Franklins Pty Ltd v Metcash Trading Ltd [2007] NSWSC 242 | Case summary

Franklins Pty Ltd v Metcash Trading Ltd [2007] NSWSC 242 | Case summary | Zoe

9 Franklins (called in the Supply Agreement "Interfrank Holdings Pty Ltd") is a subsidiary of a large retail chain which has carried on business for many years in South Africa under the name "Pick 'n Pay". The names "Pick 'n Pay" and "Interfrank" appear in many of the documents in the proceedings but, for the sake of convenient reference, I will include all of the relevant companies in the group within the name "Franklins". 10 The present Chief Executive Officer of Franklins, Mr Sean Summers, has had more than thirty years' experience in the supermarket retailing industry, mostly in South Africa, with one year's experience in Australia in 1985. In early 2001, Mr Summers came to Australia to investigate the possibility of Franklins acquiring a retail chain in this country. Eventually, Franklins acquired a substantial number of stores and sought to develop a supply agreement with a wholesaler. It commenced discussions with Metcash in about April 2001. 11 Metcash is a subsidiary of a large supermarket wholesale business carried on in South Africa. Its Chief Executive Officer in Australia is Mr Andrew Reitzer who, like Mr Summers, has had many years experience in the supermarket business, mostly in South Africa. His experience is on the wholesaling side. Mr Reitzer came to Australia in about 1998, when Metcash acquired its present supermarket wholesale business in Australia from Davids Holdings Limited. 12 The fundamental concept of the Supply Agreement which the parties discussed at the commencement of their negotiations was that Metcash, as wholesaler, would purchase from suppliers all goods required both for Franklins and for Metcash's other supermarket customers, such as the IGA stores, and would on-sell to Franklins those volumes purchased to meet Franklins' requirements. With the benefit of the substantial additional volumes of products to be acquired for the Franklins' stores, Metcash would be able to negotiate with suppliers for a better price. However, Franklins also wished to have a direct relationship with suppliers and to negotiate separately with them for other discounts, allowances and rebates in respect of volumes being supplied to it through Metcash. 13 It is common ground between the parties that, in broad terms, there are two types or discounts or allowances operating between suppliers and wholesalers such as Metcash. The first category is called "published" discounts and allowances, being those discounts or allowances given pursuant to trading terms which are shown on the suppliers' invoices or in published trading terms. Such discounts and allowances are also referred to as "on invoice" and, paradoxically, "off invoice". Some people refer to them as "on invoice" because their terms are shown on the face of the invoice as is the deduction from list price in accordance with those terms. Some people refer to them as "off invoice" because the deductions are taken off the price as shown on the invoice. 14 The second category of discounts or allowances is called "confidential" because such discounts or allowances are negotiated privately between a particular supplier and the wholesaler, and reflect their respective bargaining strengths. Suppliers and wholesales strive to keep the terms of confidential discounts strictly secret from competitors. 15 A primary issue to be negotiated between Franklins and Metcash was the price at which Metcash would on-sell to Franklins goods acquired to meet its requirements. Metcash had inherited from Davids Holdings' business a pricing system in its computer called "Wholesale 5", which was the price basis according to which it sold to its supermarket customers. This pricing system passed on to Metcash's customers the "published" discounts (otherwise called the "on invoice" or "off invoice" discounts) which had been obtained by Metcash from its suppliers but did not pass on the confidential discounts, which Metcash retained as part of its profit. 16 The most significant issue in this case revolves around the use of "Wholesale 5" in the definition of the price at which Metcash would on-sell goods to Franklins under the Supply Agreement. Metcash's position is that it agreed to sell to Franklins at the "Wholesale 5" price, so that it passed on to Franklins the published discounts or allowances which it had obtained from suppliers referable to the volumes of goods ordered for Franklins, leaving Franklins to negotiate its own confidential discounts directly with suppliers, and Metcash would retain for its own benefit any other confidential discounts referable to those volumes which Franklins was unable to obtain for itself. 17 Franklins' position is that it agreed with Metcash that Metcash would pass on to it (reflected in the price for goods sold under the Supply Agreement) all discounts and allowances, whether published or confidential, obtained by Metcash and referable to the volumes of goods sold to Franklins. 18 Both parties say that their understanding of the price agreed is reflected in the definition of "Wholesale Price" in the Supply Agreement, properly construed. However, in the alternative, Metcash says that if the definition of "Wholesale Price" in the Supply Agreement does not reflect what it says was the agreed price basis, then the Supply Agreement must be rectified. There are alternative bases for relief claimed by Metcash, as I have noted above. Treatment of issues

(c) If the agreement bears the Franklins meaning and cannot be rectified, is Franklins estopped from contending that the agreement has other than the Metcash meaning?" 21 As the parties have agreed upon a formulation of the issues, I will deal with each of the issues in turn, lest it be thought that I have overlooked any of them. It is appropriate to record, however, that Franklins' written submissions comprise 143 pages, Metcash's written submissions comprise 211 pages, and that the parties' oral submissions comprise 122 pages of transcript, i.e., the parties' submissions total 476 pages. I am grateful for the industry and thoroughness of the parties' legal advisers, from which I have derived much assistance. I have considered all of these submissions and I have endeavoured in these reasons to deal with all of the material evidence upon which findings are required. 22 However, without intending disrespect, I do not think it necessary to recount every one of the arguments put by Counsel. Some of those arguments are variations upon a common theme or are of relatively slight importance. I have dealt only with those arguments which, in my opinion, have some bearing on the outcome of a significant factual or legal issue, and then sometimes in an abbreviated fashion to avoid producing a judgment equal in length to the parties' submissions. For the same reasons, I have not dealt with every disputed piece of evidence: practically every oral statement proffered in evidence by one side was disputed by the other, although most of such statements had little significance to the critical issues. I have focussed only on conflicts as to significant evidence. This course is, I think, consistent with the duty of the Court to give adequate reasons for judgment: see e.g. Housing Commission of New South Wales v Tatmar Pastoral Co Pty Ltd [1983] 3 NSWLR 378, at 385-386; Mifsud v Campbell (1991) 21 NSWLR 725 at 728; Beale v Government Insurance Office of New South Wales (1997) 48 NSWLR 430, at 443. 23 The parties have agreed on the further disposition of the proceedings, as follows: "It is the intention of this formulation of the Issues in the proceedings that they will, if determined, resolve all matters of construction of the agreement between the parties, leaving only the questions of breach (including that described below) and the existence and quantification of any loss and damage to be determined in the event that any liability is established by either party.

Mr Zelinsky signed and returned the letter of agreement. 25 Mr Simpkins SC, who appears for Metcash, submits that the Supply Agreement executed on 14 September 2001 was a "formalisation" of a legally binding contract between the parties made on 24 May. Accordingly, if Metcash's construction argument fails and it must rely on its rectification claim, Metcash argues that the Supply Agreement should be rectified to accord with the contract made on 24 May 2001. 26 Mr Foster SC, who appears with Ms Fendekian of Counsel for Franklins, does not appear to be overly concerned with the question whether the 24 May letter constituted a binding contract between the parties. He submits that it did not, but in any event he relies principally on an "entire agreement clause", clause 14.2, in the Supply Agreement. That clause provides: "All previous negotiations, understandings, representations, warranties, memoranda or commitments in relation to, or in any way affecting, the subject matter of this agreement, including the letter from Metcash to [Franklins] dated 14 June 2001 (and countersigned by [Franklins]) are merged in and superseded by this agreement." 27 Mr Foster says that, even if the letter of 24 May 2001 constituted a binding contract, it was superseded by the Supply Agreement and could have had no contractual force thereafter. 28 In my opinion, Mr Foster's submission is correct. It is clear that the parties, in signing and countersigning the letter of 24 May, intended thereby to set out the terms of their agreement so far as they had been formulated up to that point. The terms of the letter agreement may certainly be used to ascertain the parties' common intention as at the time that the letter was signed, but that intention is relevant only to Metcash's claims for rectification and to an estoppel founded on representations: see e.g. Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471, at [33]-[36]. Whether that intention was expressed in a contractually binding manner does not matter and raises a false issue. 29 For these reasons, I decline to answer Question 1. Question 2 - Whether a binding contract made on 14 June 2001 "Whether on or about 14 June 2001 [Franklins] and [Metcash] entered a further binding legal contract for the supply of products by [Metcash] to [Franklins] the terms of which are set out in a letter from [Metcash] to [Franklins] dated 14 June 2001. This alleged agreement is called 'the Revised Agreement' in the Amended Defence." 30 On 14 June 2001, Mr Reitzer sent to Mr Zelinsky a letter setting out "the adjusted main points that make up our agreed business relationship and supply agreement". The letter contained provisions to which I will refer in more detail in the course of discussing the rectification and estoppel claims. The letter concluded: "The parties intend the terms set out in this letter to form the basis of a formal supply agreement which will be prepared, negotiated and executed as soon as possible.

As agreed, kindly sign a copy of this letter and return it to me as acknowledgement of your acceptance of the aforementioned arrangement." 31 Mr Zelinsky signed and returned the letter on or about 14 June 2001. Metcash submits that the letter also constituted a binding contract between the parties. I am inclined to think that it did not, because the concluding paragraphs refer to an "arrangement" and described the letter as "the basis of a formal agreement which will be … negotiated". 32 However, as in the case of Question 1, whether or not this letter constituted a binding contract is irrelevant, because the "entire agreement clause" in the Supply Agreement expressly provided that the letter of 14 June was of no further effect. Like the letter of 24 May 2001, the letter of 14 June 2001 may be evidence of the parties' common intention as at the date it bears, but that is so regardless of whether the letter ever constituted a binding contract. 33 For these reasons I decline to answer Question 2. Question 3 - The effect of 14 June letter on 24 May letter as a matter of contract "If the answer to Question 2 is yes, what effect did the making of the Revised Agreement have on the Agreement." 34 For the reasons set out above, this question is irrelevant, except for the purpose of Metcash's rectification and estoppel claims. I will deal with the letters in that context. I decline to determine this question otherwise. Question 4 - Whether 12 July meeting varied previous contracts "Whether on or about 12 July 2001 [Franklins] and [Metcash] agreed to vary the Revised Agreement in the manner alleged in sub-par (e) of par 3 of the Amended Defence. This alleged variation is called 'the First Clarification/Variation' in the Amended Defence." 35 What transpired at a meeting on 12 July 2001 is very much in issue, but only in the context of Metcash's rectification and estoppel claims. If there was any agreement or understanding reached at that meeting, and if such agreement or understanding operated to vary any previously existing contract between the parties, that agreement or understanding itself was superseded as a binding contract by operation of the "entire agreement clause" in the Supply Agreement. 36 For the reasons previously given, in my opinion this question is irrelevant and I decline to answer it. Question 5 - Whether previous contracts further amended in July 2001 "Whether in or about July 2001 [Franklins] and [Metcash] agreed to vary further the Revised Agreement in the manner alleged in sub-par. (f) of par. 3 of the Amended Defence. This alleged variation is called 'the Second Clarification/Variation'." 37 Again, what transpired in discussions between the parties after the 12 July meeting is much in contest. For the reasons I have already given, any agreements or understanding reached in those discussions are relevant only to Metcash's claims for rectification and estoppel. Whether the discussions had the effect of amending any previous contracts is irrelevant. I decline to answer this question. Question 6 - Effect of Clause 14.2 Supply Agreement on any previous contracts "What effect did the execution of the formal Supply Agreement have on: (a) the Agreement; (b) the Revised Agreement; and (c) the Revised Agreement as varied by the First and Second Clarifications/ Variations especially having regard to the terms of Clause 14.2 thereof." 38 Metcash's submissions as to clause 14.2 respond to Franklins' submissions that the clause bars Metcash's defences founded on estoppel, rectification and under the Trade Practices Act: see Metcash's written submissions 10 October 2006, paragraphs 117-124. I will, of course, deal with these submissions in the course of discussing those defences. However, as far as I can see, Metcash does not submit that clause 14.2 was ineffective to deprive any previously concluded binding agreement of further legal effect after execution of the Supply Agreement. 39 I have set out clause 14.2 at paragraph 26 above. Although the clause does not expressly refer to "contracts or agreements" - arguably suggesting that the parties had never intended any previous agreements to be legally binding - nevertheless, the words "understanding", "warranties" and "commitments" are wide enough to include legally binding contracts. 40 Accordingly, as I have indicated above, I conclude that if there were in existence as at 14 September 2001 any legally binding agreements between the parties relating to supply, those agreements were superseded and deprived of further legal effect by execution of the Supply Agreement. Question 7 - Construction of Supply Agreement "Whether upon the true construction of the formal Supply Agreement [Franklins] was obliged to pay a Purchase Price that was calculated by deducting any applicable Case Deals and Ullage Allowances from and adding Profit Margins, Service Fees and any applicable GST to a Wholesale Price being:

(c) the Supplier's wholesale list price of the Product in the State or Territory in which the Business was located at the time of [Metcash]'s delivery of that Product to [Franklins] less all 'allowances' and 'discounts' (including rebates) provided to [Metcash] by that Supplier." 41 There are two limbs to the parties' cases on construction of the Supply Agreement. The first is concerned with the ordinary meaning of the words in the definition of "Wholesale Price". The second arises from Metcash's contention that certain words in that definition have a special meaning commonly accepted in the supermarket wholesale and retail industry and must bear that meaning in the Supply Agreement, so that general words in the critical clause are limited by the special meaning of the words which follow. 42 In the somewhat unusual circumstances of this case, the distinction between the two limbs of the parties' submissions is a little blurry because, as will appear shortly, on the facts as I have found them the contracting minds of both parties, viz., Mr Reitzer for Metcash and Messrs Summers and Zelinsky for Franklins, in fact had the same understanding of the overall effect of the definition of Wholesale Price and, in addition, understood certain words in that definition in the sense attributed to them by the industry. Paradoxically, however, giving certain words in the definition their industry accepted meaning does not lead, as a matter of pure construction, to a meaning for the whole definition which both parties understood it to have. Ultimately, therefore, the Supply Agreement, must be rectified. However, to explain how I have come to that conclusion, it is necessary to trace through the arguments on pure construction. 43 As I have mentioned, the focus of the debate between the parties is the definition of "Wholesale Price", which is the principal factor in the calculation of the price at which Metcash was to sell goods to Franklins under the Supply Agreement. Clause 4.3(a) provides that Franklins will purchase goods from Metcash at "the Purchase Price". The definition clause, clause 1.1, defines "Purchase Price" as meaning "Wholesale Price", plus or minus certain amounts in three different circumstances. The definition clause defines "Wholesale Price" as follows: " Wholesale Price for a Product means Metcash's "Wholesale 5" price for that Product, being the Supplier's wholesale list price for that Product in the State or Territory in which the Business is located at the time of Metcash's delivery of that Product to [Franklins], less all allowances and discounts (such as trade discounts, distributor allowances, warehouse allowances, bulk buy allowances and cash discounts) provided to Metcash by the Supplier." 44 Clause 4.4 is entitled "Calculation of Purchase Price, Rebates and Transport Costs". Subparagraph (a) provides: "Metcash will invoice [Franklins] for Products as follows:

[18]

Resort to the surrounding circumstances known to both parties (see the facts referred to in the section on rectification below) support the construction contended for and are admissible for that purpose: see Pacific Carriers Limited v BNP Paribas (2004) 218 CLR 451." 47 In essence, Metcash submits that "Wholesale Price" is defined to mean "Metcash Wholesale 5", being such price described as "Wholesale 5" as Metcash in fact applied to sales of goods to its customers as at 14 September 2001. It submits that that intention emerges from clause 4.4(a) and that the clause 1.1 definition must be disregarded to the extent that it is inconsistent with the definition clause 4.4(a). 48 Mr Reitzer described "Wholesale 5" thus: "We [i.e. Metcash] have a basic selling price in our system called 'Wholesale 5'. We also refer to that as the 'net net stripped cost'. We take the combined volume of all independent supermarkets that buy from us and negotiate as best we can with manufacturers and take the discounts that apply to warehouse buys, quantity purchases, trade discounts and the cash discount to arrive at what we call the 'net net stripped cost'. This is in our computer and as internal Metcash jargon is called 'Wholesale 5'. That price is our selling price to all our supermarket customers, whether IGA or other brands, like Foodland, or customers that don't operate under a brand or banner. This is the only way we work. We have a very old legacy system. The whole organisation is built around the Wholesale 5 price. The only way we can raise an invoice with any customer is to base it around the charging of Wholesale 5. … 'Net net stripped cost' starts with the supplier's list price but is then reduced by warehouse allowances, trade discounts, quantity buy discounts and cash discounts that appear on the invoice. In other words, the usual discounts that appear on the manufacturer's invoice are deducted from the manufacturer's wholesale list price. … We also do marketing for franchise customers like IGA. We collect what I call the 'merchandising or trading terms' from manufacturers. These monies are not reflected in the Wholesale 5 price. These are confidential trading terms that do not appear on the manufacturer's invoice. In other words, there is of course a raft of discounts, rebates and co-op moneys that we collect that are not in Wholesale 5. They relate, amongst other things, to advertising moneys, confidential rebates and growth rebates." 49 Franklins submits that:

the clause 1.1 definition of Wholesale Price does not simply incorporate whatever "Wholesale 5" happens to be, a matter exclusively within Metcash's own knowledge; rather, it sets out a definition of what "Wholesale 5" is to mean for the purposes of the Supply Agreement, and that definition requires that all allowances and discounts be deducted from the suppliers' list price without discrimination between those allowances and discounts which are published and those which are confidential. 50 I am unable to accept Metcash's submissions on the first limb of the construction argument, for the following reasons. 51 First, accepting as I do Mr Reitzer's evidence as to what "Wholesale 5" meant to Metcash itself, I cannot agree that clause 4.4(a) provides that "Wholesale Price" means, for the purposes of the Supply Agreement, nothing more or less than Metcash's "Wholesale 5" price. "Wholesale 5", according to Mr Reitzer, is a "net net stripped cost" - that is, it is a price to Metcash's customers arrived at after deducting from the suppliers' list price the published allowances and discounts. However, clause 4.4(a) states that "Wholesale Price" is Wholesale 5 less further allowances and discounts. The words of clause 4.4(a) suggest that, in addition to the published allowances and discounts deducted in arriving at Wholesale 5, other allowances and discounts are to be deducted in arriving at Wholesale Price for the purposes of the Supply Agreement. 52 Second, if the definition of Wholesale Price in clause 1.1 intends to equate Wholesale Price merely with Wholesale 5 and intends to state what Wholesale 5 is, the definition of Wholesale 5 is incorrect because Wholesale 5 does not deduct all allowances and discounts, but only some, i.e., those which are published. 53 Accordingly, acceptance of Metcash's argument that Wholesale Price means, as a matter of construction, no more or less than Wholesale 5, requires one to accept that both definitions of Wholesale Price, in clause 1.1 and clause 4.4(a), were wrong. I do not think one can do this purely as a matter of construction because the definitions can be accommodated together, as I shall show. But, in truth, as I have found as a fact, both definitions are wrong and must be rectified. 54 Purely as a matter of construction, I do not think that there is any necessary and intractable inconsistency in the definitions of "Wholesale Price" in clause 1.1 and clause 4.4(a). Clause 4.4(a) states that there are to be deductions from Wholesale 5 (which already deducts published discounts and allowances). Clause 4.4(a) can be regarded as contemplating further deductions from Wholesale 5, i.e., discounts and allowances which are not published. Such a reading of clause 4.4(a) would be consistent with a reading of the clause 1.1 definition which gives to the phrase "all allowances and discounts" a meaning which includes all allowances and discounts, whether published or confidential. 55 I turn now to the second limb of the construction argument, which arises from Metcash's contention that certain words in the definition of Wholesale Price in the Supply Agreement "either have no clear meaning without explanation or … had a particular meaning to the parties": written submissions 28 September 2006, para 8. 56 Metcash says that "trade discounts, distributor allowances, warehouse allowances, bulk buy allowances and cash discounts" in the clause 1.1 definition are all phrases which do not have any clear meaning on their face and require explanation. Metcash says, at least for the purpose of its construction argument, that that explanation is provided by an "industry meaning", that is, a commonly accepted meaning of those phrases in the industry in which the parties operated. Metcash submits that each of the discounts and allowances specified in the definition of Wholesale Price is accepted in the industry as a published discount, not a confidential discount, so that the phrase "all allowances and discounts" of which the following particular discounts and allowances are given as examples should also be understood as meaning "all published allowances and discounts". 57 Franklins does not deny the existence of any relevant "industry" but says that the specific allowances and discounts referred to are not generally understood in the industry as being confined to published allowances and discounts. However, it says that, even if they are so confined, the specification of such allowances and discounts does not cut down the generality of the phrase "all allowances and discounts" of which the specified allowances and discounts are said to be examples. 58 I will deal first with the question whether the particular allowances and discounts specified in the clause 1.1 definition of Wholesale Price were understood in "the industry" as being confined to published allowances and discounts. The "industry" here must mean the industry or trade in which both Franklins and Metcash engaged, that is, the industry of wholesale supply of goods and services to supermarket retailers. 59 It is well established that oral evidence can be given of a special meaning which words in a contract bear. The principles are summarised by McHugh JA in Vince Coles Pty Ltd v Skischufabrik Dynafit (NSWCA unrep. 28 October 1985, BC8500453): "When evidence is admitted to prove that words in an agreement have a special trade or locality meaning, it is because their use in an agreement made in that locality, or with reference to a matter in that trade, raises a presumption that the parties have contracted in accordance with that special meaning: Smith v Wilson (1832) 3 B & Ad 728 at 732; Lewis v Marshall (1844) 7 M & G 729 at 744; Kirchner v Venus (1859) 12 Moo PCC 361 at 399; Myers v Sarl (1860) 3 El & E1 306 at 319; Appleby v Pursell [1973] 2 NSWLR 879 at 889. The presumption arises from the parties' knowledge, or the notoriety, of that meaning in the locality or trade; Smith v Wilson at 733; Myers v Sarl at 315-16. The presumption is one of fact, not of law, and may be rebutted: Clayton v Gregson (1836) 5 A & E 302. The terms of the agreement may show that the parties did not intend to contract in accordance with the special meaning: Humfrey v Dale (1858) 7 E & B 266 at 274; Myers v Sarl at 320-21. Proof that one or both parties were ignorant of the special meaning of the words in the trade or locality will rebut the presumption: Kirchner v Venus ; Sutton v Tatham (1839) 10 Ad & E 27. Moreover, unless the meaning is both certain and notorious, no presumption arises. In Lewis v Marshall at 745, Tindell CJ said that 'the evidence ought to have been clear, cogent, and irresistible'…." 60 In Vince Coles, the trial judge accepted that the person who had made the subject agreement on behalf of one of the contracting parties did not understand the expression in question to have the special meaning for which the other party contended. This finding of fact was not challenged on appeal. McHugh JA said: "Accordingly, no presumption against the wholesaler could arise. In Kirchner v Venus at 399 the Judicial Committee said:- 'When evidence of the usage of a particular place is admitted, to add to or in any manner to affect the construction of a written contract, it is admitted only on the ground that the parties who made the contract are both cognisant of the usage, and must be presumed to have made their agreement with reference to it. But no such presumption can arise when one of the parties is ignorant of it'." 61 The witness principally relied upon by Metcash to prove "special meaning" was Mr Gary Tempany. Mr Tempany is the Group Manager of Merchandise and Marketing. The principal witness relied upon by Franklins to rebut Mr Tempany's evidence was Mr Peter Dove, a buyer with Franklins having long experience in the industry. 62 The first difficulty about the evidence of Mr Tempany and Mr Dove is that neither of them was the relevant mind, nor did he form part of the relevant mind, of Metcash and Franklins respectively in making the Supply Agreement. Both witnesses were middle management executives. Neither had authority to conclude any terms of the Supply Agreement and neither gave instructions as to the drafting of the Supply Agreement. The authority to negotiate and conclude the Supply Agreement on behalf of Metcash rested at all times with Mr Reitzer. After initial discussions in which Mr Summers participated and in which he set the parameters of agreement as far as Franklins was concerned, it was Mr Zelinsky who had authority to conclude the agreement on behalf of Franklins, although he remained subject to the direction of Mr Summers. 63 Accordingly, as Kirchner v Venus (supra) and Vince Coles (supra) demonstrate, even if I am persuaded by the evidence of Mr Tempany and Mr Dove that the allowances and discounts specified in the clause 1.1 definition of Wholesale Price had a "specialised meaning" in the industry, the presumption that Mr Reitzer, Mr Summers and Mr Zelinsky all knew and understood the words in that sense may be rebutted. As it transpires, I have come to the conclusion that Messrs Reitzer, Summers and Zelinsky all understood that the specific examples of discounts and allowances included in the definition of Wholesale Price were in fact published discounts and allowances so that, as a matter of the common understanding of the parties, those words did have a particular meaning for the purposes of construing the Supply Agreement: see below. It is not necessary, therefore, to find whether, in addition, the words in question had a special meaning in the industry. Nevertheless, because the matter was argued at length, I will set out my conclusions. 64 In his witness statement, Mr Tempany said: " Trade discount: a trade discount is the standard discount given by a supplier to purchasers of their product in the industry.

Settlement Discount: a settlement discount (sometimes referred to as a cash discount) is a discount given to any purchaser in the trade for payment within certain expressly stated time frames. (Trade discounts, warehouse allowances, Quantity buy allowances and Settlement discounts are usually published by suppliers in their standard price lists to the trade. They are non-confidential discounts provided by suppliers.)" 65 In cross examination, Mr Tempany said that "settlement discount" was synonymous with "cash discount". "Quantity buy allowance", as explained in Mr Tempany's written statement, would appear to have the same meaning as "bulk buy allowances", which is the term appearing in the clause 1.1 definition, although Mr Tempany did not say so expressly because he was not asked. 66 Mr Dove's evidence was coloured by the fact that he had previously worked for David's Holdings, from which Metcash had acquired its business. In that circumstance, Mr Dove had become familiar with what was comprised in Wholesale 5 and, I think, he tended to assume that what was familiar to him was familiar to everyone. For example, he was prepared to ascribe knowledge of the constituent elements of Wholesale 5 to Mr Summers and to Mr Zelinsky but, when pressed to give particulars of any circumstances from which their knowledge was evident to him, he could not do so: T740.22-.58. 67 However, Mr Dove had also had considerable experience in the industry with employers other than David's Holdings and Franklins. He agreed that "warehouse allowance" was accepted in the industry as referring to a published allowance. His definition of "quantity buy allowance" would seem to equate with "bulk buy allowance" referred to in the clause 1.1 definition. He agreed that a "quantity buy allowance" was a published discount. He said in cross examination that he regarded "distributor allowance" as probably meaning "distribution allowance", which was a published allowance. 68 In his witness statement, Mr Dove said of "cash discounts" "13. In my opinion, the expression 'cash discounts' includes 'early payment discounts', 'prompt payment discounts' and 'settlement discounts', but may include other types of discount although I'm not aware of any. Some 'cash discounts' are 'confidential' and some are 'published', however they are most 'off-remittance'. Sometimes 'published' 'cash discounts' are displayed on the invoice (although not taken 'off invoice').

Now, my Lords, I find myself very much in agreement with what was said by the learned Master of the Rolls, and was repeated in the argument of Sir John Simon here to-day. It is not right first to consider the effect of the word 'viz.' by itself, and then to consider whether that effect is altered by the later occurrence of the expression 'etc.' You must consider the two together; and, if you do that, I think the effect of what I have called the added words is this, that the draftsman shows an intention, first, of giving examples of what the general words mean and cover, and, secondly (and this is equally important), of showing to those who read the clause, by the use of the word 'etc.,' that those examples are not intended to cover the whole ground, that they are not intended to be exhaustive, but, that the general principle is still to include all the other cases which fall within its general terms. In other words, the clause must be read as referring to all causes over which the charterers have no control, in particular to the five causes specified, but also to all other cases which fall within the general words. That is the meaning which for myself I should give to the clause." 74 Viscount Finlay was of the same view, for essentially the same reasons: see at 187. Lord Atkinson agreed with Viscount Cave and Viscount Finlay. Lord Sumner dissented, but only because he was of the view that the abbreviation "viz" (i.e. videlicet) means "that is to say", which could not be interpreted to mean "for example". His Lordship went on to say, at 189: "I admit at once that if it meant 'exempli gratia' there would be an end of this matter and the appeal would fail." 75 The reasoning of all Law Lords in Ambatielos is apt to the present case. If the clause 1.1 definition of Wholesale Price had omitted the words in brackets then there could have been no argument that "all allowances and discounts" meant just that, and included confidential as well as published allowances and discounts. However, the general words are followed by brackets - which in themselves indicate that what follows is by way of an aside - and then the words "such as" appear. The phrase "such as", ordinarily understood, means that what follows is not intended to be an exclusive definition and that other examples of the general words may also be given: see e.g. per Thorp J in K B Furniture Ltd v Tauranga District Council [1993] 3 NZLR 197, at 205.5. 76 Applying similar reasoning to the present case, I do not think that the fact that the examples in brackets given in the clause 1.1 definition are all published allowances and discounts limits the word "all" in the preceding general phrase so that "all" means "some" or requires the insertion of the qualifier "published" after the word "all". 77 For these reasons I am of the opinion that, as a matter purely of construction, Wholesale Price as defined in the (unrectified) Supply Agreement requires the deduction from the suppliers' list price of all allowances and discounts received by Metcash, whether published or confidential. By reference to the Agreed Issues, the answer to Question 7 is as in paragraph 7(c). Question 8 - Whether only some discounts to be deducted "If the answer to Question 7(a) is yes, whether any, and if so, what, allowances and discounts were included in the calculation of [Metcash]'s 'Wholesale 5' price on the proper construction of that term." 78 As a matter of pure construction of the unrectified Supply Agreement, this question does not arise in view of the answer to Question 7(c). Question 9 - Whether some specified allowances to be deducted "If the answer to Question 7(b) is yes, what 'warehouse allowances' and 'trade distributor and cash discounts' were required to be deducted on the proper construction of those terms." 79 As a matter of pure construction of the unrectified Supply Agreement, this question does not arise in view of the answer to Question 7(c). Question 10 - What is to be deducted "If the answer to Question 7(c) is yes, what 'allowances' and 'discounts' were required to be deducted. 80 For the reasons given above, the answer to this question, as a matter of construction of the unrectified Supply Agreement, is: all allowances, discounts and rebates received by Metcash from a supplier referable to goods supplied by Metcash to Franklins. Question 11 - What particular confidential allowances are to be deducted "In particular, for the purposes of any affirmative answer to any of Questions 7(a), 7(b) or 7(c) whether discounts, allowances or rebates described as: (a) "Centralisation Rebate"; (b) "Warehouse Efficiency Rebate"; (c) "New Line Fees"; (d) "Over and Above allowance"; (e) "Incentive Targets"; (f) "Early Payment Discount" or "Prompt Payment Discount", were required to be included in the proper calculation of the Purchase Price for the purposes of the Supply Agreement." 81 As a matter of construction of the unrectified Supply Agreement, all of the discounts, allowances or rebates specified are to be included in the proper calculation of the Purchase Price. Question 12 - Whether Supply Agreement amended on 6 March 2003 "Whether any of (and, if so, which) the Agreement, the Revised Agreement, the Revised Agreement as varied by the First and Second Clarifications/Variations or the formal Supply Agreement was varied on or about 6 March 2003 as alleged in sub-par.(i) of par. 3 of the Amended Defence. This alleged variation is called 'the Third Variation'." 82 There is no dispute that, after execution of the Supply Agreement, Metcash collected and retained for itself a confidential allowance received from suppliers in respect of volumes sold to Franklins, called a "Redistribution Allowance". 83 By February 2003, Mr Zelinsky had become concerned about Metcash's retention of the Redistribution Allowance in circumstances to which I will come shortly. Franklins' position was that under the terms of the Supply Agreement, Metcash was not entitled to keep this allowance for itself. 84 On 24 February 2003, Mr Zelinsky raised these concerns with Mr Reitzer in a meeting at which only the two of them attended. Mr Zelinsky asserted that Metcash was not entitled under the Supply Agreement to retain the Redistribution Allowance. Mr Reitzer rejected that assertion. On 27 February, Mr Reitzer had a meeting with Mr Summers, who also expressed concern about the issue. Mr Reitzer says that he believed that Mr Summers was raising with him the possibility that the business relationship between Franklins and Metcash was at risk if the issue was not resolved in Franklins' favour. 85 Mr Reitzer's evidence about these meetings attributes to Mr Zelinsky and Mr Summers admissions which support Metcash's claims for rectification and estoppel. Mr Reitzer's evidence is denied. I will return to it shortly in the context of discussing Metcash's claims for rectification and estoppel. 86 On 6 March 2003, a meeting took place between Messrs Zelinsky, Perlov and Korb, representing Franklins, and Messrs Reitzer, Jablonski and Tempany, representing Metcash. What was said at the meeting is disputed but, in summary and in so far as is presently relevant, Franklins asserted in strong terms that Metcash was not entitled under the Supply Agreement to retain the Redistribution Allowance. Metcash asserted precisely the opposite. However, by the conclusion of the meeting Mr Reitzer agreed to refund to Franklins the Redistribution Allowance which had been collected to date in respect of goods ordered from suppliers for on-sale to Franklins. Mr Reitzer confirmed this agreement by a letter to Mr Zelinsky on 7 March 2003. In that letter, Mr Reitzer made it clear that he had agreed to the refund, not because he believed that Franklins was entitled to it under the Supply Agreement, but rather as a concession to preserve the goodwill and continuity of the business relationship between Metcash and Franklins. 87 By paragraph 3(j) of its Amended Defence, Metcash pleads an oral agreement between the parties made on 6 March 2003 whereby the Supply Agreement was amended so that Metcash was no longer to be entitled thereunder to retain the Redistribution Allowance. This contention is advanced to conform Metcash's action in accounting to Franklins for the Redistribution Allowance with its contention that the Supply Agreement entitled it to retain that allowance. Metcash does not wish its refund of this confidential allowance to be seen as an admission that the Supply Agreement did not entitle it to keep all confidential allowances, either as a matter of construction or by reason of rectification or estoppel. 88 It is quite clear from the undisputed evidence that there was no common intention of the parties on 6 March 2003 to amend the Supply Agreement by whatever agreement had produced the refund to Franklins of the Redistribution Allowance. Franklins' stated position was that it was already entitled to the Redistribution Allowance under the terms of the Supply Agreement. Metcash's stated position was that it was making the refund purely as a gesture of goodwill and for no other consideration. 89 In those circumstances, amendment of the Supply Agreement was the furthest thing from both parties' minds. The answer to Question 12 is "no". Question 13 - Estoppel "If either of Questions 7(b), 7(c) or any part of Question 11 is answered yes, whether [Franklins] is estopped from advancing contentions in these proceedings in conformity with those affirmative answers by reason of the facts, matters and circumstances referred to in pars. 16 to (33) of the Amended Defence." 90 Paragraphs 16 to 33 of the Amended Defence are as follows: "16. On or about 20 April 2001 the Defendant informed the Plaintiff that:-

claims that in reliance upon such representations, Metcash entered into the Supply Agreement whereby Franklins is estopped from relying upon its construction of the definition of Wholesale Price in the Supply Agreement. 92 Although Metcash's claim for an estoppel is said to found upon "representations", in my view, on the facts pleaded, it is in truth founded on the alleged existence of an agreement between the parties made prior to the Supply Agreement in terms which are said to be inconsistent with the Supply Agreement. 93 Before coming to the facts upon which Metcash's claim is founded - many of which are hotly disputed - it is convenient to make some general observations. First, even if there was some understanding or agreement between the parties prior to the execution of the Supply Agreement as to what "Wholesale Price" meant, Franklins relies upon clause 14.2, the "entire agreement clause" to which I have earlier referred and which, for convenience, I set out again: "All previous negotiations, understandings, representations, warranties, memoranda or commitments in relation to, or in any way affecting, the subject matter of this agreement, including the letter from Metcash to [Franklins] dated 14 June 2001 (and countersigned by [Franklins]) are merged in and superseded by this agreement." 94 It is worth repeating here a number of judicial remarks on the effect of a formally concluded written contract on a claim that an estoppel arising from previous agreements or discussions prevents a party from relying upon the words of that contract. In a passage frequently quoted, McLelland J said in Johnson Mathey Ltd v A C Rochester Overseas Corp (1990) 23 NSWLR 190, at 195: "In my opinion the parol evidence rule operates to exclude evidence of an estoppel by convention alleged to arise from pre-contract negotiations. In substance an estoppel by convention is in the nature of an agreement. There is no less reason in principle that such an agreement be treated as superseded by the subsequent written contract than that any other agreement arrived at during pre-contract negotiations be so treated. Furthermore it would be subversive of the policy on which the parol evidence rule is founded, and would unduly shake the security of written contracts, if proof were permitted of such alleged estoppels. As Mason J said in Codelfa in relation to the rule excluding proof of the actual, as opposed to the presumed, intention of the parties (at 352): '… 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.'

In these respects I follow the views of McLelland J in Johnson Matthey Ltd v A C Rochester Overseas Corporation (1990) 23 NSWLR 190. I regard McLelland's views as well founded on the principle of giving effect to the formal, final and considered expression of the parties' contractual intention; the fact that they chose writing to express that intention shows the relative weight they attributed to earlier arrangements and understandings. The view expressed by McHugh JA (dissenting) in State Rail Authority (NSW) v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 and acted on by Rolfe J in Whittet v State Bank of New South Wales (1991) 24 NSWLR 146 does not, in my respectful opinion, accord appropriate weight to indications of finality and completeness which the parties give when they adopt formal written expression. The judgment of McLelland J was followed by Miles CJ in Skywest Aviation Pty Ltd v Commonwealth (1995) 126 FLR 61: see at 102-106. I respectfully differ from the view of Rolfe J in Whittet and follow the views expressed by McLelland J in Johnson Matthey . I regard McLelland J's view as well founded in principle and I do not regard the decision of the Court of Appeal in State Rail Authority (NSW) v Heath Outdoor Pty Ltd as having established the views expressed by McHugh JA (at 193). My adherence to this view has been reinforced with the passage of time and accumulation of experience of this and many other forensic endeavours to set up estoppels out of the circumstances or terms of pre-contractual exchanges; the evidence offered is often extensive, discursive and inconclusive and, where it is of any value at all, clearly of less value than the considered written expression. Poorly based and incompletely considered forensic attempts to set up pre-contractual estoppels are unfortunately common, and in most cases they are quite unuseful and very wasteful of resources." 96 The primacy of a formal and written contract over understanding or agreements reached between parties in the course of prior discussions or negotiations is emphasised in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (supra) at paras 33 to 35: "[33] The respondents each having executed a loan agreement, each is bound by it. Having executed the document, and not having been induced to do so by fraud, mistake, or misrepresentation, the respondents cannot now be heard to say that they are not bound by the agreement recorded in it. The parol evidence rule, the limited operation of the defence of non est factum and the development of the equitable remedy of rectification, all proceed from the premise that a party executing a written agreement is bound by it. Yet fundamental to the respondents' case that the operative agreements between the parties were wholly oral, and reached earlier than the execution of the written agreements, was the proposition that the written agreements subsequently executed not only may be ignored, they must be. That is not so. Having executed the agreement, each respondent is bound by it unless able to rely on a defence of non est factum, or able to have it rectified . The respondents attempted neither.

[35] Secondly, in the nature of things, oral agreements will sometimes be disputable. Resolving such disputation is commonly difficult, time-consuming, expensive and problematic. Where parties enter into a written agreement, the court will generally hold them to the obligations which they have assumed by that agreement. At least, it will do so unless relief is afforded by the operation of statute or some other legal or equitable principle applicable to the case. Different questions may arise where the execution of the written agreement is contested; but that is not the case here. In a time of growing international trade with parties in legal systems having the same or even stronger deference to the obligations of written agreements (and frequently communicating in different languages and from the standpoint of different cultures) this is not a time to ignore the rules of the common law upholding obligations undertaken in written agreements. It is a time to maintain those rules. They are not unbending. They allow for exceptions. But the exceptions must be proved according to established categories. The obligations of written agreements between parties cannot simply be ignored or brushed aside." (Emphasis added.) 97 These authorities make it clear that the Courts discountenance claims to prevent enforcement of a contract according to its terms founded upon an alleged estoppel arising during the course of antecedent negotiations. But this policy against interference with the certainty of what is written in a contract does not stand in the way of a claim for rectification. If a party can, by clear and convincing proof, show that the contract fails to record accurately the true agreement of the parties, then by the remedy of rectification this Court is merely removing uncertainty from the bargain made between the parties. With these considerations in mind, I turn to the facts. 98 The first meeting on which Metcash relies is that which occurred on 20 April at a coffee bar at the Regent Hotel in Sydney. Present were Messrs Reitzer and Jankelowitz on behalf of Metcash and Messrs Summers and Robins on behalf of Franklins. This meeting was a very preliminary discussion, obviously conducted in an atmosphere of some informality. Mr Reitzer says that in this discussion he explained to Mr Summers and Mr Robins generally how Metcash's business operated and, in particular what were the component parts of Metcash's Wholesale 5 price. 99 Mr Summers agreed that there was some discussion about Wholesale 5 at this meeting but he could not recall the substance of it. 100 I accept that at this very introductory meeting Mr Reitzer gave some explanation of how Metcash's Wholesale 5 price was calculated. I do not think that Mr Summers gave any indication that Franklins would accept Wholesale 5 without qualification as the price governing the supply relationship with Metcash: there was still a great deal of negotiation ahead. 101 The second meeting on which Metcash relies took place on 1 May 2001. Those present included Messrs Summers, Zelinsky and Robins on behalf of Franklins, and Messrs Reitzer and Jablonski on behalf of Metcash. Mr Jablonski was Metcash's Group Merchandising Director. Mr Reitzer had prepared a PowerPoint presentation in advance of the meeting (Ex P1, p.1 ff) and he spoke to that presentation. There is no contemporaneous note of what was actually said at the meeting. Mr Reitzer's present recollection was considerably aided by the PowerPoint presentation which he had prepared but I think it probable that much of the evidence he gave of what he said is reconstruction based upon the PowerPoint presentation, rather than actual recollection. 102 Nevertheless, the relevant parts of the PowerPoint presentation are useful as indicating the substance of what Mr Reitzer intended to say at the meeting about those topics: " Underlying Principles

(e) I also deny Reitzer said words to the effect: What we will do … agreement has been signed. " 105 In his witness statement, Mr Jablonski denied that Mr Reitzer had described Wholesale 5 in the words attributed to him by Mr Summers, i.e., "less all allowances and discounts". He said that Mr Reitzer gave a correct description of what Wholesale 5 actually was and said that it would be applied to the Supply Agreement. 106 In his witness statement, Mr Zelinsky said that he had no specific recollection of much of what Mr Reitzer had said at the 1 May meeting. However, he said that he himself had said at that meeting: "We will be negotiating directly with suppliers regarding price, trading terms and product range. We want to operate independently of Metcash. All we want Metcash to do is distribute the goods to us. We accept that Metcash ought to be paid a pick fee for providing that service and a profit margin on all goods that are supplied." 107 What Mr Zelinsky said was consistent with what Mr Summers says that he had told Mr Reitzer at their first meeting on 20 April: "We will not be a super- franchisee. We want to have our own buyers in place negotiating all our trading terms and discounts": Summers' statement 8 April 2006, para 6(c). In paragraph 12 of his witness statement, Mr Summers said: "It was important from [Franklins'] perspective that Franklins maintained a direct relationship with its suppliers and be able to negotiate directly with those suppliers in respect of rebates that Franklins was entitled to receive as a retailer. This would ensure that Franklins did not become a 'super-franchisee' along the lines of Metcash's IGA stores, in which case Franklins would have no control over negotiations with suppliers. 108 In cross examination Mr Zelinsky conceded that he did not recall what Mr Reitzer said at the 1 May meeting. He could not deny that Mr Reitzer had discussed Wholesale 5. 109 In light of the trouble to which Mr Reitzer had gone to prepare the PowerPoint presentation, in which he stated how Wholesale 5 was calculated and that it would be the price at which Franklins would buy, I conclude that it is inherently probable that at the 1 May meeting he adhered substantially to his "script" and discussed Wholesale 5 in the terms in which it is set out in the PowerPoint presentation. This probability is supported by the evidence of Messrs Reitzer and Jablonski and by the way in which Wholesale 5 was described in a letter dated 17 May 2001 from Mr Reitzer to Mr Zelinsky, to which I will come in a moment. 110 Following the 1 May meeting, the parties set about preparing a formal supply agreement embodying the terms of their relationship. The drafting of the supply agreement was, on both sides, entrusted to solicitors. Franklins instructed Blake Dawson Waldron, the principal solicitor involved being Ms P. Ho. Metcash used its in-house General Counsel, Mr John Hunter, who was assisted by other in-house solicitors. 111 On 8 May 2001, an in-house solicitor of Metcash sent to Franklins an e-mail attaching a draft supply agreement "which incorporates the points discussed at the meeting" on 1 May. The draft provides a structure upon which subsequent drafts and the final executed Supply Agreement were based. The draft provides that Franklins will purchase goods from Metcash "at the Purchase Price". There are definitions which define "Purchase Price" as "The Wholesale Price" plus specified fees. "Wholesale Price" is then defined as follows: " Wholesale Price means 'Wholesale 5' for each Product being the current wholesale list price of the manufacturer of the relevant Product applicable as at the date the Product is delivered to [Franklins] less all warehouse allowances and cash discounts provided to Metcash by the manufacturer." 112 On 16 May 2001, Mr Reitzer and Mr Zelinsky had a meeting to discuss the terms of the Supply Agreement. On 17 May 2001, Mr Reitzer wrote to Mr Zelinsky setting out "the main points that make up our agreed business relationship and supply agreement". Under the heading "Pricing" appears the following: "Metcash will charge [Franklins] at Wholesale 5.

Q. And it would also be obtaining discounts and allowances within the confidential allowances and discounts categories? A. On their volume, sir. On their volume of purchases and our volume of purchases, confidentials would come back to us. So all our confidential turnovers would be on our account, on our volume. There are two prices. There is the 'on invoice' price, and there is the confidential discount. The confidential discount relates to our own particular volume of supply." (Emphasis added.) 115 In my opinion, this evidence is critical. There are two parts to it. In the first part, Mr Zelinsky is clearly saying that when he read the letter of 17 May 2001 he understood that the price which Franklins would be charged under the Supply Agreement was Metcash's Wholesale 5, that the calculation of Wholesale 5 deducted only published discounts from the suppliers' list price, and that the intention of the parties was that confidential discounts on Franklins' volumes of goods ordered through Metcash would be negotiated directly by Franklins with the suppliers, and would be collected separately by Franklins. 116 However, in the next part of his evidence Mr Zelinsky goes on to say that he understood that any confidential discounts on Franklins' volumes obtained by Metcash would be for Franklins' account. It is this second part of Mr Zelinsky's evidence that I do not accept, for the reasons which I will explain in a moment. 117 Mr Zelinsky's understanding, as described in the first part of his evidence, was in accordance with the intention of Mr Summers to which I have referred in paragraph 107 above. It is clear that Mr Summers understood that Franklins would be charged under the Supply Agreement at Wholesale 5, and that Wholesale 5 deducted only published discounts from the suppliers' list price. This is made clear by a letter dated 4 March 2003 which Mr Summers wrote to Mr Reitzer after a dispute between the parties had arisen. In that letter Mr Summers recounted in some detail the history of negotiations between the parties up until the execution of the Supply Agreement. He said: "During the course of subsequent discussions, you finally came to accept that Franklins would have a fundamentally different relationship with Metcash to that of its IGA group of Franchisees. The Supply Agreement was duly entered into. Certain key and fundamental principles were at the foundation of our understanding and I refer you to page 1 of our agreement, 'Introduction', and comment as follows, ' Attachment I ':-

Q. Your belief when you wrote the letter to Mr Reitzer on 4 March 2003 was that the discounts described in the definition of wholesale price were the published discounts? A. No, that's why I gave the amplification and the attachment. If I believed that had sufficed I wouldn't have put the agreement in there." 119 When it was put to Mr Summers that when he wrote this letter he believed that the discounts included in Wholesale 5 were published discounts, the answers which he gave were quite unconvincing, particularly his statement that what he had written was "inconclusive". He was, for once, visibly discomfited in his ability to deal with a question in cross examination. The answers which he gave were argumentative and simply did not explain why he had described the discounts as "published". 120 I gained the impression from Mr Summers' demeanour in answering these questions that they posed a difficulty for his case which he had foreseen and that he had worked out the best answer he could give to deal with them - and that was to create a circular argument, referring the issue back to the true construction of the Supply Agreement, which was a question of law to be left to his lawyers for argument. Mr Summers had been very careful and detailed in what he had written in his letter to Mr Reitzer on 4 March 2003. The letter was not the work of a few moments. I am satisfied that when Mr Summers referred to "published discounts" in the calculation of Wholesale 5 he had meant exactly what he said. 121 In reaching the conclusion that I should not accept Mr Summers' evidence that he did not fully understand at all times that the Wholesale Price definition in the Supply Agreement required deductions from list price only of published discounts, I take into account Mr Zelinsky's evidence (which I have set out above) that when he saw the 17 May letter from Mr Reitzer and the definition of Wholesale Price by reference to Wholesale 5, he understood that the discounts referred to were published discounts only, that he discussed the letter with Mr Summers and that Mr Summers authorised him to sign it. I cannot accept as possible, let alone probable, that Mr Summers' understanding of the definition of Wholesale Price was, at this time, different from Mr Zelinsky's understanding, in the light of what Mr Summers subsequently wrote in the 4 March letter. 122 The agreement of the parties as described in Mr Summers' letter of 4 March 2003 under the heading "Buying" is reflected in the 17 May 2001 letter which Mr Reitzer sent to Mr Zelinsky: "1.3 [Franklins] will be 'in control of their destiny' in that they will have the interface with all suppliers and collect all rebate and co-op funds and negotiate all case deals . … 4.0 Case Deals Any case deal negotiated and loaded into Metcash's system by [Franklins] will be deducted from the Wholesale 5 price. Metcash will claim these monies back from the supplier." [Emphasis added.] 123 The agreement is stated more elaborately in the Supply Agreement where confidential terms negotiated directly between Franklins and the suppliers are called "Rebates". Clause 1.1 defines "rebates" thus: "… means the rebates negotiated by [Franklins] directly with the Suppliers to be paid by Suppliers to [Franklins] in relation to the Products ordered by [Franklins] through Metcash in accordance with this agreement, in addition to the allowances and discounts provided by the Suppliers to Metcash and already taken into account in the calculation of the Wholesale Price, having regard, if applicable, to the combined volume of Products purchased by Metcash (including for its related bodies corporate and IGA Franchisees) and by [Franklins], but whether or not the Suppliers also allow such rebate to Metcash, its related bodies corporate or IGA Franchisees;" 124 Clauses 4.5 and 4.6 provide: " Rebates

Metcash will retain the stock profit and bear any stock losses realised on any price movements." 129 It will be seen that the definition of "Wholesale 5" here appearing is varied somewhat from the definition appearing in Mr Reitzer's letters of 17 and 24 May, importantly by the addition of brackets and the words "such as …etc", the addition of "distributor allowances", and putting "cash discount" into the plural. 130 There is nothing in the terms of Mr Stanbridge's letter or otherwise in the evidence which suggests that the change in wording was the result of any further discussion or of a change in either party's understanding of Wholesale Price, or was intended to do anything other than more clearly express the parties' common understanding of the definition of Wholesale 5. 131 On 4 June 2001, Mr Reitzer responded in writing to Mr Stanbridge's letter of 31 May. Mr Reitzer expressed disappointment that further changes to his letter of 24 May were proposed. However, he responded to specified changes which were sought. The only reference to "Rider 1" in Mr Stanbridge's letter was to take issue with a review of the service fee based on "the labour position". There was no disagreement with the definition of "Wholesale 5" given by Mr Stanbridge in the 31 May letter. 132 On 7 June, Mr Stanbridge responded to Mr Reitzer, conveying a number of points which are now not relevant, and requesting that Mr Hunter commence drafting the Supply Agreement as soon as possible. 133 On 14 June 2001, Metcash sent to Franklins a revised version of the letter agreement originally forwarded on 17 May, which incorporated the subsequently agreed amendments. Under the heading "Pricing" appeared the wording defining "Wholesale 5" which had appeared in Rider 1 of Mr Stanbridge's letter of 31 May. The letter of 14 June 2001 was subsequently counter-signed by Mr Zelinsky as an acknowledgement of agreement to the terms therein. 134 Also on 14 June 2001 there was a meeting between Mr Reitzer, Mr Zelinsky and other senior executives from both parties. Mr Reitzer again referred to "Wholesale 5". What was discussed in this regard is in dispute. There are two Minutes of this meeting, one prepared by each party. 135 The Minute prepared by Mr Perlov on behalf of Franklins says, relevantly: "A Reitzer gave an overview of the makeup of the invoice cost attributable to purchases ex warehouse. He advised that it is intended that all suppliers be invoiced at the 'Wholesale 5' cost price. This cost price is the manufacturers' list price less: Trade discount Bulk discount Distribution allowance Confidential discounts

'Wholesale 5' is updated each week and price changes are notified by manufacturers with 4 weeks notice." 136 The Minute prepared by Metcash says, relevantly: "Andrew [Reitzer] explained the IGA stock cost process and what is involved in Wholesale 05 price field." 137 Franklins places great weight on Mr Perlov's note because it suggests that it was agreed or understood between the parties, at least by the meeting of 14 June, that confidential discounts were to be amongst those to be deducted from the suppliers' list price for the purposes of supply to Franklins under the Supply Agreement. I do not think that any convincing support for Franklins' case is provided by this note, for the following reasons. 138 First, the meeting on 14 June was not a meeting for the purpose of negotiating the basic terms of the Supply Agreement. Those terms had been settled by 17 May. Rather, it was a meeting of fourteen people comprising the senior management executives of the parties, as well as Messrs Reitzer and Zelinsky, and it dealt essentially with issues as to how the agreement between the parties would work out. Mr Perlov was Finance Director of Franklins. He was not a party to the discussion between Messrs Summers, Reitzer and Zelinsky in which the basis of the Supply Agreement had been hammered out prior to this meeting. Further, he was generally unfamiliar with what Metcash's Wholesale 5 comprised: in his witness statement of 13 April 2006, paragraph 48, Mr Perlov said that he had not heard of Metcash's Wholesale 5 until the parties entered into the Supply Agreement in September 2001. This evidence strongly supports the inference that when Mr Perlov attended the 14 June 2001 meeting he was not concerned to understand with any exactitude the explanation which Mr Reitzer gave as to what Wholesale 5 actually comprised. His recollection of what was said at the meeting was virtually non-existent: T 716.32 - 717.51. 139 Second, it is probable that Mr Perlov, being unfamiliar with the negotiations between the parties as to price up to that point, did not correctly understand what Mr Reitzer said about Wholesale 5. The words in his note "he [Mr Reitzer] advised that it is intended that all suppliers be invoiced at the 'Wholesale 5' cost price" must be incorrect in referring to "suppliers": Mr Reitzer was, clearly enough, referring to retailers, i.e. Metcash's customers. Further, Mr Perlov recorded that it was "intended that all [retailers] be invoiced" at Wholesale 5. In fact, Metcash already applied that price to its customers. Finally, Wholesale 5 as applied to all Metcash's customers certainly did not include confidential discounts in its deduction from suppliers' list prices. It is notable that Mr Perlov did not record that Mr Reitzer said anything to the effect that the price which he was explaining would apply only to Franklins under the Supply Agreement. In short, Mr Perlov cannot have correctly understood the explanation given by Mr Reitzer as to Wholesale 5 at this meeting. 140 Mr Reitzer says that he explained Wholesale 5 at the meeting as deducting published discounts and that Franklins would be collecting confidential rebates for itself. This evidence is confirmed in Mr Perlov's note a little later, when Mr Perlov records: "In terms of the new Franklins Supply Agreement, we will own all trading relationships with suppliers. It is envisaged that case deals be entered into the Metcash system to enable the costing of such to be deducted off invoice price, all other deals negotiated will be invoiced to Metcash for deduction off remittance from suppliers. Rebates and marketing allowances negotiated by Franklins will be claimed off Metcash remittance." 141 All witnesses who gave evidence about what was said at this meeting - and other meetings at which no contemporaneous note was taken - suffered from the lapse of time in their recollections as to what was said. However, it is significant that no other witness, including Franklins' witnesses, said that Mr Reitzer had explained Wholesale 5 at the 14 June meeting as including confidential discounts from suppliers. 142 I do not accept that at the 14 June meeting Mr Reitzer said that confidential discounts would be deducted as part of the Wholesale 5 price to be applied to Franklins under the Supply Agreement. 143 On or about 5 July 2001, Messrs Reitzer and Zelinsky met at dinner and discussed the production of a joint document relating to discounts and allowances to be collected by Metcash in accordance with the Supply Agreement. There is some minor disagreement between Messrs Reitzer and Zelinsky as to exactly what was said, but the terms of the documents which were later produced as a result of that discussion make it plain enough that Mr Reitzer's evidence is substantially correct, and I accept it. According to Mr Reitzer, he said at the dinner: "We should probably prepare a joint document reflecting which discounts and allowances we will be collecting, and which discounts and allowances you are also entitled to negotiate for with suppliers directly for your own account." 144 Some little time thereafter, in a telephone conversation with Mr Zelinsky, Mr Reitzer said: "As previously discussed, now that the letter agreement has been signed, we are prepared to come to show you on a confidential basis the various buckets of money that we collect from our suppliers. This will give you some feel for the sort of confidential rebates and co-op that you may also be able to try to negotiate for directly with the suppliers for your own benefit. We will also show you the rebates and co-op that we will be continuing to collect. In other words, we will show you the dollar value of every piece of income that we collect that's not passed through Wholesale 5, and in relation to each piece we will show you what you can also attempt to negotiate for, and we will show you with items we will be continuing to collect for our own account. It is obviously important that your chief buyer attend that meeting." 145 Mr Reitzer's evidence is consistent with Mr Ramsden's evidence to the effect that at this time he and other executives of Franklins had been discussing Franklins' collection of allowances and discounts from suppliers and the suppliers' possible perception that Franklins and Metcash may be 'double dipping' in their negotiation for discounts. Mr Ramsden said: "I also recall that at one of these meetings, possibly the same meeting, someone from Metcash, I cannot recall specifically whom, said words to the effect: We need to identify which discounts are to be retained by Metcash, and which discounts Metcash are to pass on to Franklins. " 146 On 12 July 2001 the senior executives of both parties met. The principal representatives of the parties respectively were Mr Reitzer and Mr Zelinsky. No contemporaneous note was made of what transpired. A pie chart had been prepared by Metcash for the purposes of this meeting and copies were given to the Franklins' executives. The pie chart is headed "Marketing Income". It shows particular items of discount or allowance and the income generated therefrom for Metcash, represented as segments of a circle and the dollar amounts are given. Certain of the items of income are marked with an asterisk and a legend explaining the asterisk states "(Franklins) will not be able to collect". 147 According to Mr Reitzer, he said: "At the Pie Chart Meeting, I handed a copy of the Pie Chart to all the participants. A conversation took place in the following words or words to like effect:-

My understanding was that the Pie Chart showed the various confidential discounts negotiated by Metcash on its volume;" 149 It is significant that in this evidence Mr Zelinsky refers to discounts and rebates being collected by Franklins and others being retained by Metcash. This evidence is consistent with Metcash's assertion that Wholesale Price in the Supply Agreement did not require Metcash to account to Franklins for all discounts and allowances, whether published or confidential. 150 However, Mr Zelinsky gave this evidence: "At some stage during the meeting held on 12 July 2001, I said words to the effect: Any discounts or rebates on Metcash volume is for Metcash's account. Any discounts or rebates referable to Franklins' volume is for our account. Metcash gets paid a pick fee and a service fee for the work it will be doing for Franklins; that is the extent of Metcash's income insofar as Franklins' volumes are concerned. " 151 In his witness statement, Mr Ramsden supports Mr Zelinski's evidence and, in particular, he says that Mr Zelinsky said words to the effect: "Any discounts or rebates Metcash is able to negotiate on Franklins' volume is for Franklins' account". Mr Jablonski's evidence supports Mr Reitzer's evidence, particularly as to statements by Mr Reitzer that Metcash would be collecting and retaining discounts referable to Franklins' volumes which Franklins would not be able to collect for itself. 152 In my opinion, the evidence given by all witnesses in relation to what was said at the 12 July meeting is a combination of fragmentary recollection and reconstruction influenced by firm beliefs in the merits of the parties' respective cases. However, I think that the evidence of Messrs Reitzer and Jablonski is more reliable. It is consistent with what appears in the "pie chart", with the document which resulted from the meeting (the "laminated list") and with Mr Summers' own structure of the agreement of the parties as recounted in his letter of 4 March 2003. 153 The parties agreed at the meeting that there should be a document, jointly produced, which, in Mr Reitzer's words, could be given to suppliers to "show them how our relationship works, and what money goes where". 154 Ultimately a document was produced to be shown to suppliers. It was laminated (presumably to preserve it from wear and tear) and has come to be referred to frequently in the proceedings as "the laminated list". Under the logos of Metcash and Franklins, the document states:

Metcash retain - not passed on to [Franklins] Direct /Cross Docking / Early Payment Discount Centralisation / Redistribution Allowance Slow Moving Rebate" 155 Franklins contends that the laminated list supports its assertion that the "pie chart meeting" on 12 July agreed that confidential discounts negotiated by Franklins on it own volumes of goods ordered from suppliers would be retained by it and that all confidential discounts which Metcash raised in respect of Franklins' volumes would also be passed on to Franklins, namely, by deduction from the calculation of Wholesale Price. I do not agree. I prefer the evidence of Messrs Reitzer and Jablonski as to what was said at the "pie chart meeting", for the following reasons. 156 The laminated list makes as clear as possible by way of a worked example how Franklins is to be charged under the Supply Agreement: list price less published discounts - in other words, Metcash's Wholesale 5 price. In addition, Franklins is to negotiate and collect its own confidential discounts on its volumes. But there are certain additional discounts - clearly, referable to volumes including Franklins' volumes otherwise they would be irrelevant to all parties concerned - which Metcash is to obtain but is not to pass on to Franklins. 157 That this last category of discounts comprised discounts for which Franklins would not be eligible and that they would be retained by Metcash was revealed in the "pie chart" presented to Franklins' executives at the 12 July meeting. The pie chart noted with an asterisk certain discounts received by Metcash and explained: "Franklins will not be able to collect". Mr Reitzer explained at the 12 July meeting why Franklins would not be able to claim such discounts, for example, because it did not have a warehouse facility. 158 If it had been agreed at the 12 July meeting that these additional confidential discounts would be passed on to Franklins even though it could not have otherwise obtained them, there would not have appeared on the laminated list the items under the heading "Metcash retain - not passed on to [Franklins]". 159 There is no doubt that the laminated list was used by Franklins as well as by Metcash in the conduct of its business. No one suggested that the laminated list was compiled in order to deceive suppliers as to the true agreement between Metcash and Franklins. It should be accepted that Franklins regarded as accurate the statements in the laminated list as to how published and confidential discounts were to be collected and dealt with pursuant to the terms of the Supply Agreement. 160 I conclude that the laminated list strongly corroborates the evidence given by Messrs Reitzer and Jablonski as to what transpired at the 12 July meeting. In addition, it strongly supports Metcash's case as to what the parties understood and agreed was to be comprised in the calculation of Wholesale Price under the Supply Agreement. 161 On 13 July 2001, Mr Hunter sent a further draft of the Supply Agreement to Blake Dawson Waldron for consideration. The definition of "Wholesale Price" in the draft is as follows: " Wholesale Price means 'Wholesale 5' for each Product being the current wholesale list price of the manufacturer of the relevant Product applicable as at the date the Product is delivered to [Franklins] less all allowances and discounts provided to Metcash by Manufacturers." 162 It is to be noted that this definition does not incorporate the wording of the definition of Wholesale Price in the letter of 14 June 2001, which had been signed by Mr Reitzer and Mr Zelinsky as representing the agreed terms. Importantly, the draft omits the descriptive words in the 14 June definition "(such as trade discounts, distribution allowances, warehouse allowances, bulk buy allowances and cash discount)". The definition says merely that there are to be deducted from suppliers' list prices "all allowances and discounts provided to Metcash by Suppliers". 163 There is no evidence explaining why, in this draft, Mr Hunter changed the wording of the definition of "Wholesale Price" which had appeared in the 14 June letter. 164 On 1 August 2001, Ms Ho of Blake Dawson Waldron sent to Mr Hunter a copy of the draft Supply Agreement, marked up to show the amendments which Franklins sought. The definition of Wholesale Price is considerably changed, to bring it back into line with the definition in the 14 June letter in that there are re-introduced the words in brackets which had appeared in the 14 June letter definition. The definition in the Blake Dawson Waldron draft reads: " Wholesale Price for a Product means Metcash's 'Wholesale 5' price for that Product, being the Supplier's wholesale list price at the time of [Franklins'] order for that Product, less all allowances and discounts (such as trade discounts, distributor allowances, warehouse allowances, bulk buy allowances and cash discounts) provided to Metcash by the Supplier." 165 The Blake Dawson Waldron draft introduced a new clause 4.15 as to the calculation of the purchase price which was, so far as is relevant, as follows: " Calculation of Purchase Price, Rebates and Transport Costs

Such a clause had not appeared in the draft sent by Mr Hunter, but it was based on Rider 1 which had appeared in Mr Stanbridge's letter of 31 May 2001. 166 Mr Hunter responded to the Blake Dawson Waldron draft by letter dated 7 August 2001. He made a number of comments about the suggested amendments. The only comment he made about the definition of Wholesale Price was that it should be changed "to reflect such price at the time of delivery (not order) as this is the way the computerised system operates". There was no comment about the new clause 4.15. 167 Ms Ho and Mr Hunter met on 8 August 2001 to discuss the draft Supply Agreement. Another draft of the Agreement was sent by Mr Hunter to Blake Dawson Waldron on 29 August 2001. The definition of Wholesale Price was amended to incorporate the suggestion which Mr Hunter had made in his letter of 7 August. 168 There were further exchanges of e-mails between Mr Hunter and Ms Ho concerning amendments to the draft Supply Agreement but none of them concerned any amendment to the definition of Wholesale Price. 169 A further draft Supply Agreement was prepared by Ms Ho and forwarded to Mr Hunter on 11 September 2001. None of the changes related to the definition of Wholesale Price. Again, there was an exchange of e-mails about proposed changes but none of them affected the definition of Wholesale Price. 170 The Supply Agreement was formally executed by the parties on 14 September 2001. 171 Franklins' understanding that the calculation of Wholesale Price as defined in the Supply Agreement deducted only published discounts did not change from the time of Mr Reitzer's letter of 17 May to the time of execution of the Supply Agreement: that proposition is demonstrated by what Mr Summers wrote about the definition of Wholesale Price in his letter of 4 March 2003. 172 It is appropriate now to discuss fairly briefly the circumstances in which Mr Summers' letter of 4 March came to be written and what transpired at the 6 March 2003 meeting. I have discussed one aspect of this meeting under Question 12 above. 173 In my view, it is not necessary to go into a great deal of detail about the 6 March 2003 meeting because, apart from the critical admission made by Mr Summers in his 4 March letter as to the meaning of Wholesale Price, what otherwise occurred in March 2003 between the parties is of no assistance in ascertaining the parties' common intention when they executed the Supply Agreement in September 2001. 174 As I have earlier noted, it is clear that by the beginning of 2003 Franklins had become aware that the size of the confidential discounts being retained by Metcash, as revealed in the laminated list, were larger than Franklins had appreciated at the time that the Supply Agreement was executed. Mr Summers' letter of 4 March sets out the real basis of Franklins' complaint. After referring to the various terms of the Supply Agreement, including the definition of Wholesale Price (as I have set out in paragraph 117), Mr Summers says: "Following the commencement of our trading with you, certain issues became contentious and the first one concerned payment terms. … The second major area of contention has been the issue of 'redistribution allowances'. Likewise, this manifested itself post the contract being drawn and was presented to us by you on the basis of being a 'handful' of suppliers that amounted to 'five eighths of nothing' who have this agreement with Metcash. Given the relatively insignificant way it was presented to Aubrey, he agreed that you could continue with these arrangements that you had in place. During the course of our discussions, you informed me that redistribution allowances in fact applied to approximately 3 pages of suppliers and that in total, you had deducted approximately $2.1 million. Of this, you believe that only $600,000.00 was applicable to Franklins, as the balance was subject to negotiations that existed prior to your commencing supplies to Franklins.

it was only later that Franklins, aggrieved by the fact that Metcash was retaining other confidential allowances on Franklins' volumes of goods which Franklins was not able to obtain for itself, realized that the words of the definition of Wholesale Price in the Supply Agreement - "all discounts and allowances" - were, if read literally, wide enough to include all confidential discounts, as well as all published discounts. Hence Mr Summers' evidence in his witness statement: "the definition of 'Wholesale 5' price that I recall Reitzer using … was as per the definition of 'Wholesale Price' in the Supply Agreement" : see paragraph 104 above. Hence, the unconvincing explanation which Mr Summers gave to the question why he had referred in his 4 March 2003 letter to Wholesale Price as deducting only published discounts: see paragraphs 118 to 121 above. 177 For the reasons I have given, I am satisfied by proof which I regard as clear and convincing that, although the definition of Wholesale Price in the Supply Agreement does not, as a matter of construction, require only published discounts to be deducted from the suppliers' list prices, nevertheless this was the actual agreement and intention of the parties at the time that they executed the agreement. 178 The discrepancy between the Supply Agreement as a matter of construction and the true agreement of the parties should not be remedied by recourse to principles of estoppel, in accordance with the authorities to which I have referred in paragraphs 94 to 96 above. Rather, the proper remedy is rectification of the Supply Agreement. Question 14 - Rectification "Whether the formal Supply Agreement ought to be rectified and, if so, in what manner." 179 In deciding whether Metcash's claim for rectification of the Supply Agreement has been made out, I have taken into account the principles which have been helpfully collected and summarised in the judgment of Einstein J in Hudson Investment Group Ltd v Australian Hardboards Ltd [2005] NSWSC 716, at [216]-[217], and in the judgment of White J in Muriti v Prendergast [2005] NSWSC 281, at [105], [132]-[137]. 180 I have found that both parties, as at the time of execution of the Supply Agreement, had the common intention and understanding that the discounts to be deducted in calculating Wholesale Price, as defined in the Supply Agreement, would be only published discounts. The parties did not make a mistake in the drafting of the words of the definition by omitting the word "published" by some oversight or typographical error. Rather, I infer that the omission was due to the fact that both regarded the word as inherently implicit in the definition, so that the qualification "published" went without saying. The parties did not appreciate that, looked at later through the eyes of lawyers, the words of the definition of Wholesale Price did not have the meaning which they intended them to have. It was in this sense that the parties' intentions miscarried by mistake, i.e. for want of proper expression. 181 Franklins has made much of the fact that Metcash did not call as a witness Mr John Hunter, its General Counsel who was responsible for drafting the Supply Agreement on behalf of Metcash. Franklins says that Mr Hunter ought to have been called to explain how the mistake occurred. 182 However, as I have said, I do not think that the mistake was one susceptible of explanation by the person who drafted the document. I infer that the lack of proper expression of the parties' common intention became apparent only when Franklins subsequently realised that the words of the definition of Wholesale Price, read literally, did not mean what the parties thought they had meant. The failure of Metcash to call Mr Hunter is, therefore, in my view, of no significance where there is otherwise clear and convincing proof of what the parties' relevant intention was at the time of execution of the Supply Agreement. 183 A claimant for rectification must be able to show clearly the form in which the contract ought correctly to be expressed in order to reflect the true agreement of the parties. In its Amended Cross Claim, Metcash puts forward a number of alternative amendments to the Supply Agreement. However, the appropriate amendment is simply to insert the word "published" before "allowances" in the phrase "less all allowances and deductions" in the clause 1.1 definition of Wholesale Price. That is the order which I will make. 184 As the Supply Agreement has now been terminated, it is not necessary to go through the rest of the document so as to conform its wording with the rectified definition of Wholesale Price. The Court has found what was the true agreement of the parties and the relief to be granted will follow as a consequence of that finding. Question 15 - Section 51AA Trade Practices Act "Whether [Franklins] contravened Section 51AA of the Trade Practices Act 1974 in the manner contended for in par. C30 of the Amended Cross Claim and, if so, whether the formal Supply Agreement ought to be varied and, if so, in what manner and/or whether damages should be paid by [Franklins] to [Metcash] by reason of such contravention." 185 Because the Supply Agreement is to be rectified, this question does not arise. Question 16 - Section 52 Trade Practices Act "If the formal Supply Agreement is unable to be so rectified or varied, whether [Franklins] engaged in misleading and deceptive conduct within the meaning of Section 52 of the Trade Practices Act in respect of the meaning and intended operation of the formal Supply Agreement in the manner contended for in par. C29 of the Amended Cross Claim." 186 Because the Supply Agreement is to be rectified, this question does not arise. Question 17 - Implied term "Whether it was an implied term of the formal Supply Agreement that: (a) [Metcash] would do all things reasonably necessary to give to [Franklins] the benefit of the formal Supply Agreement; and/or (b) [Metcash] would act in good faith in its dealings with [Franklins] under the formal Supply Agreement." 187 Because the Supply Agreement is to be rectified, this question does not arise. Question 18 - Deduction under implied term "If Question 17 is answered yes, whether such implied terms (or either of them) obliged [Metcash] to deduct the Discounts or Volume Discounts (both as defined in the Amended Summons) in the calculation of the price payable by [Franklins] to it under the formal Supply Agreement." 188 Because the Supply Agreement is to be rectified, this question does not arise. Question 19 - Construction of Clause 2.6 "Upon the true construction of the formal Supply Agreement and, in particular, Clauses 2.6 and 4.3 thereof, as at the commencement of these proceedings, what rights did [Franklins] have to inspect and take copies of the business books and records of [Metcash], in particular those documents relating to or evidencing discounts, allowances and rebates received by [Metcash] in respect of goods purchased for on-sale to [Franklins]." 189 Clause 2.6 of the Supply Agreement provides: " Metcash to keep records of Products purchased, etc

Metcash's submission is that the third category of documents does not deal with transactions "relating to" Franklins because the benefit of those transactions is not to be accounted for to Franklins. 196 The issue depends on the scope of the phrase "relating to". It is a phrase of the broadest compass. It very often gives rise not only to problems of construction but to problems of application, for example, whether those words in a subpoena, by reason of their width, place an oppressive burden on a stranger to litigation. 197 In my opinion, in this case as in many other contexts, the scope of the phrase "relating to" must be ascertained by reference to the purpose of the provision in which it is found. Clause 2.6, and clause 4.3, are clearly intended to provide a means whereby Franklins can vouch and verify for itself that it has received from Metcash all that it is entitled to receive by way of deductions and allowances. A transaction with a supplier giving rise to a deduction or an allowance which Franklins is not entitled to receive under the Supply Agreement is not, in my opinion, a transaction "relating to" Franklins. 198 I suspect that in some, perhaps many, cases it might be difficult to separate information about a purchase order into neat compartments for inspection purposes, namely, information relating to discounts to be passed on to Franklins and information relating to discounts to be retained by Metcash. However, this difficulty is a practical difficulty, not a difficulty in the construction of the clause itself. 199 In my opinion, Metcash's construction of the scope of clause 2.6 is correct. Which particular documents demanded by Franklins' letter of 4 February 2005 fall within the scope of the clause and which do not is something which I am unable to determine on the present state of the evidence. Which particular information sought in any of those documents is information which Franklins is entitled to inspect and which is not is, likewise, a matter which I cannot now determine. I would expect that, in the light of the answer which I have given to this question, the parties will be able to work out a satisfactory mechanism for inspection which protects the rights of both parties. At one stage during the hearing, the parties mooted the appointment of a mutually acceptable auditor, who would preserve confidentiality in delivering a report. That seems a very sensible and pragmatic course. Question 20 - The effect of the letter of demand "Whether the demand made by the solicitors for [Franklins] to [Metcash] by letter dated 4 February 2005 was a valid demand for the purposes of either Clause 2.6 or 4.3 of the formal Supply Agreement and, if not, whether the filing of the Summons herein constituted such a valid demand." 200 This question has been dealt with in the answer to the previous question. Question 21 - Whether right of inspection estopped "Whether [Franklins] is estopped from exercising any rights to inspect [Metcash]'s books and records which it may have had under the formal Supply Agreement by reason of the facts, matters and circumstances pleaded in par. 34 of the Amended Defence." 201 In paragraph 34 of the Amended Defence, Metcash asserts that Franklins is estopped from asserting a right to inspect records relating to confidential discounts to be retained by Metcash by virtue of an oral agreement to that effect made between the parties in April 2001. 202 In view of the construction which I place on clause 2.6 of the Supply Agreement, I do not think that that issue now requires determination. 203 However, I am of the opinion that, if any such agreement was made in April 2001 as alleged, it was superseded by execution of the Supply Agreement and that no estoppel can now be founded upon it, for the reasons explained in paragraphs 94 to 96 above. Orders

Franklins Pty Ltd v Metcash Trading Ltd

At a glance

Court

Decision date

Before

Source

Judgment (208 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (14)

Cited By (1)