4-7 (9 December 2019).
[135] Transcript of Proceedings, T 700 L 28, T 701 L 4 (9 December 2019).
[136] Transcript of Proceedings, T 703 L 3-5 (9 December 2019).
[137] Transcript of Proceedings, T 696 L 10-13 (9 December 2019).
[138] Transcript of Proceedings, T 703 L 12-14 (9 December 2019).
[139] Transcript of Proceedings, T 703 L 19-23 (9 December 2019).
[140] Transcript of Proceedings, T 693 L 4-7 (9 December 2019).
[143] Transcript of Proceedings, T 779 L 11-19 (10 December 2019).
[146] Transcript of Proceedings, T 790 L 12-16, T 791 L 1-2 (10 December 2019).
[147] Transcript of Proceedings, T 791 L 6-11 (10 December 2019).
[149] Leibler (n 67) 15 [38]; Re Premier Bay Pty Ltd [2018] VSC 168, [714], [718], [774]; Fox Entertainment Precinct Pty Ltd v Centennial Park & Moore Park Trust [2004] NSWSC 214, [28]; see also CA & CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd [2017] VSCA 11; (2017) 55 VR 62, 92 [75]; Australian Gypsum Ltd v Hume Steel Ltd [1930] HCA 38; (1930) 45 CLR 54, 64; Slee v Warke [1949] HCA 57; (1949) 86 CLR 271, 281; Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336, 349; Pukallus v Cameron [1982] HCA 63; (1982) 180 CLR 447, 452-4.
[150] Fifth Further Amended Statement of Claim (n 8) [30].
[151] Transcript of Proceedings, T 722 L 6-9 (9 December 2019).
[152] Transcript of Proceedings, T 724 L 30-1, T 725 L 1-2 (9 December 2019).
[153] Transcript of Proceedings, T 809 L 20-3 (10 December 2019).
[154] Transcript of Proceedings, T 809 L 25-6 (10 December 2019).
[155] Transcript of Proceedings, T 809 L 30-1 (10 December 2019).
[156] Transcript of Proceedings, T 811 L 19-23 (10 December 2019).
[157] Transcript of Proceedings, T 810 L 31, T 811 L 1-3 (10 December 2019).
[158] Transcript of Proceedings, T 817 L 3-4 (10 December 2019).
[159] Transcript of Proceedings, T 817 L 5-12 (10 December 2019).
[160] Transcript of Proceedings, T 817 L 14-19 (10 December 2019).
[161] Transcript of Proceedings, T 817 L 28-9, T 809 L 15-16 (10 December 2019).
[162] Transcript of Proceedings, T 808 L 25-6 (10 December 2019).
[163] CA & CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd [2017] VSCA 11; (2017) 55 VR 62, 92 [75].
[164] Pukallus v Cameron [1982] HCA 63; (1982) 180 CLR 447, 452 (Wilson J, Gibbs CJ agreeing).
[165] Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329, 332 (Mahoney AP); Eroc Pty Ltd v Amalg Resources NL [2003] QSC 74, [38] (Muir J); Franknelly Nominees Pty Ltd v Abrugiato [2013] WASCA 285, [180] (Buss JA); Metcash (n 72) 710 [445] (Campbell JA, with Allsop P and Giles JA agreeing).
[166] Transcript of Proceedings, T 811 L 15-17, 21-3, T 813 L 4-6, 22-4 (10 December 2019).
[167] Transcript of Proceedings, T 719 L 4-9 (9 December 2019).
[168] Transcript of Proceedings, T 717 L 16-23 (9 December 2019).
[169] Exhibit MDL-4 to the Affidavit of Matthew David Lees, sworn 17 February 2020.
[170] Affidavit of Matthew David Lees, sworn 17 February 2020, [14].
[171] Transcript of Proceedings, T 809 L 19-23 (10 December 2019).
[172] Transcript of Proceedings, T 809 L 15-16 (10 December 2019).
[173] Transcript of Proceedings, T 684 L 6-8, T 691 L 12, T 694 L 2-3, T 703 L 1-5 (9 December 2019).
[174] Transcript of Proceedings, T 952 L 4-9 (3 February 2020).
[175] Fonterra Closing Submissions on the Claim (n 2) [145].
[176] Ibid [146] (citations omitted).
[178] Affidavit of Matthew David Lees, sworn 17 February 2020, [9].
[179] Affidavit of Matthew David Lees, sworn 17 February 2020, [14].
[180] Affidavit of Matthew David Lees, sworn 17 February 2020, [12]; Exhibit MDL-4 to the Affidavit of Matthew David Lees, sworn 17 February 2020.
[181] Fonterra Closing Submissions on the Claim (n 2) [147].
[183] Shalhoub v Buchanan [2004] NSWSC 99 [71]; Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 93 [440]; Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572, 576 [14]-[15].
[184] Fonterra Closing Submissions on the Claim (n 2) [138].
[185] Ibid [148]-[150] (citations omitted).
[186] Transcript of Proceedings, T 870 L 19-20 (10 December 2019); T 891 L 11-12 (11 December 2019).
[187] Transcript of Proceedings, T 870 L 10-12 (10 December 2019).
[188] Transcript of Proceedings, T 890 L 10-12 (11 December 2019).
[189] Transcript of Proceedings, T 871 L 4-6 (10 December 2019).
[190] Transcript of Proceedings, T 827 L 31, T 828 L 1-3 (10 December 2019); T 895 L 31 (11 December 2019).
[191] Transcript of Proceedings, T 871 L 21-8 (10 December 2019); T 901 L 1-5 (11 December 2019).
[192] Transcript of Proceedings, T 905 L 1-2 (11 December 2019).
[193] Transcript of Proceedings, T 845 L 12-17 (10 December 2019).
[194] Transcript of Proceedings, T 862 L 18-22 (10 December 2019).
[195] Transcript of Proceedings, T 862 L 2-7 (10 December 2019).
[196] Transcript of Proceedings, T 867 L 12-13 (10 December 2019).
[197] Transcript of Proceedings, T 867 L 12-13 (10 December 2019).
[198] Transcript of Proceedings, T 871 L 21-8, T 832 L 13-18, T 835 L 19-23, 28-9 (10 December 2019).
[199] Transcript of Proceedings, T 840 L 12-21 (10 December 2019).
[200] Fonterra Reply Submissions on the Claim (n 23) [174] (citations omitted).
[201] Simic (n 98) 117 [104] (citations omitted).
[203] Ibid 102 [42] (Kiefel J) (citations omitted).
[204] Fonterra Reply Submissions on the Claim (n 23) [174] (citations omitted).
[206] BEG.007.002.0172, 0172; Fonterra Closing Submissions on the Claim (n 2) [120] (citations omitted).
[207] BEG.008.001.0035; Transcript of Proceedings, T 2264 L 20-8 (24 February 2020).
[209] Transcript of Proceedings, T 832 L 10-14 (10 December 2019).
[210] Fonterra Reply Submissions on the Claim (n 23) [176].
[212] Fonterra Closing Submissions on the Claim (n 2) [138(b)].
[213] Ibid [151]-[152] (citations omitted).
[214] Ibid [152] (citations omitted).
[215] Transcript of Proceedings, T 947 L 12-14 (3 February 2020).
[216] Transcript of Proceedings, T 952 L 15-18 (3 February 2020).
[217] Transcript of Proceedings, T 980 L 6-14 (3 February 2020).
[218] Transcript of Proceedings, T 971 L 21-3 (3 February 2020).
[219] Transcript of Proceedings, T 947 L 5-6 (3 February 2020).
[220] Transcript of Proceedings, T 947 L 6-7 (3 February 2020).
[221] Transcript of Proceedings, T 703 L 1-5 (9 December 2019).
[222] Transcript of Proceedings, T 727 L 26 (9 December 2019).
[223] Transcript of Proceedings, T 791 L 6-11 (10 December 2019).
[224] Fonterra Reply Submissions on the Claim (n 23) [144].
[225] Fonterra Closing Submissions on the Claim (n 2) [120].
[226] Ibid [120(a)-(l)] (citations omitted).
[227] Fonterra Reply Submissions on the Claim (n 23) [93]-[98] (citations omitted).
[228] Simic (n 98) 102 [42], 117 [104].
[230] Transcript of Proceedings, T 809 L 19-23 (10 December 2019).
[231] The 'KAMERUKA' trade mark is registered under both class 29 and 30.
[233] Fonterra Closing Submissions on the Claim (n 2) [155].
[234] Ibid [156(a)-(h)] (citations omitted) (emphasis altered).
[237] Transcript of Proceedings, T 828 L 1-3 (10 December 2019); T 895 L 31 (11 December 2019).
[238] Transcript of Proceedings, T 673 L 27-31 (9 December 2019).
[239] FON.004.002.0025 (1 December 2000); BEG.007.002.0245 (18 December 2000); BEG.007.002.0245, 0249 (15 December 2000); FON.005.001.2029 (3 January 2001); BEG.007.003.0301 (23 January 2001).
[240] Ryledar (n 103) 657 [270] (Campbell JA); NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740, 752.
[243] Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361, 384-5 [63].
[245] Payne v Parker [1976] 1 NSWLR 191, 201 (Glass JA).
[247] DEF.0009.0010.0241, 0255 (emphasis added).
[249] Transcript of Proceedings, T 3108 L 10 (12 March 2020).
[250] Transcript of Proceedings, T 3109 L 12-17 (12 March 2020).
[252] Fonterra Reply Submissions on the Claim (n 23) [196].
[254] Ibid [108]-[110] (citations omitted).
[256] Ibid 308 [84]-[85] (citations omitted).
[260] Cf Scalise v Bezzina [2003] NSWCA 362, [98].
[261] Fonterra Reply Submissions on the Claim (n 23) [198].
[262] Affidavit of Matthew David Lees, sworn 17 February 2020, [12].
[263] Transcript of Proceedings, T 947 L 18-29 (3 February 2020).
[264] FON.014.013.0001. He was a director of BCT and signed the New South Wales TMLA on its behalf.
[265] Transcript of Proceedings, T 952 L 13-18 (3 February 2020).
[266] Fonterra Reply Submissions on the Claim (n 23) [201]-[202] (citations omitted).
[268] Fonterra Reply Submissions on the Claim (n 23) [201].
[269] See Ryledar (n 103) 642 [185] (Tobias JA, with Mason P agreeing).
[270] Fonterra Reply Submissions on the Claim (n 23) [203] (citations omitted).
[272] Fonterra Closing Submissions on the Claim (n 2) [225].
[273] [2001] HCA 70; (2001) 210 CLR 181, 202-3 [54]-[55] (Gleeson CJ, Gummow and Hayne JJ) ('Maggbury').
[274] [2004] FCA 568; (2004) 62 IPR 274 ('Goldspar').
[276] Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126, 134-5 [14] (Gleeson CJ, Gummow, Kirby and Hayne JJ); Petrofina (Great Britain) Ltd v Martin [1966] Ch 146, 180 (Diplock LJ).
[277] Peters American Delicacy Co Ltd v Patricia's Chocolates and Candies Pty Ltd [1947] HCA 62; (1947) 77 CLR 574, 589-92 (Dixon J).
[278] Peters (WA) Ltd v Petersville Ltd [1999] FCA 1245, [24] (French, Kiefel and Nicholson JJ).
[279] Lindner v Murdoch's Garage [1950] HCA 48; (1950) 83 CLR 628, 653 (Kitto J).
[280] Mason v Provident Clothing & Supply Co Ltd [1913] UKLawRpAC 37; [1913] AC 724, 733, 741.
[281] Adamson v New South Wales Rugby League Ltd [1991] FCA 425; (1991) 31 FCR 242, 285; Geraghty v Minter (1979) 142 CLR 177, 180.
[282] McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd [2008] NSWSC 542; (2008) 73 NSWLR 53, 64-5 [40].
[283] Fonterra Reply Submissions on the Claim (n 23) [324].
[284] [2011] NSWSC 386; (2011) 206 IR 450, 470-1 [68].
[286] Seven Network (Operations) Ltd v Warburton (No 2) [2011] NSWSC 386; (2011) 206 IR 450, 470-1 [68].
[287] KA & C Smith Pty Ltd v Ward (1998) 45 NSWLR 702, 722.
[288] Cf Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126, 144-5 [43].
[289] Amoco Australia Pty Ltd v Rocca Broths Motor Engineering Co Pty Ltd [1973] HCA 40; (1973) 133 CLR 288, 294 (Menzies J) ('Amoco'), applied in Specialist Diagnostic Services Pty Ltd v Healthscope Ltd [2012] VSCA 175; (2012) 41 VR 1, 13 [49] ('Specialist Diagnostic Services'); Goldspar (n 274) 300 [92].
[290] Amoco (n 289) 316 (Gibbs J); Specialist Diagnostic Services (n 289) 13 [50].
[291] Fonterra Closing Submissions on the Claim (n 2) [263], [265]-[268].
[294] Fonterra Closing Submissions on the Claim (n 2) [274].
[295] Fifth Further Amended Statement of Claim (n 8) [E]-[F].
[296] Plaintiffs, 'Fonterra Outline of Submissions - Bega's Counterclaim', 10 June 2020, [226] ('FCRS').
[298] Defendant, 'Bega's Outline of Closing Submissions on Counterclaim', 6 May 2020, [13(a)-(f)] ('BCCS').
[305] Ibid [191] (emphasis in original).
[306] BCCS (n 298) [192]; Defence and Counterclaim (n 7) [40].
[311] BCCS (n 298) [266], [457], [763]; Defendant, 'Bega's Closing Submissions in Reply on Counterclaim', 8 July 2020, [80]-[84] ('BCRS').
[314] Ibid 116-17 [46]-[52] (citations omitted).
[315] [2020] VSCA 201 ('Adaz').
[316] Ibid [70] (citations omitted).
[317] Ibid and the authorities cited therein.
[318] [2004] HCA 52; (2004) 219 CLR 165 ('Toll').
[319] Ibid 179 [40] (citations omitted); see also Ryledar (n 103) 626 [108]-[109], (Tobias JA, Mason P and Campbell JA agreeing); Retirement Services Australia (RSA) Pty Ltd v 3143 Victoria Street Doncaster Pty Ltd [2012] VSCA 134; (2012) 37 VR 486, 507 [65], 516 [106] ('RSA').
[320] Macquarie Dictionary (online at 5 February 2021) 'promote' (def 2).
[321] Macquarie Dictionary (online at 5 February 2021) 'develop' (def 12).
[324] See Oxford English Dictionary (online at 1 June 2020) 'premium' (def 2a).
[325] The evidence of Dr Honeywill and Mr Johnston is summarised at BCCS (n 298) [368]-[393].
[334] Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420, 426-7 (Dixon CJ and Fullagar J).
[335] Chartbrook (n 106) [25] (Lord Hoffmann); Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28; [1998] 1 WLR 896, 913, quoted in Maggbury (n 273) 198 [43] (Gleeson CJ, Gummow and Hayne JJ).
[343] [2014] HCA 7; (2014) 251 CLR 640 ('Woodside').
[345] Transcript of Proceedings, T 3360 L 26-30 (17 March 2020).
[346] Transcript of Proceedings, T 3360 L 31, T 3361 L 1-6 (17 March 2020).
[347] Woodside (n 343) 656-7 [35] (French CJ, Hayne, Crennan and Kiefel JJ).
[353] Cf Supabarn Supermarkets Pty Ltd v Cotrell Pty Ltd (No 3) [2020] ACTSC 53, [304]; Supabarn Supermarkets Pty Ltd v Cotrell Pty Ltd [2021] ACTCA 2, [40]-[41].
[363] Supabarn Supermarkets Pty Ltd v Cotrell Pty Ltd (No 3) [2020] ACTSC 53, [303]-[305]; Supabarn Supermarkets Pty Ltd v Cotrell Pty Ltd [2021] ACTCA 2, [40]-[41]; Southern Cross Assurance Co Ltd v Australian Provincial Assurance Association Ltd (1935) 53 CLR 618, 636 (Rich, Dixon, Evatt, McTiernan JJ); Equity and Law Life Assurance Society PLC v Bodfield Ltd (1987) 54 P & CR 290, 294; Mitsubishi Heavy Industries Ltd v Gulf Bank KSC [1997] 1 Lloyd's Rep 343, 350; Cargill International SA v Bangladesh Sugar & Food Industries Corp [1997] EWCA Civ 2757; [1998] 1 WLR 461, 468.
[366] Ibid 501 [47], quoting 3143 Victoria Street Doncaster Pty Ltd v Retirement Services Australia (RSA) Pty Ltd [2010] VSC 317 [8].
[367] RSA (n 319) 506-7 [62]-[63], quoting Codelfa (n 56) 352.
[378] Report of Don O'Sullivan, 6 November 2019, [22], [25]; FCRS (n 296) [186].
[379] Report of Don O'Sullivan, 6 November 2019, [33](d); FCRS (n 296) [186].
[380] Report of Don O'Sullivan, 6 November 2019, [36]; FCRS (n 296) [186].
[381] Report of Don O'Sullivan, 6 November 2019, [40]; FCRS (n 296) [186].
[382] Report of Don O'Sullivan, 19 December 2019, [4(d)].
[383] Report of Don O'Sullivan, 6 November 2019, [203(a)].
[388] Plaintiffs, 'Reply to Fifth Further Amended Defence to the Second Further Amended Statement of Claim and Defence to Counterclaim', 20 April 2020, [56(a)] ('Reply and Defence to Counterclaim').
[389] Transcript of Proceedings, T 453 L 25, T 454 L 1-25 (21 November 2019).
[390] Pilbara Iron Ore Pty Ltd v Ammon [2020] WASCA 92, [162]; Richey-Lowe v Australasian Conference Association Ltd [2001] NSWCA 447, [35]-[36].
[391] The equivalent clause in the Bonland TMLA is cl 3.9(c).
[394] Transcript of Proceedings, T 3492 L 2-7 (18 March 2020).
[403] Report of Don O'Sullivan, 16 August 2019, [128]; Report of Ross Honeywill, 28 October 2019, [37].
[405] Defence and Counterclaim (n 7) [31A], [34].
[406] Reply and Defence to Counterclaim (n 388) [31A], [34].
[407] Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126, 142 [36] (Gleeson CJ, Gummow, Kirby and Hayne JJ); Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359, 378 (Dixon J).
[408] Defence and Counterclaim (n 7) [31].
[410] BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 282-3 (Lord Simon) ('BP Refinery'); see also Commonwealth Bank of Australia v Barker [2014] HCA 32; (2014) 253 CLR 169 ('Barker').
[413] Grocon Constructors (Vic) Pty Ltd v APN DF2 Project 2 Pty Ltd [2015] VSCA 190, [144] ('Grocon Constructors').
[414] [1976] 1 WLR 1187 ('Lostock Garage').
[420] [2002] NSWSC 178; (2002) 54 NSWLR 503, 523. See also Biscayne Partners Pty Ltd v Valance Corp Pty Ltd [2003] NSWSC 874 (Einstein J).
[422] Ibid [105] (citations omitted).
[424] Ibid [144] (citations omitted).
[425] Barker (n 410) 186 [22], 189 [29] (French CJ, Bell and Keane JJ); Grocon Constructors (n 413) [145].
[426] BP Refinery (n 410) 292 (Lord Wilberforce and Lord Morris).
[428] Ibid 193-4 [36], see also 201 [60] (Kiefel J).
[429] BCCS (n 298) [293]-[296], [300]-[301].
[430] Grocon Constructors (n 413) [169].
[431] FON.012.001.5569, 'DTS' tab, rows 17-18, column E.
[432] FON.012.001.5569, 'DTS' tab, rows 17-18, column F.
[433] FON.012.001.5569, 'Co-op' tab, row 20, column F.
[434] FON.012.001.5569, 'DTS' tab, rows 17-18, column G.
[435] FON.012.001.5569, 'Co-op' tab, row 20, column G.
[436] FON.012.001.5569, 'DTS' tab, rows 17-18, column H.
[437] FON.012.001.5569, 'Co-op' tab, row 20, column H.
[438] FON.012.001.5569, 'DTS' tab, rows 17-18, column I.
[439] FON.012.001.5569, 'Co-op' tab, row 20, column I.
[440] FON.012.001.5569, 'DTS' tab, rows 17-18, column J.
[441] FON.012.001.5569, 'Co-op' tab, row 20, column J.
[442] FON.012.001.5569, 'DTS' tab, rows 17-18, column K.
[443] FON.012.001.5569, 'Co-op' tab, row 20, column K.
Fonterra Brands (Australia) Pty Ltd
Bega Cheese Ltd [2021] VSC 75
(2008) 171 FCR 473
(2018) 54 VR 230
(1986) 161 CLR 500
(1982) 149 CLR 337
(2004) 208 ALR 213
(1998) 44 NSWLR 73
(2015) 256 CLR 104
(1960) 105 CLR 188
(2014) 222 FCR 592
(1973) 129 CLR 99
(2016) 343 ALR 112
(1995) 41 NSWLR 329
(1999) 21 WAR 425
(2009) 76 NSWLR 603
(1995) 183 CLR 563
(1976) 15 SASR 270
(2006) 67 NSWLR 237
(2014) 50 VR 256
(2016) 249 FCR 421
(2019) 132 SASR 398
(2016) 260 CLR 85
(2007) 69 NSWLR 603
(2017) 345 ALR 633
(2009) 261 ALR 382
(2017) 55 VR 62
(1930) 45 CLR 54
(1949) 86 CLR 271
(1973) 128 CLR 336
(1982) 180 CLR 447
(2009) 236 FLR 1
(2001) 51 NSWLR 572
(1986) 6 NSWLR 740
(2011) 243 CLR 361
(2016) 74 MVR 289
(2005) 222 ALR 436
(2001) 210 CLR 181
(2004) 62 IPR 274
(2001) 205 CLR 126
(1947) 77 CLR 574
(1950) 83 CLR 628
(1991) 31 FCR 242
(1979) 142 CLR 177
(2008) 73 NSWLR 53
(2011) 206 IR 450
(1998) 45 NSWLR 702
(1973) 133 CLR 288
(2012) 41 VR 1
(2004) 219 CLR 165
(2012) 37 VR 486
(2004) 138 FCR 286
(1956) 95 CLR 420
(2014) 251 CLR 640
(2017) 261 CLR 544
(1935) 53 CLR 618
(1964) 112 CLR 597
(1931) 45 CLR 359
(1977) 180 CLR 266
(2014) 253 CLR 169
(2002) 54 NSWLR 503