ISS Facility Management Pty Ltd & Anor v Quality Bakers Australia Pty Ltd & Ors - [2020] NSWDC 447 - NSWDC 2020 case summary — Zoe

NSWNSWDC

ISS Facility Management Pty Ltd & Anor v Quality Bakers Australia Pty Ltd & Ors

[2020] NSWDC 447

District Court of NSW|2020-08-07|Before: Mr J

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Source facts

Court

District Court of NSW

Decision date

2020-08-07

Before

Mr J

Source

Original judgment source is linked above.

Judgment (42 paragraphs)

[1]

INTRODUCTION FACTUAL BACKGROUND The Due Diligence Agreement Reimbursement obligations Conduct of Due Diligence up to 14 May 2018 ISS' conduct after 14 May 2018 Expert evidence regarding the ISS' proposals Mr Ross' primary report Mr Potter's report Mr Ross' report in reply Joint report Concurrent evidence Key Terms Principles for assessing 'financial favourability' Whether it was possible to determine whether proposals were less financially favourable Baseline Spend Minimum Savings Guarantee and Total Financial Benefit Requirement The 11 May 2018 proposal THE PARTIES' CONTENTIONS ISS' contentions Goodman Fielder's contentions Legal principles CONSIDERATION Context and purpose Was the Expiry Date extended? Whether, for the purpose of construing cl 10, conduct of parties can be looked at beyond the Expiry Date? The construction of the exceptional circumstances in cl 10 General observations 'Revised offer' "Offer" Goodman Fielder's "uncommerciality" complaint 'Revised' "Insist(ence)" upon terms Application of clause 10 to the facts Revised offer? Insistence upon terms? Quantum Whether 11 May 2018 proposal "financially less favourable" Meaning of 'financially less favourable' Proposals after 11 May 2018 Summary ORDERS

[2]

INTRODUCTION

The First and Second Plaintiffs (who I will collectively call 'ISS') are related companies in a corporate group: one is registered in Australia and the other is registered in New Zealand. ISS are two subsidiaries of another company, ISS A/S, which is the ultimate parent company of a corporate group providing services in about 65 countries across Europe, Asia, North America, Latin America and the Pacific. ISS conducts the business, in each country, of providing integrated facility services. Those facilities include facility management, cleaning services, property services and catering services. The services are commonly bundled into a single contract.

[3]

FACTUAL BACKGROUND

Most of the background leading up to entry into the Due Diligence Agreement is not contentious.
In early January 2017, Goodman Fielder invited ISS to tender for facility management services for its Australian and New Zealand operations. On 12 January 2017, an 'Opportunity Assessment Brief' was supplied to ISS for this purpose.
ISS issued a 'Due Diligence/Asset Verification Brief' to Goodman Fielder in March 2017. In it, ISS stated its usual approach. This included that it would "understand (the client's) current budget and spend". Mr Scanlon, the Chief Financial Officer of ISS, accepted in cross-examination that the Baseline Spend was commonly used in the industry to describe the existing cost of facility services. Where the client's purpose was known to ISS, to reduce its costs, ascertaining the Baseline Spend was important. ISS took the customer's information, inserted it into ISS' computer system and reviewed it to determine what facility services ISS could provide. Mr Rose accepted that usually, as part of its model of engaging subcontractors, ISS can get savings for a client of between 10% and 20%. He identified Goodman Fielder as one of its clients where, insofar as ascertaining the Baseline Spend, ISS would do the "heavy lifting" once it had received Goodman Fielder's raw data.
By April 2017, ISS had been nominated as one of two short-listed tenderers. On 25 April 2017, Goodman Fielder supplied ISS with a 'Due Diligence Request for Proposal' ('RFP'), involving a due diligence exercise on 3 sites. This document had been sent to the two competing providers and it was intended that both would have opportunity to conduct a due diligence on the 3 sites.
On 26 April 2017, some 'GF Data' was sent to ISS concerning Goodman Fielder's spending across Australia and New Zealand.
On 11 May 2017, Goodman Fielder provided further spend data ("two more years") to ISS with the sender noting that "It is our hope that a wider range of data will help you identify true trends and dismiss spending anomalies, the overall intent being to reduce assumptions."
On 15 June 2017, Mr Warr of ISS sent to Goodman Fielder ISS' submission in response to Goodman Fielder's request for information relating to the RFP process. Mr Tully said in cross-examination that he had not seen this submission. He explained that at this point, where there were two competing tenderers, his focus was upon comparing the relative merits of the proposals of the tenderers. ISS' submission featured site specific proposals for 3 of Goodman Fielder's sites. In his affidavit, Mr Tully described those sites as constituting a 'representative' sample of Goodman Fielder's sites across Australia and New Zealand. Part of the document concerned Baseline Spend Comparison. The client baseline was identified as $3,066,000 but once other adjustments were made, the Baseline Spend fell to just over $604,000. Mr Tully said that he did not notice this part of the submission. He accepted, however, that it showed that on the basis of the raw data in relation to the three sites, on a Baseline Spend, Goodman Fielder was likely to recover only one-fifth of that in savings.
At about this time, ISS informed Goodman Fielder that on the basis of the work carried out on the baseline spend for the three sites, ISS thought that the baseline of existing spend overall might be in the order of $26 million (Exhibit A, vol 3, p 1192).
By 30 June 2017, an email from Mr Dunn, Senior Commercial Manager to Goodman Fielder, sent to Mr Warr of ISS, acknowledged concern, on ISS' part, about Goodman Fielder's Baseline Spend. Mr Dunn requested that Mr Warr use the Baseline Spend of $35m. Under cross-examination, Mr Rose was asked whether the $35m Baseline Spend figure was explained to him. He said that this was Goodman Fielder's figure. He understood it might vary, but not very substantially. When he was questioned about the email, Mr Tully indicated that he had only seen it in the context of preparing his evidence. Nevertheless, he considered that Goodman Fielder had worked on the basis of a $35m baseline spend from the moment that it had engaged with the various facility management providers and had understood that this had been conveyed to them.
Goodman Fielder later submitted that by June 2017, ISS was already on notice that the $35m Baseline Spend figure was only a provisional estimate and could significantly change.
On 7 July 2017, ISS issued its response to the RFP. At page 75 of the document, ISS outlined its initial offer. Relevantly, ISS assumed a Baseline Spend of $26.1m, which was based upon an analysis for the three sites visited (p 93), but (at p 79) it was apparent that Goodman Fielder had advised a Baseline Spend of $35m. At page 81, ISS set out multiple 'BAFO' (Best and Final Offer scenarios). The last of which, which was subsequently adopted in the Due Diligence Agreement, was option 4.
On 23 August 2017, Ms Leigh Garvan, a Commercial Manager of Goodman Fielder, sent an email to Stuart Rose, Chief Commercial Officer (and Director of Strategy) of ISS, attaching a draft Facilities Management Services Agreement for ISS' consideration. Thereafter, some correspondence ensued concerning the drafting of that proposed agreement.
On 15 November 2017, Mr Rose emailed Mr Keen of Goodman Fielder, setting out the status of negotiations between the parties. Mr Rose proposed adding a further minimum savings guarantee. The email evinced ISS' understanding that the Upfront Services Payment ($3.6m) was referable, and indeed broadly proportional to the amount of the Baseline Spend. This later came to be recognised in cl 16 of the Due Diligence Agreement.
On 23 November 2017, Mr Keen, of Goodman Fielder, sent a lengthy email to Mr Rose, of ISS. The email was intended to set out Goodman Fielder's views on where negotiations were at. It was noted that the Baseline Spend was predicted to be $36m. The upfront payment figure ($3.6m) was based on that Baseline Spend. The email records ISS reiterating that the parties needed to discuss this further if there was likely to be a significant variance from that figure. Mr Rose explained in cross-examination that this email was sent at a time when he was having communications with Goodman Fielder personnel.
On 4 January 2018, Mr Garvan of Goodman Fielder, sent an email to Mr Warr containing the spend data for Goodman Fielder, which had been updated since the RFP.
On 5 February 2018, as I have noted, the Due Diligence Agreement was entered into.

[4]

The Due Diligence Agreement

Recital B signified a good faith commitment by Goodman Fielder to negotiate with ISS for a long term contract. Recital C indicated that the opportunity for ISS to conduct due diligence was to enable ISS to validate assumptions which ISS had made during the tender period and allow it to develop a detailed services scope.
Cl 1 indicated that, in the circumstances, ISS would conduct its due diligence from 5 February 2018 [1] until the Expiry Date, being 14 May 2018, unless the parties' had, acting in good faith, agreed to a later date. ISS referred to cl 27 to argue that the Expiry Date could only be varied in writing. No such written variation arose. Goodman Fielder referred me to cl 13 to argue that the Due Diligence Agreement envisaged that negotiations might continue beyond 14 May 2018, and that this was relevant to construing its reimbursement obligation.
By cl 13, following entry into the Due Diligence Agreement, the parties were obliged to enter into good faith negotiations with a view to finalising the Terms and Conditions of, and executing, the proposed services agreement, no later than the Expiry Date. As Goodman Fielder's Counsel pointed out, the wording of this provision contemplated that such negotiations might extend beyond the Expiry Date.
Cl 12 was described by Goodman Fielder's counsel as locking Goodman Fielder into a proposed agreement if ISS confirmed the Key Terms of the proposed agreement following the Due Diligence Agreement, as set out in Appendix 1. In this way, Counsel for Goodman Fielder said that the Due Diligence Agreement was beneficial for ISS in giving it the opportunity to decide whether to proceed with the Key Terms in Appendix 1.
Cl 14 indicated that the terms of any proposed agreement had to incorporate, relevantly, the detailed scope of services developed during the due diligence conducted by ISS and also incorporate the Key Terms set out in Appendix 1.
The "Key Terms" specified (by cl 16 of the Due Diligence Agreement) the following concepts: 1. 'Savings Targets': these were specified as a percentage of Goodman Fielder's Baseline Spend, on the services that ISS was proposing to manage on Goodman Fielder's behalf. 2. 'Minimum Savings': these were a specified proportion of the savings on the services that were to be managed by ISS (and were net of ISS' management fee). 3. 'Baseline Spend': this is defined as the amount expended by Goodman Fielder in the 2017 calendar year on the facilities management services the subject of the proposed agreement.
The 'Key Terms' in Appendix 1 provided for Goodman Fielder to make at least a specified proportion of savings (the Minimum Savings) on the facilities management services that were to be managed by ISS after ISS had finalised the scope of those services, and therefore the Baseline Spend, through its due diligence. The Minimum Savings were 5% in year 1, 3% in year 2 and 2% in year 3. If those savings were not achieved, ISS had to pay Goodman Fielder the difference between the savings achieved and the guaranteed amount.
The 'Key Terms' also provided for ISS to make an upfront payment to Goodman Fielder which ISS would only access if ISS met the designated 'Savings Targets' above the 'Minimum Savings' (expressed as a percentage of 'Baseline Spend'), and for the carrying over of any shortfall in achieving a Savings Target from one year to the next. By cl 16, the parties acknowledged that the Upfront Savings Payment was based on an estimated Baseline Spend of AUD$35m per annum and may be adjusted as a result of the due diligence. Implicitly, the parties acknowledged that there might be variation from the $35m figure, and possibly a substantial variance.
Subject to ISS completing the due diligence to its satisfaction, and ISS "confirming" the Key Terms, Goodman Fielder was obliged to use "all reasonable endeavours to promptly enter into the Proposed (facilities management services) Agreement" (cl 12 of the Due Diligence Agreement). Both parties were subject to an obligation to negotiate in good faith for the entry of such agreement.
Cl 16 provided that within 7 days of entry into the Due Diligence Agreement, Goodman Fielder was entitled to invoice ISS for a AUD$3.6m 'Upfront Services Payment'. Goodman Fielder characterised this as a goodwill payment by ISS. The amount of the payment was based upon an "estimate" of AUD$35 million per annum of the 'Baseline Spend' (i.e. the amount Goodman Fielder expended on the facilities management services set out in the proposed agreement during the 2017 calendar year). Both sides accepted that the amount of the Baseline Spend was of significant commercial importance to ISS, as the greater the volume of Baseline Spend, the more ISS would make in total on the provision of the services, given that its profit was at least partly based upon the margin made on the provision of the services.
In cross-examination, Mr Rose accepted that the amount of the Upfront -Payment admitted the possibility of variation, though he baulked at the suggestion that it could account for substantial variation. He accepted that the Baseline Spend was found to be significantly lower after the Due Diligence Agreement had been signed.
By cl 17, the Upfront Payment was repayable if the parties did not enter into the proposed facilities management agreement by the Expiry Date.
Clause 18 indicated that the Due Diligence Agreement was to terminate immediately on the earlier of: (a) the signing of the proposed facilities management agreement; or (b) the Expiry Date (14 May 2018).
By cl 23, the provisions in cll 4-8 (inclusive), 17 and 20-21 (inclusive) survived termination of the Due Diligence Agreement.

[6]

Conduct of Due Diligence up to 14 May 2018

Soon after the due diligence agreement was entered into, representatives of ISS and Goodman Fielder exchanged correspondence concerning the drafting and form of the proposed facilities management services agreement. On 7 February 2018, Mr Warr, of ISS, emailed Ms Koniecka, Senior Commercial Manager of Goodman Fielder, a Draft Facilities Management Services Agreement.
On 17 February 2018, ISS and Goodman Fielder proceeded on the basis that the scope of services "needs to be heard until completion of the due diligence".
On 1 March 2018, Mr Rose, for ISS, asserted that he had a conversation with Ms Pauline Koniecka, Senior Commercial Manager of Goodman Fielder, in which the latter allegedly indicated that Goodman Fielder was working with sites more as individual facilities rather than as a collective and that the facilities management deal was not 'on the agenda' in the short term.
On 11 April 2018, Mr Warr (for ISS) sent an email addressed to Goodman Fielder personnel with a recut of Goodman Fielder's baseline data for Australia (the New Zealand data was still being worked on). The email contained a baseline spend analysis in a spreadsheet, which showed a Baseline Spend of a little over $23 million.
On 20 April 2018, Mr Mawson, Goodman Fielder's National General Manager, sent an email to various Goodman Fielder and ISS personnel, attaching an updated project plan.
Between 24 April and 29 April 2018, there were several emails exchanged between ISS and Goodman Fielder concerning the baseline data. Goodman Fielder sent its proposed consolidated baseline for Australia (excluding offices) of $21.7 million. By 29 April 2018, Mr Warr, of ISS, indicated that the parties were between $616,000 and $1m "plus apart on the issue of Baseline Spend". On 1 May 2018, internal Goodman Fielder emails were exchanged regarding the cases for the $35m Baseline Spend estimate.
On 11 May 2018 (a Friday), Ms Koniecka, for Goodman Fielder, sent an email to Mr Scanlon (ISS) (at 4:16pm), which attached a proposed side deed. In the covering email, Goodman Fielder formally requested an extension to Expiry Date of the Due Diligence Agreement. In the proposed side deed, clause 4 stated that: "As the parties are still discussing the scope of the Proposed Agreement and negotiations on the Proposed Agreement are not far progressed, the parties agree to extend the Expiry Date to 14 August 2018, or such later date as may be agreed by the parties acting in good faith".
On 11 May 2018, Mr Warr, of ISS, emailed (at 10:07pm) a document to Ms Koniecka, of Goodman Fielder, titled 'Status Update for Facility Management Services'. In the covering email, Mr Warr wrote, among other things: "Obviously there is still quite a way to go in regard to the commercials, which we will develop additional slides for Wednesday's discussion (i.e. 16 May)… You will note the attached purposely excludes the impact of the commercials being negotiated, and is focussed on providing the results of the service by service analysis at each of your sites… … looking forward to seeing you next Wednesday to step through the options in detail."
At the bottom of the front page of the document the following words were written: "For discussion purposes only - ISS Group makes no offer or submission in connection with this analysis." When asked to consider the document in cross-examination, Mr Scanlon was unable to identify any savings in the commercial summary. A note in the summary (at p 23 of the document) indicated that the parties had yet to formally agree on a final baseline, with a number of final changes to be negotiated.
By 11 May 2018, ISS was only able to estimate that the Baseline Spend for the total "potential" facilities management contract was $24.7m, but on the basis of the "actual controllables" and "non-controllables" spend then known to ISS the total amounts were about $9 million; with the possibility of a phased approach increasing the spend by $9.7 million. From ISS' perspective, these numbers were significantly less than the represented estimate of Baseline Spend of $35m.
At 8:57am on 14 May 2018, Mr Scanlon responded to Ms Koniecka's email sent at 4:16pm on 11 May 2018. Although its character was disputed, it is at least clear that ISS did not then accede to Goodman Fielder's request to extend the Due Diligence Agreement. In the covering email, Mr Scanlon suggested that the parties "enter into good faith negotiations and revisit the situation" following the discussions to be had later in the week.
From February 2018 to early May 2018, ISS carried out due diligence at sites operated by Goodman Fielder in Australia and New Zealand. This featured ISS retaining third parties (such as Huddle Projects Limited and Kingfisher Group Limited) and consultants, and diverting its own staff to oversee, manage and coordinate the due diligence process and reporting. ISS asserts that this incurred costs in the sum of AUD$609,870.18.
ISS says that it never agreed to an extension of the Expiry Date (whether in writing or otherwise), and so the Due Diligence Agreement expired in accordance with the terms of the Agreement on 14 May 2018. That being so, ISS requested, and Goodman Fielder ultimately repaid, the $3.6 million Upfront Payment.

[7]

ISS' conduct after 14 May 2018

On 16 May 2018, ISS provided 'Additional Commercial Slides'. One of the slides carrying the title 'Commercial Summary Tables' indicated that over a 3 year term, Goodman Fielder might in fact make a loss after the savings for Goodman Fielder were compared with ISS' costs. It was put to Mr Scanlon that this document was less favourable to Goodman Fielder than the Key Terms in Appendix 1 to the Due Diligence Agreement in at least three senses. First, ISS' management fee came out of the total savings. Second, ISS' Upfront Payment fee was added to management costs, and thirdly, what were identified as 'Mobilisation Costs' (i.e. from the start of the Agreement to when the services were operational) were visited upon Goodman Fielder. It was suggested to Mr Scanlon that once he learnt that Goodman Fielder's Baseline Spend was $35m, he did not regard it as feasible for ISS to continue to offer the 'Key Terms'. Mr Scanlon disagreed with this.
On 27 May 2018, Mr Rose sent an email to Ms Koniecka, regarding the costs incurred by ISS in carrying out due diligence at the sites. On 30 May 2018, he sent an email to Ms Koniecka attaching several documents including, but not limited to, two invoices, a summary of due diligence costs incurred by ISS in New Zealand, a summary of the due diligence costs incurred by ISS in Australia, and an overall summary of the total due diligence costs.
On 5 June 2018, a meeting took place between Goodman Fielder and ISS. Goodman Fielder provided a document titled "Commercial Update".
That day, Mr Tully recalled having a phone conversation with a number of ISS personnel, including Mr Scanlon and Mr Rose, to discuss the progress of the commercial negotiations. Though he did not refer the specific words used in relation to those negotiations, in his first affidavit, Mr Tully deposed to recalling Mr Scanlon manifesting his frustration with the progress of those negotiations and saying words to the effect of "I'll just send you an invoice for the upfront payments tomorrow then".
In cross-examination, Mr Tully was referred to a subsequent affidavit in which Mr Tully expanded on his recollections of what was discussed about the progress of negotiations. He deposed to informing ISS personnel that "We are a long way from getting an agreement. This proposal makes no sense to Goodman Fielder commercially. We can only really assess the proposal in respect of the Phase 1 services as the Phase 2 and 3 services are out of scope. So that leaves us with Phase 1 where our costs will be more than our savings which is clearly not acceptable. Further, adding to our frustration is the fact that ISS is seeking to pass on its due diligence costs to GF when we have agreed in the LOI that ISS will bear its due diligence costs."
On 8 June 2018, ISS issued an invoice to Goodman Fielder to repay the Upfront Payment sum of $3.6 million (excluding GST). That repayment was made on or about 2 July 2018. Mr Tully explained that the timing for this payment was to suit Goodman Fielder's 'Treasury' purposes.
On subsequent dates (5 June 2018, 18 June 2018, 3 July 2018, 12 July 2018, and 19 November 2018), ISS provided further commercial proposals.
Mr Tully provided detailed commentary about each of these proposals in his affidavit, but having regard to his qualifications and position within Goodman Fielder, his commentary was admitted only as assumptions upon which the accounting experts engaged by the parties could consider when determining whether any or all of them constituted 'offers' that were financially less favourable than the Key Terms in Appendix 1 to the Due Diligence Agreement.
On 13 May 2019, ISS provided Goodman Fielder with a letter. This was said to evidence that the 'services scope' proposed by Goodman Fielder had changed.
On 30 May 2019, ISS provided Goodman Fielder with evidence of its actual Due Diligence Costs and other information that Goodman Fielder had requested in order to determine whether the Due Diligence Costs incurred were reasonable. ISS says that Goodman Fielder has never disputed that the Due Diligence Costs incurred were reasonable but they remain unpaid.
In May and June 2019, ISS and Goodman Fielder exchanged correspondence indicating the dispute about the costs. However, Goodman Fielder refused to pay ISS the Due Diligence Costs.

[9]

Mr Ross' primary report

Goodman Fielder engaged Mr Andrew Ross, a chartered accountant since 1991, who prepared reports dated 28 May 2020 and 31 July 2020, the latter being in reply to the report of ISS' expert, Mr Potter. Mr Ross is a Partner of the firm KordaMentha. His background included his being the National Chair of the Forensic Accounting Special Interest Group of the Institute of Chartered Accountants in Australia.
Mr Ross' methodology consisted, first, of analysing the 'Worked Example' contained in Appendix 1 of the Due Diligence Agreement. Secondly, he selected a range of criteria which were apparent in the Worked Example and considered whether the proposals made by ISS from 11 May 2018 to 19 November 2018 featured such criteria.
The Worked Example in Appendix 1 featured 5 different scenarios depicting the savings for the first year of a facilities management agreement (incorporating Key Terms). Assuming that the Baseline Spend was $18.07m, the Worked Example (taking into account some corrections), as it was reworked, produced a range of Year 1 costs savings of $75,000 (at a percentage costs saving of 0.4%) to $3.410milion (at a percentage costs saving of 18.9%).
Mr Ross interpreted the expression 'less financially favourable' from his perspective as an accountant, valuer, and financial advisor, being asked to make such an assessment by clients. Comparing a financial proposal against another in this sense involved considering the totality of revenue and expenses, and cash inflows and outflows during the period over which the proposal relates. Those proposals that produced lower overall profits or net cash inflows were generally less favourable than those with higher overall profits or net cash inflows. But this analysis had to take into account the timing for when each receipt or payment was made; as well as the degree of information supplied in a proposal and the degree of certainty envisaged from a proposal. There was also a concern whether a proposal was internally consistent.
Mr Ross articulated his criteria for comparing all of the proposals as the 'No Conflicting Terms Requirement', the 'Minimum Information Requirement', the 'Guaranteed Minimum Benefit Requirement', the 'Multiple Pathways Requirement' and the 'Total Financial Benefit Requirement'.
In no case did any of the subject proposals meet all of these criteria. All of them 'failed' at least three of the criteria. In particular, none of the proposals provided Goodman Fielder with cash or accounting outcomes as good as, or better than, those implied in the Due Diligence Agreement, certainly in relation to Year 1 outcomes, or, where available, outcomes over all 3 years.

[10]

Mr Potter's report

Mr Potter is also a chartered accountant (since 1990) and a forensic accountant specialist. He is a director of Axiom Forensics Pty Ltd. He is an associated member of the Chartered Accountants Australia and New Zealand. As with Mr Ross, Mr Potter has also had extensive experience giving expert opinion evidence.
Mr Potter was unable to assess whether ISS' proposals were less financially favourable to Goodman Fielder on the Key Terms set out in Appendix 1. This was because the Upfront Savings Payment and Management Fee were unable to be assessed. That was partly attributable to uncertainty concerning the Baseline Spend in each proposal.
Further inter-related reasons for his being unable to assess the financial outcome of each of the proposals were the change in the scope of services, and therefore the Baseline Spend. The Baseline Spend was determinative of the Upfront Savings Payment and Management Fee Key Terms. The proposals were silent about Upfront Savings Payment and 'ISS Earned Margin'. The financial effect of additional terms included in the proposals (such as due diligence costs, mobilisation costs, and margins on management fee) was unclear and difficult to assess. The proposals were also presented in a form which was unreliable.
Mr Potter generally agreed with Mr Ross' conception of the expression 'less financially favourable'. Mr Potter took issue, also, with Mr Ross' methodology. He considered that some of the criteria that Mr Ross had used were dependent upon the extent to which each Key Term was set out in the proposals. That could not be reliably assessed. Further, the instruction given to Mr Ross to assume that Key Terms are not incorporated in a proposal unless clearly indicated practically dictated or directed Mr Ross' conclusion that each proposal was less financially favourable unless a Key Term was wholly or partly indicated. Mr Potter thought that it should not necessarily be excluded.
Further, and perhaps more substantively, Mr Potter thought that Mr Ross did not take into account Goodman Fielder's receipt of the (adjusted) Upfront Services Payment in the assessment of benefit to Goodman Fielder. He thought that Mr Ross assumed, in connection with the 11 May 2018 proposal, that Goodman Fielder was liable to repay one third of the Upfront Savings Payment. This assumption was unwarranted.

[12]

Joint report

Mr Ross and Mr Potter conferred and produced a joint report (Exhibit D).
They agreed, firstly, on the applicable principles to determining whether a proposal was 'less financially favourable' to another. These were set out in paragraph 27 of the joint report. They were whether the proposals, relative to a comparative proposal: 1. produced overall lower profits or net cash flows; 2. had less or no supporting information; 3. add uncertain outcomes; and 4. had only one mechanism to achieve a desired outcome.
If each of these principles was answered in the affirmative, then in relation to each principle, the proposal could be said to be less financially favourable than the comparative proposal.
Mr Ross set out the criteria to apply to assess whether ISS proposals were less financially favourable. It was not that Mr Potter disagreed with the criteria. His view was that whether or not they applied was dependent upon the extent to which each Key Term was set out in a proposal, even if that was not expressly indicated. Mr Potter did not discount the possibility that even if something was expressly omitted from a proposal, it may yet have been incorporated. The criteria applied by Mr Ross were: 1. the requirement that the proposals did not include provisions conflicting with the Key Terms (the 'no conflicting terms requirement'); 2. the requirement that the proposals provide detailed information on cost savings and consequential benefits to Goodman Fielder to cover at least the first three years of the proposed agreement (the 'minimum information requirement'); 3. the requirement that the proposals included provisions that would have resulted in Goodman Fielder receiving a guaranteed minimum benefit, comprising cost savings and/or a cash payment from ISS of at least the amounts set out in the Key Terms (the 'guaranteed minimum benefit requirement'); 4. the requirement that the proposals included provisions that would have meant that Goodman Fielder had multiple options or pathways to derive a total benefit of at least the amounts set out in the Key Terms (the 'multiple pathways requirement); and 5. the requirement that the proposals included provisions which meant that the likely total financial benefit to be derived by Goodman Fielder was at least as high or higher than the financial benefit it would derive under the Key Terms (the 'total financial benefit requirement').
They also agreed as to the 'Key Terms' in the Due Diligence Agreement, against which ISS' proposals were to be compared. They provided: 1. specific minimum and target cost savings outcomes for an initial three-year term with further savings targets for years four and five; 2. a defined ("minimum") level of savings in each of the first three years, which ISS would guarantee to provide (the "minimum savings guarantee"); 3. an Upfront Payment made at the start of year 1; which Goodman Fielder would only need to repay if ISS met identified levels of targeted savings ('Savings Target') in each year (and then only repay one third of the Upfront Payment in a year in which the relevant savings target was reached); and 4. a process which required that if ISS did not meet a savings target in a year, any shortfall would be carried forward and added to the next year's savings target (the 'catch up provision') before Goodman Fielder would be required to repay that year's portion of the Upfront Payment.
Mr Potter also agreed that the 'recreated Worked Example', which appears in Appendix 1 to the Due Diligence Agreement, was prepared in a manner consistent with the instructions which Mr Ross was asked to adopt (including, but not limited to, the Baseline Spend instructed assumptions).
The experts' disagreement was substantially explicable by differences in the tasks that each was instructed to undertake.
The experts disagreed on the question whether it was possible to assess whether the proposals were less financially favourable: Mr Ross thought that it was (on the basis of his assumptions). Mr Potter did not think that was possible. His reasons, which appear at paragraph 47 of the joint report, were that: 1. because of a material change in the scope of services, and therefore in the Baseline Spend, there was difficulty quantifying the Baseline Spend in the proposals. This had not undergone effects for calculating the upfront savings payment and management fee 'Key Terms'; 2. the proposals were silent on a number of the Key Terms, including the upfront savings payment and the ISS earned margin; 3. the financial effect of additional terms included in the proposals was unclear and difficult to assess; and 4. the proposal documents were presented in a form and basis which appeared unreliable, for the purposes of making any financial assessment.
Mr Ross' response to Mr Potter's concerns, in these respects, were that, first, each of them had been given the same instructions, so there was no uncertainty in the Baseline Spend amounts. Secondly, given that Mr Potter was asked to assume, as he had, that unless a term was stated in a proposal, it was not to be incorporated, where a proposal was relevantly silent, it should mean that it is treated as having not been included. Thirdly, any lack of clarity in relation to 'additional' items is relevant to Mr Ross' 'Minimum Information Requirement' criteria. Any lack of clarity is a factor suggestive that a proposal was less financially favourable. Finally, any issue about form or reliability, for the same or similar reasons, also falls under the 'Minimum Information Requirement' criteria.
With these differences, it was no surprise that the experts adhered to their respective views as to whether the proposals were less financially favourable to Goodman Fielder in comparison with the Key Terms. They did not agree. It is notable that Mr Ross was prepared to change his Baseline Spend calculations in the light of reading Mr Potter's report.

[16]

Whether it was possible to determine whether proposals were less financially favourable

Mr Potter was referred to his view, summarized in paragraph 47 of the joint report, that it was not possible to assess whether the proposals were less financially favourable. Mr Ross' response to that view appeared at paragraph 48.
One of Mr Potter's reasons (paragraph 47(a)) was that it was not possible to quantify the change in the Baseline Spend. Mr Potter was referred to his primary report (paragraphs 4.14 - 4.15) where he had, in fact, quantified the Baseline Spend for each proposal notwithstanding a degree of uncertainty.
Mr Ross noted that in the joint report, if he adopted Mr Potter's Baseline Spend, Goodman Fielder was financially worse off.
As to the second of Mr Potter's reasons (paragraph 47(b)), there was a different approach in principle between the experts. Mr Ross had been asked to assume that if a matter was not adverted to in a proposal, he should not assume that it did in fact arise. In other words, he accepted what appeared in the proposal at face value. Mr Potter's approach was that, notwithstanding that it was not obviously apparent on the face of proposal, it could not be discounted that a matter may exist. It might, for example, have arisen from discussions between personnel for the parties not recorded in writing. To take the example of what Mr Potter described as the slide packs for the proposal on 11 May 2018, the content was not rigorous.
Mr Ross was challenged on various assumptions he expressed in paragraph 30 of the joint report.
As to the assumption in 30(f), Mr Ross affirmed that he refrained from considering whether something not recorded in a proposal should be incorporated. He added that all of the proposals excluded at least one of the Key Terms. To this, Mr Potter made the broad point that if he acted as Mr Ross had, that is to say, adopting the criteria and assumptions he was instructed to adopt, he agreed with Mr Ross' opinions. For him, however, there were uncertain assumptions embedded within the criteria.
Mr Ross emphasised that he did not wish to be taken as propounding a view that the 'Financial Benefit' criteria ranked higher in any hierarchy of criteria over other criteria. For him, the 'Minimum Savings Guarantee' and 'Catch-Up' criteria, which were missing in all of the proposals, was very significant to Goodman Fielder; since it meant that Goodman Fielder would not have to repay ISS if savings fell short.
This led to Mr Ross' assumption in paragraph 30(h), to the effect that the Upfront Payment in the Due Diligence Agreement should be regarded as being proportional to the Baseline Spend. Counsel for ISS alerted him to the fact that the Upfront Services Payment was actually made in July 2018. For those proposals made after that date, this fact could not have been taken into account by him. At this junction, I asked Mr Ross whether his opinion about the May 2018 proposal might be affected had he been asked to assume, which was the fact, that the Upfront Services Payment had been made. With reference to his report (at Exhibit A, vol 4, p 1438), Mr Ross said that this circumstance might affect his view that proposal was relevantly less favourable in relation to the Total Financial Benefit Requirement, but not for the other criteria.
Mr Ross accepted that when reference was made to cl 16 of the Due Diligence Agreement, there was no reference to proportionality in that provision, which provided a methodology for calculating the Upfront Services Payment.
Mr Ross was referred to his assumption in paragraph 30(c), which was that the 11 May 2018 proposal included services identified by ISS as 'Additional Services 'TBC'". Mr Ross accepted that he did not turn his mind to what that concept might entail.
Asked about his assumption in paragraph 30(d), Mr Ross maintained that he had taken into account management fees. In the absence of any amount for such fee expressly indicated in a proposal, Mr Ross indicated that he was instructed to, and did, assume that in the case of the 11 May 2018 proposal (the first one in time and therefore not one which could be compared with other proposals) he should calculate it by reference to a pro-rated fee based on the Management Fee and Baseline Spend in the Due Diligence Agreement.

[21]

Goodman Fielder's contentions

Goodman Fielder contends that, read as a whole, the substantive effect of the Due Diligence Agreement was to put each party at the risk of bearing their due diligence costs if a proposed facilities management services agreement did not eventuate because the party was no longer prepared to proceed on the basis of the Key Terms or some arrangement that was at least as financially favourable to Goodman Fielder. The Key Terms represented the deal that the parties expected to enter into. That said, cl 12 plainly indicated that the parties would have negotiations concerning that proposed agreement before it was required to reimburse ISS for its Due Diligence Costs. Although it conducted a due diligence, Goodman Fielder says that ISS was not prepared to enter into an agreement with the Key Terms or any other agreement that was at least as financially favourable to Goodman Fielder. This was explicable because, so far as ISS was concerned, the due diligence had not validated the assumptions on which the Key Terms in the Due Diligence Agreement was based. From May 2018 until November 2019, the series of seven proposals containing proposed agreements were "less financially favourable" to Goodman Fielder.
Goodman Fielder refutes ISS' construction that posits that ISS needs to take positive action under cl 10. As to the word 'revised' in the first limb of cl 10, that only meant that the terms were different to the Key Terms of Appendix 1. 'Offer' in the second limb of that clause was broad enough to encapsulate a 'proposal', which is what ISS repeatedly provided to Goodman Fielder before and after 14 May 2018. To "insist" on something simply meant, in context, ISS indicating that it would not offer Goodman Fielder the Key Terms in Appendix 1. That was to be viewed as a matter of substance and not form: if, without saying anything, ISS proposed (especially continuously) something far inferior to the Key Terms, practically, it was insisting on a less favourable outcome.
Generally, Goodman Fielder contends that ISS' construction is uncommercial: for an agreement that was beneficial to ISS, which gave it the opportunity to verify assumptions which gave rise to the Key Terms in Appendix 1, acceptance of ISS' position would mean that it could decide for itself whether it wanted to validate the assumptions previously made; depart from the Key Terms and, so long as it refrained from making an offer capable of acceptance by Goodman Fielder, it could still recover its Due Diligence Costs when Goodman Fielder got no benefit from the exercise. That, Goodman Fielder submitted, was an uncommercial result. The preferable construction was that the obligations had the object of ensuring that if a long term agreement did not eventuate, but Goodman Fielder walked away from the Key Terms in Appendix 1, then ISS was required to meet its own costs.
Goodman Fielder contends that cl 10 is not to be applied as at the Expiry Date (14 May 2018), but rather at the date on which Goodman Fielder was invoiced or the date on which the costs were otherwise payable. It was erroneous for ISS to contend that, as at 14 May 2018, ISS had not made a revised offer, or insisted on entering into a proposed agreement on terms that were less financially favourable to Goodman Fielder than the Key Terms. First, neither cl 8 nor cl 10 referred to the Expiry Date and both clauses were intended to survive termination (cl 23, considered with cl 8 & cl 10). Secondly, an interpretation which required conduct after the Expiry Date to be ignored would produce arbitrary results. Thirdly, even if only conduct on or before 14 May 2018 was to be taken into account, ISS did in fact make a revised offer; however it insisted on entering into a proposed management services agreement on terms that were less financially favourable to Goodman Fielder than the Key Terms. Fourthly, or alternatively, ISS should be taken to have extended the Expiry Date.
Goodman Fielder also refuted that the Expiry Date had passed by on 14 May 2018. Where the contract contemplated an extension of a date by agreement, that did not preclude oral variation.

[22]

Legal principles

The meaning of Goodman Fielder's reimbursement obligations is that which reflects the parties' common intention, as that intention is expressed in the words of the agreement.
It is common ground that, being a commercial contract, the Due Diligence Agreement, and in particular Goodman Fielder's reimbursement obligations, falls to be construed in accordance with the approach to interpretation outlined by the plurality of High Court in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at [35] (citations omitted): "…The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or object is facilitated by an understanding "of the genesis of the transaction, the background, the context…" …unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties… intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience.""
That formulation was substantially applied in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 in the various judgments at [46]-[47], [51]-[52], [108]-[109] and [120]; and also Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544 at [16].
There are other principles of interpretation in point. On the aspect of the businesslike construction of commercial contracts, there are some notable qualifications. The commercial purpose of a contract cannot override the words chosen by the parties. As Gibbs J said in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at [109], if words are used which are unambiguous, the Court must give effect to them, notwithstanding that a result may appear capricious or unreasonable even where it is suspected that the parties may have intended something different. The Court has no power to remake or amend a contract for a purpose of avoiding a result considered to be inconvenient. On the other hand, if the language is open to two constructions, that (construction) which will be preferred will best avoid consequences which appear "capricious, unreasonable, inconvenient or unjust". In Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 Allsop P (as his Honour then was) noted at [19] that words in a business contract must "not be approached pedantically or in a manner prone to defeat evident commercial purpose". Further, where a contract or provision is badly drafted, the Court is less likely to be driven by 'semantic niceties' so as to attribute to the parties an improbable or unbusinesslike intention if the language which is used is reasonably capable of an interpretation which attributes to the parties an intention according to the apparent commercial interpretation of the clause (Lewison & Hughes, The Interpretation of Contracts in Australia, Lawbook Co 2012 [2.07]).
In practical terms, if, after considering the contract as a whole and the background circumstances known to the parties, including the commercial objects or purposes, the language of the contract is unambiguous, the Court must give effect to that language unless to do so would give the contract an absurd operation. But a Court cannot rely upon context and purpose to give words a meaning which they cannot bear (Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at [108]-[109]). The Court is not justified in disregarding unambiguous language simply because the contract may have a superior commercial and businesslike operation than an interpretation which is different to that dictated by the language (Jireh International Pty Ltd t/as Gloria Jean's Coffee v Western Exports Services Inc [2011] NSWCA 137 per Macfarlan JA at [55]-[56]). For reasons to come, this principle has particular salience to the circumstances that the Court confronts here.
Further, in respect to all contracts, the particular clauses of an agreement are not to be construed in isolation but as part of the contract as a whole: Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 at [16]. If possible, the words of every clause must be construed so as to make them all harmonious with each other: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at [109].

[23]

Context and purpose

The context is that, by 5 February 2018, the parties had already had extensive discussions and dealings - and had each incurred significant expense - about a long term contract, culminating in the agreed parameters, or Key Terms located in Appendix 1. Though not exclusively, the Key Terms were substantially directed to servicing Goodman Fielder's interests; a point recognised by Goodman Fielder's Counsel in his closing submissions. Negotiations were still needed to finalise the arrangement. But with the Key Terms, Goodman Fielder had a very strong bargaining hand.
But the expressed purposes of the Due Diligence Agreement were primarily to assist ISS. Up to 5 February 2018, it had had a limited due diligence over only 3 sites. Although those sites may have been a representative sample, before it committed itself to a long term arrangement, ISS sought, and obtained from Goodman Fielder, an opportunity (limited in time) to "verify" its assumptions. Another part of the purpose was to give it time to develop the detailed services scope. Without the services being 'scoped', it was not possible to quantify the critical 'Baseline Spend'. But cl 12 posited that the essential parameters of a 'deal' had been reached, whose terms are set out in the Key Terms. What might be described as essential terms (to Goodman Fielder) were the "Key Terms" (cl 14(c)). The purpose of the agreement was to give ISS opportunity, within a broadly 3 month period (capable of being extended), to verify assumptions it made which led to those parameters. Then it had the opportunity to "confirm" the Key Terms (cl 12). That is not to say that the Key Terms are all the terms and conditions of the proposed agreement. Part of the purpose of the Due Diligence Agreement (seen in cl 13) was to allow the balance of the terms and conditions of the proposed agreement (other than those set out in cl 14) to be finalised, along with execution of the agreement, no later than the Expiry Date.
The Due Diligence Agreement significantly circumscribed the content of any such 'revised offer' (cl 13 & 14). Effectively, the Key Terms had to be included and a point of the period of the Due Diligence Agreement was to see that, once the Key Terms (and the other terms referred to in cl 14) were embedded, the parties could finalise the balance of the terms and conditions of the proposed agreement or, in other words, fill in the gaps. Another way of saying this is to say that the essential terms sought by Goodman Fielder, being the Key Terms in Appendix 1, were non-negotiable, in terms of any proposal that ISS might make to bring the parties closer to a long term agreement.
Although a good faith obligation was imposed upon ISS to negotiate with Goodman Fielder for entry into a future long term agreement, there was an inherent possibility that the good faith negotiations would not culminate in a future agreement. That possibility may materialize if, for example, ISS discovered that its assumptions were flawed.

[24]

Was the Expiry Date extended?

First, the Expiry Date was scheduled to be 14 May 2018 (cl 1). The only question is whether that Expiry Date was extended "as agreed by the parties acting in good faith". The question turns upon whether the Expiry Date was extended "as agreed by the parties".
In my view, it was not. First, I agree with ISS' submission that 'agreement', in this context, generally falls to be construed by reference to clause 27. That is only a general provision and its effect may be displaced by more specific provisions to the contrary in the agreement. Insofar as the Expiry Date is concerned, however, I do not see what contrary specific provision there is. It is not cl 13. The words "with a view to" in that provision do not, contrary to Goodman Fielder's submission, envisage negotiations continuing beyond the Expiry Date. The words simply reflect the objective that the negotiations would be completed within the Due Diligence Agreement.
Further, although I accept that the concept of an agreement to extend the term of the agreement should not necessarily be constrained by formal considerations, I do not accept that, as a matter of substance, ISS agreed to extend it. In this regard, Goodman Fielder's conduct prior to 14 May 2018 would reasonably have been interpreted by ISS as manifesting the view that unless express and written agreement could be achieved to extend the date, 14 May 2018 would remain the Expiry Date. This explains why Goodman Fielder sent the proposed side deed to ISS on 11 May 2018.
Mr Scanlon clearly did not accede to Ms Koniecka's request that the Due Diligence Agreement be extended and (implicitly) the side deed be entered into: he wrote that ISS did not see any advantage to either party in extending it. The side deed was never executed. Whilst it is true that Mr Scanlon wrote of a desire for further negotiations, this was not necessarily by itself indicative of ISS agreeing to extend the term of the Due Diligence Agreement. Mr Scanlon was indicating that the Due Diligence Agreement was at an end but henceforth, ISS would be willing to negotiate without such negotiations being governed by the terms of the Due Diligence Agreement. This approach is consistent with the clear indication in Mr Scanlon's response that ISS had found that its assumptions were not met and it could not, or would not, agree to enter into a future agreement bearing the Key Terms. ISS wanted to negotiate further with Goodman Fielder, but not be constrained by the Key Terms or other aspects which had been agreed as at 5 February 2018.
Goodman Fielder submitted that Mr Scanlon's response on 14 May 2018 signalled to Goodman Fielder that he was leaving open the possibility of the Due Diligence Agreement remaining on foot after 14 May 2018. But that possibility was not clear and at no stage did Goodman Fielder seek clarity as to whether any future 'good faith' negotiations subsequently to be undertaken were to be carried out under the auspices of the Due Diligence Agreement or not. Absent an assertion of waiver, which concept I will return to very shortly, any ambiguity about the extension of the Due Diligence Agreement does not assist Goodman Fielder, since cl 1 plainly required "agreement" to extend. The parties either 'agreed' to extend the Expiry Date or they did not.
There was no pleading and no suggestion that by subsequently continuing to negotiate, and under the specific doctrines of either election or abandonment, ISS 'waived' [2] its right to assert that the period to conduct the due diligence had expired, and that ISS was thereafter precluded from issuing - and having Goodman Fielder pay - its invoice for its Due Diligence Costs.
ISS also wanted its Upfront Services Payment repaid, but was only entitled to its repayment if the Due Diligence Agreement had expired. It is difficult to conceive that Goodman Fielder did not understand this when it repaid the Upfront Services Payment. Goodman Fielder's conduct after 14 May 2018 reasonably conveyed to ISS its view that the Due Diligence Agreement had expired, when, upon request, it repaid ISS its Upfront Payment on 2 July 2018. Its obligation to repay (under cl 17) that amount arose because of the failure of negotiations up to the Expiry Date.
Further, it appears that at least from 18 June 2018, ISS was negotiating with Goodman Fielder on the footing that its Due Diligence Costs could be factored into proposed savings (Exhibit A, vol 3, p 1307). This indication would reasonably have been interpreted by Godman Fielder as evincing ISS' belief that its entitlement to such costs had already crystallised.
Finally, it is notable that Goodman Fielder did not nominate any other suggested date, other than 14 May 2018, when the agreement was terminated. This is of some financial significance to ISS since if the Due Diligence Agreement was extended beyond 11 May 2018 it could continue to incur costs which, because of the cap in cl 18, could not be recovered if the negotiations did not culminate in entry into and execution of a Proposed Agreement.
The consequence of this finding is that, in circumstances where it is not disputed that no facilities management agreement had been entered by 14 May 2018, then subject to the operation of cl 10, Goodman Fielder was obliged to reimburse ISS for its actual Due Diligence Costs, under cl 8.

[25]

Whether, for the purpose of construing cl 10, conduct of parties can be looked at beyond the Expiry Date?

Goodman Fielder's submission that the above question may be answered affirmatively runs counter to the general position that it is illegitimate to use as an aid to construction of a contract anything that parties said or did after it was made [3] (let alone terminated). But even if the principle is available, there are difficulties that run up against its application. There are, as will be seen, multiple facets to cl 10. One of them concerns its temporal operation.
By its natural operation, cl 8 exerted pressure upon Goodman Fielder to enter into a proposed agreement. That is, unless a proposed agreement was concluded by 14 May 2018 (or any agreed extended date for expiry), then subject to cl 10, Goodman Fielder was obliged to reimburse ISS for its Due Diligence Costs upon receipt of a tax invoice issued by ISS. Once the Due Diligence Agreement had expired, there was no time limit upon ISS issuing that tax invoice.
By cll 18(b) and 23, once the Expiry Day had passed, the Due Diligence Agreement was terminated, and although some provisions survived, there was no on-going obligation on either party to further negotiate entry into a proposed agreement. One of the provisions which survived was cl 8. Clause 10 was not expressly stated to survive, although Goodman Fielder contends that it survived indirectly. That is to say, Goodman Fielder says that if there was any temporal limit in cl 10, it only operated once ISS issued its tax invoice.
Counsel for Goodman Fielder submitted that cl 10 was distinct from cl 8 in terms of any temporal requirement. He submitted that, unlike cl 8, cl 10 did not refer to any Expiry Date. Second, each provision favoured a different date: the temporal obligation in cl 8 was only directed to the time Goodman Fielder had to pay an invoice rendered by ISS, whereas cl 10 should be considered from the date when the invoice was issued (which was in May 2019), otherwise, arbitrary results could be produced. Both clauses, he submitted survived termination.
It is true that the exception in cl 10 falls to be assessed after ISS has issued an invoice and that the issue of that invoice occurs only after the expiry of the Due Diligence Agreement. However, the issue of the invoice (in cl 8) is justified by circumstances which occurred during - and not after - the due diligence period, and the exception entitling Goodman Fielder to refuse to pay the invoice should, in my view, also be based on circumstances occurring within the due diligence period. In other words, clause 10 is tethered to clause 8. In my view, the effect of Goodman Fielder's construction is to try to sever that connection. The relevant temporal connection in cl 8 is not the period (7 days) that Goodman Fielder had to pay an invoice rendered under that provision, but the period in which circumstances occurred that gave rise to ISS' entitlement to render the invoice. That period was the term of the Due Diligence Agreement, being 5 February 2018 to 14 May 2018. ISS' entitlement to render a tax invoice was referable to the fact that notwithstanding that it had incurred costs and negotiated in good faith towards an agreement with Goodman Fielder in the period between 5 February 2018 and 14 May 2018, no long term proposed agreement had been entered between the parties by the expiry of that agreement. Clause 10 provided a dispensation for Goodman Fielder from paying any invoice rendered on the factual predicate that no proposed agreement had been entered into during the term of the Due Diligence Agreement, if certain (alternative) circumstances arose during that period.
I agree with the submission of Counsel for ISS that textual support for the above view is provided by cl 23 (read with cl 18(b)). Upon the termination of the Due Diligence Agreement, i.e. 14 May 2018, the parties' obligations which informed the scope of the exception in cl 10 (relevantly in cll 12-14 and incorporation of the Key Terms in Appendix 1) did not survive. There was therefore no benchmark 'Key Terms' against which either of the circumstances in cl 10 could be compared once the Due Diligence Agreement had expired. It was immaterial that an invoice was rendered after the Expiry Date.
This means that the exceptional circumstances in cl 10 upon which Goodman Fielder was entitled to rely, properly construed, were to have occurred during the period of the Due Diligence Agreement; which expired on 14 May 2018.

[27]

General observations

Before construing the exceptional circumstances in this clause, some general observations may be made. Counsel for Goodman Fielder accepted that good faith did not mandate that ISS put any offer to Goodman Fielder during the period of the Due Diligence Agreement and I consider that concession must be correct.
Secondly, and related to this first point, the language of cl 10 bespeaks contingency or contingencies arising from unilateral action by ISS. The exception to the operation of cl 8 arises "if" ISS submitted a revised offer or "if" it insisted on certain terms being included in a Proposed Agreement during the period. In the event that neither contingency arose, cl 8 would operate according to its terms.
Counsel for Goodman Fielder submitted that cl 10 should not be construed in a way that makes cl 10 worthless or nugatory, or a dead letter. So much may be accepted under general interpretative principles, if that result can be avoided by the text, construed in the light of its context and purposes. But by cl 10 of the Due Diligence Agreement, the parties had chosen only a single exception (albeit one of a composite kind) to ISS's right to have Goodman Fielder pay its Due Diligence Costs in cl 8. Further, in my view, the Court should not be oblivious to the commercial realities driving an exception like cl 10. Here, the parties (both large and sophisticated enterprises) had devoted much time and incurred much expense in arriving at a state of affairs as at 5 February 2018 where they were on the threshold of entering into a longer term agreement. In my view, it is the commercial realities which impel the operation a provision like cl 10. Here, although the parties were on the threshold of an agreement as at 5 February 2018, they still remained uncommitted. If, in the space of just over 3 months, ISS did not choose to put an offer whose terms were as financially favourable to Goodman Fielder as the Key Terms, it risked losing a valuable business opportunity for itself, and also risked having wasted the time and expense it had incurred getting to the point it reached on 5 February 2018. It might well be the case that the quantification of the loss of this business opportunity could substantially have exceeded the amount of its Due Diligence Costs; especially when combined with ISS' costs prior to 5 February 2018 which were irrecoverable under the subject agreement. Goodman Fielder had not confined itself to negotiating with ISS to the exclusion of other competitors; even if there were practical and commercial reasons which might make it difficult for it turn to others. In effect, ISS had a strong commercial incentive to put an offer incorporating and responsive to the 'Key Terms' that might get the negotiating parties closer to the finishing line. If it did, which was a matter for ISS' choice, then cl 10 had work to do. For Goodman Fielder, of course, it had, through the legal if not practical guaranteed incorporation of the Key Terms, a very favourable bargaining hand, which it did not want to lose and it risked the prospect that if no agreement was entered by the end of the Due Diligence Agreement (which was susceptible of extension beyond 14 May 2018) it might have to start all over again, either with a different services provider or with ISS, with a reduced bargaining position.
In the circumstances which have occurred, it is the latter of these possibilities that have eventuated. But that was the result of the terms of the Due Diligence Agreement negotiated between two large enterprises, very probably represented by substantial law firms, and the commercial forces operating upon each party. Under the guise of fostering a businesslike interpretation, the Court should not lightly re-write the operation of contractual provisions if the language and context does not permit the language to be read in the way that a party, dissatisfied with the result, contends. The context, commercial purposes and circumstances known to the parties at the date of the agreement may inform, but are ultimately subordinate, to the text; not the other way around.
An unstated premise apparently underlying Goodman Fielder's submissions is that when assessing its conduct during the period of the Due Diligence Agreement, ISS is effectively constrained by what negotiating position it had taken prior to the commencement of the Due Diligence Agreement. Thus, to take an example, if ISS formed a view as of July 2017 (before the due diligence period was entered) that the Baseline Spend was likely to be materially less than the $35m figure, namely $26.1m, if, during the Due Diligence Agreement, it continued to negotiate with Goodman Fielder on the premise that the Baseline Spend might be substantially less than $35m, it could be said to be 'insisting' on its position that the Baseline Spend be materially less than $35m. I do not consider that this premise is valid.
It is true that ISS' negotiating position was constrained by the Key Terms which, as I have said, represented the mandatory starting point for any future agreement. Nevertheless, a purpose of the Due Diligence Agreement, reflected in Recital C, was to enable ISS to validate assumptions made by ISS in its RFP Response. The $26.1m Baseline Spend figure ISS adopted in the RFP Response was one such assumption even if ISS' analysis in that regard might have shifted closer to 5 February 2018. Further, up to 5 February 2018, ISS was not subject to any obligation to negotiate in good faith. In my view, it is erroneous to construe the notion of 'insistence' in cl 10 in the period of the due diligence by reference to assumptions made by ISS in the negotiations preceding entry into the Due Diligence Agreement when the Baseline Spend was itself expressed only to be an 'estimate' and when ISS was entitled to verify its assumptions. The final figure ultimately depended upon the scope of the services which were to be the subject of negotiation (cl 16(c) of the Due Diligence Agreement) within the due diligence period. The amount of the Upfront Services Payment was proportionately linked to whatever the Baseline Spend was, so it was also indirectly linked to the scope of the services to be offered by ISS.
I now turn to considering the different exceptional circumstances posited in cl 10. The first question is to consider what it meant for ISS to submit to Goodman Fielder a "revised offer".

[28]

"Offer"

Counsel for Goodman Fielder correctly noted that there are instances where what a party calls an 'offer' may be an invitation to treat (Spencer v Harding (1870) LR 5 CP 561). However, the state of play in negotiations between the parties as at 5 February 2018 was that negotiations had already been well advanced. The parties were passed the point where the service provider was expected to offer merely to negotiate with a potential customer; which is the hallmark of an invitation to treat with Goodman Fielder (Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 at 268). By 5 February 2018, Goodman Fielder, as the prospective 'customer' had laid out and indeed secured ISS' preliminary assent (which needed to be "confirmed") to its 'Key Terms' (and also the Facilities Management Outsourcing Agreement referred to in cl 14), which were non-negotiable. ISS had also received a very detailed proposed draft project management services agreement (running to over 140 pages) back in August 2017 (Exhibit 1, tab 3). A further draft, with proposed changes to the August 2017 version, was submitted by ISS to Goodman Fielder soon after the Due Diligence Agreement was entered into, in early February 2018 (Exhibit 1, tab 4). A cardinal purpose of the due diligence period was that parties were encouraged to negotiate from the point where they were as at 5 February 2018, to reach "a long term contract" by the expiry of the Due Diligence Agreement (Recital A and cl 13). Clause 12 contemplated a further agreement to be entered into "promptly". Further, by cl 17, ISS' right to issue a tax invoice to recover its Upfront Services Payment arose on the basis that a binding agreement of some kind would have to be entered into by the Expiry Date. Clause 17 was comparable to clause 8 in this regard.
The context suggests that the provisions in the contract as a whole should be construed in a way that would make it more likely that ISS, if it chose to submit any proposal at all, would present something that was sufficiently complete and clear so as to enable Goodman Fielder to carefully weigh it against the Key Terms.
The word chosen by the parties in cl 10 was "offer". That word was chosen in a legal document for a transaction that was directed towards 'the Proposed Agreement' between two substantial corporate groups, presumably assisted by lawyers. That context points to it being given its ordinary legal usage. Further below, I note that there are two distinct alternatives in the exception that is cl 10. But they are related alternatives. The second of the alternatives refers to an insistence "on terms" in 'a proposed agreement'. Terms are contained in offers.
These textual and contextual indications, and the purposes or objects of the Due Diligence Agreement, indicate that "offer" is to be construed in the legal sense usually understood, being a statement of terms, promissory in intent, by which ISS, as the service provider, was prepared to be bound. Its critical feature is that what was to be presented by ISS was capable of Goodman Fielder's acceptance. Having regard to the nature of the agreement, its period (at least 3 years), and the scope of the enterprises conducted by the parties, the objective was to get a Proposed Agreement signed (cll 13 and 18(a)). On one view, being more generous to Goodman Fielder, it might be sufficient if only an offer was made which, if accepted, was only preliminary - a fourth category 'Masters v Cameron' contract [4] as it were; which formal agreement could well have occurred after the due diligence period had ceased. It is not, however, necessary for the purpose of this case, in view of the facts to which I will later consider, to be definitive about this and, as I say, if anything, this understates the position since cll 13 and 18(a) envisages that execution of the agreement would occur prior to the Expiry Date. (If the parties had reached a fourth category 'Masters v Cameron' contract close to the Expiry Date it might be expected that commercial realities would impel them to agree to the extend the Due Diligence Agreement so as to ensure that the final Proposed Agreement could be executed before its expiry.)
It may be that the Due Diligence Agreement was a 'process' document. But it was directed to generating (promptly) an executed proposed final agreement, after a protracted period of prior negotiations. Those negotiations had culminated in non-negotiable Key Terms, which ISS was free to 'confirm' or reject, but it could not - without risking its costs of the due diligence - submit a proposal inconsistent with the Key Terms. Any proposed future agreement required one party - ISS, the service provider - to make an offer to Goodman Fielder, its customer. That offer needed to be sufficiently complete and certain. To speak only of a requirement that ISS put a "commercial proposal" is too vague a description for what is meant in cl 10. On Goodman Fielder's view, cl 10 would not only cover offers, but something less than offers, but without any criteria for what the latter might comprise and without Goodman Fielder knowing what it was being asked to accept. That is, cl 10 would, on this view, have uncertain operation. Its view would be a recipe for protracted negotiations when the Due Diligence Agreement contemplated a short and finite period (unless the parties agreed to extend it), which would be antithetical to cl 12, when the common intention was that an agreement would be concluded by the end of the Due Diligence Agreement, as stipulated by cll 13 and 18(a). As Goodman Fielder submitted later on the aspect of 'favourability', it better accords with context and purpose if ISS was required to 'put its best foot forward'. That objective is more consistent with ISS making an offer capable of acceptance rather than a manifestly vague or incomplete proposal with reservations. Without clarity or completeness, it is difficult to see how Goodman Fielder could reasonably accept any proposal ISS put to it.
Whether something has been 'offered', for the purposes of cl 10, is an objective question. For example, the 11 May 2018 proposal purported to indicate that no offer was in fact made. In my view, although that might carry some evidentiary force, it is not conclusive to the objective question whether an offer has been conveyed. A party to a transaction should not, by the insertion of descriptive or conclusory words, nullify the legal effect of what it is doing. [5]

[29]

Goodman Fielder's "uncommerciality" complaint

Goodman Fielder argues against this construction of cl 10 that posited that it should not be open to ISS, in the result, to recoup its Due Diligence Costs by the expedient of submitting a qualified, vague or incomplete proposal and therefore enable itself thereafter to say that it had made no '(revised) offer' at all, and therefore oust the operation of cl 10, when its real motivation was simply to walk away from continuing to deal with Goodman Fielder since it did not like what it saw through its internal analyses of Goodman Fielder's data received during the period of the due diligence. That would be contrary to the risk allocation in cl 7 and render cl 10 nugatory. Goodman Fielder says that it would be a charade for ISS to be able to make vaguely worded proposals (or insist on terms) which are apparently disadvantageous (compared to the Key Terms) whilst 'stringing' Goodman Fielder along to think that it remained serious about negotiating to a proposed agreement.
My general observations above, in relation to cl 10, referred to above (at paragraph [155]-[158]) answer that complaint. To reiterate, there was no obligation on the part of ISS, acting in good faith, during the due diligence period to make any 'revised offer' at all, or to 'insist' upon terms which may have derogated from the operation or effect of the Key Terms in Appendix 1. Clause 10 arises in two contingencies which may or may not materialize, depending upon the commercial forces operating upon ISS - and whether it decided to make an offer - during the period.
Secondly, although it is true that cl 7 speaks of the parties being at their own risk during the term of the Due Diligence Agreement, the substantive effect of the provision was that the question whether ISS could look to Goodman Fielder for payment of its Due Diligence Costs was to be exclusively governed by cl 8. So long as cl 8 is satisfied, then subject to the exception in cl 10, it was entitled to its Due Diligence Costs. In the way that it presented its case, subject to the point as to when the Due Diligence Agreement expired, and its argument on cl 10, Goodman Fielder did not contend that ISS did not otherwise satisfy the requirements of cl 8.
Thirdly, Goodman Fielder's construction argument works backward from a result which it perceives as uncommercial and is centred upon trying to establish ISS' subjective intentions. That is inconsistent with the objective theory of contract which theory extends to the construction of contracts [6] . I have noted the limitations upon subjective motivations when characterising whether something that is put constitutes an "offer". The two alternative circumstances underlying the exception in cl 10 are to be considered objectively. This is partly why I have indicated that mere labelling, or artificial disclaimers and exclusions will not be determinative of whether a revised offer has been made.
Fourthly, and following the third point, there may be scope to argue that a party's purported exercise of a right in a way that has the effect, if not intention, of depriving a counterparty of a benefit to which it was entitled, or the bargain reached between the parties more generally, may constitute a breach of its obligation of good faith [7] . No such argument was, however, mounted by Goodman Fielder in this case, so the point might be put to one side [8] . But during his opening, Counsel for Goodman Fielder submitted that cl 10 should not be construed so as to take away the 'benefit' of cl 10 given to Goodman Fielder. That submission, in my view, overstates the position. The posited benefit - the exception in cl 10 - only arose in contingent circumstances, that is, if ISS did certain things. As I have stated, the real benefit that Goodman Fielder lost was the opportunity to enter into a final agreement on the basis of what it perceived as a favourable (albeit necessarily limited) preliminary but non-binding bargain struck with ISS as at 5 February 2018, but that bargain was (necessarily) not binding on ISS until ISS "confirmed" it. What Goodman Fielder lost with the termination of the Due Diligence Agreement on 14 May 2018 was the leverage it had on 5 February 2018 to itself insist upon the inclusion of the Key Terms after that date, in any on-going negotiations. This was, however, an inherent possibility of an agreement which entitled ISS to "verify assumptions" about the Key Terms, and which also entitled ISS to have its costs of due diligence paid so long as it negotiated in good faith for the duration of that period.

[31]

"Insist(ence)" upon terms

There is, in cl 10, an alternative exception (to the operation of cl 8) to ISS making a 'revised offer'. It arises in another contingency: "if" ISS "insist(ed)" that the Proposed Agreement should be entered on terms. Contrary to ISS' submission, this is distinct from ISS insisting upon entering into an agreement.
Acting on the general precept that the parties intended for this alternative to have substantive work to do, this is an alternative to ISS submitting a 'revised offer'. That is, I construe this part of clause 10 to cover the situation where ISS wants one, or more than one, term falling short of a package of essential terms, to be included in a proposed agreement. Effectively, it seems to me, the concept reflects what ISS would wish to have included within a longer term agreement as a condition for ISS' entry into it.
There are certain dictionary meanings applicable to the plain and ordinary meaning of 'insist', which include 'demand' or 'maintain', but they have limited utility [9] . It may be that the paradigm, although not exclusive, scenario here features negotiations (in good faith) whereby ISS has indicated its position about one or more terms being included in an agreement in the face of opposition manifested by Goodman Fielder. This part of cl 10 might typically envisage a term, or terms, has been proposed by ISS; has met with manifest resistance by Goodman Fielder and, in response to such resistance, that ISS maintains its position. As an indication of the relatedness between the two alternatives in cl 10, insistence upon a term as a condition of entry may follow Goodman Fielder's rejection of a 'revised offer'.
It is also possible that 'insistence' might be more unilateral than the paradigm case I have referred to. Without reference to Goodman Fielder, ISS might simply stipulate that, come what may, it is only prepared to enter into a proposed agreement if a particular term or terms are included, but even that situation will likely be the result of ISS apprehending Goodman Fielder's expected opposition to that term or terms.
In colloquial terms, the single or multiple terms represent a 'sticking point' as to whether a proposed agreement is to be entered into at all. It connotes intransigence on ISS' part.
Whether ISS insisted on a term or terms being included in the proposed agreement is a question of substance. No particular form needs to be attached to the indication: it can, for example, be implied or inferred by conduct, such as where a term has been repeatedly advanced and repeatedly rebuffed during the course of a negotiation.
Further, it is not just the insistence of 'terms' which the second part of the exception in cl 10 is concerned about. It must, in my view, be the insistence of terms which are inconsistent to, derogate from, or dilute the practical effect or operation of the Key Terms in Appendix 1. This is the concept of financial favourability referred to below.

[33]

Revised offer?

Counsel for Goodman Fielder conceded (at T 181.18) that the 11 May 2018 proposal was not an offer capable of acceptance. On my preferred construction, this means that it does not fall within the first of the two contingencies referred to in cl 10.
Against the possibility that my construction of "offer" in cl 10 is too narrow and it suffices, for the provision, for ISS to have merely submitted a "proposal" I would have also found that I would not regard the 11 May 2018 proposal as constituting a 'revised offer', when set against the Key Terms of Appendix 1. A "proposal" would have to advance the prospect of a future agreement being entered. Circulation of a discussion paper or analysis would not suffice to amount to a "proposal" for the purpose of cl 10, since it would be unclear and uncertain what was actually being proposed for Goodman Fielder's consideration (if not actual acceptance). I do not regard the writing ('For Discussion purposes only - ISS Group makes no offer or submission in connection with the analysis') as determinative for the reason previously stated. Labels are not conclusive. Nevertheless, the covering email attaching the 'status update' described the document as 'presented material'. What was presented on 11 May 2018 was different in form, to, 'Commercial proposals' supplied to Goodman Fielder on 18 June 2018 (Exhibit A, vol 3, p 1306) and on 12 July 2018 (Ex A, vol 3, p 1336) (the latter which was expressed to be subject to ISS Board Approval). Labels are inconclusive, but even on Goodman Fielder's expansive interpretation of an 'offer' under cl 10, it is very doubtful whether what was presented on 11 May 2018 satisfied the broadest conception of the word.
The covering email expressly indicated that it excluded the 'impact of commercials' which were then still 'being negotiated'. That indication about the exclusion of commercials in the email was repeated (at page 23) in the status update. Further, as Counsel for ISS submitted, there were other indications in the document that information was omitted which meant that it was too incomplete to constitute a proposal, even in its broadest sense, including most significantly the Baseline Spend (Exhibit A, vol 3, p 1236, vol 3, p 1242, vol 3, p 1251, and vol 3, p 1261). On that matter, the Total Facilities Management Contract sum of $24.7m was only spoken of as being "potential", affected by Additional Services "TBC". ISS' costs remained "to be discussed".
For a document, of this kind and in this context, to omit commercial information is a tell-tale sign that if it contained any commercial proposal at all, it fell short of amounting to an offer. Without it being construed as an offer, it is unnecessary to consider whether it amounts to a 'revised' offer.
In relation to the scoped services (Exhibit A, vol 3, p 1243), the update indicated that with baseline data difficult to verify, ISS was unable to acquire scope detail for a number of services, but the concern went beyond that. There was an inconsistent scope and service levels across the portfolio and a lack of formal agreements and specifications with contractors.
In my opinion, the document of 11 May 2018 is objectively, fairly characterised as an interim analysis supplied to Goodman Fielder; but one which, because of the omitted commercial information, was heavily qualified analysis. At its highest, it was an update which served only to generate discussion, which is what occurred prior to 14 May 2018 and, again, on 16 May 2018 (after the due diligence period had expired). Its delivery could not objectively have been understood by Goodman Fielder as substantially advancing the parties towards agreement; let alone be capable of acceptance according to what was contained within it. The omission of the information probably would have raised questions for Goodman Fielder. As it happened, this was consistent with how ISS subjectively intended the document to be understood. Although that is not determinative, it lends some weight to the analysis.
A reasonable business person in Goodman Fielder's position could not have understood the provision of this document as amounting to a 'revised offer' as I have interpreted that expression. It was so amorphous so as to preclude serious consideration by Goodman Fielder to accepting it.
Counsel for Goodman Fielder submitted that, by its conduct from 10 April 2018, ISS persistently indicated that it was 'not open' to contracting on the Key Terms. The use of the word 'persist' in that submission might be said to conflate the two alternatives identified in cl 10. I deal with it now in the context of evaluating 'revised offer'.
Up to 10 April 2018, Goodman Fielder did not take issue with ISS indicating its adherence to the Key Terms. Counsel for ISS referred me, in this regard, to the content of an "Issues List" dated 10 April 2018, in which, at various points, ISS expressly alluded to its intended adherence to the Key Terms.
Thereafter however, up to 14 May 2018, Goodman Fielder submitted that ISS' position changed. On 11 April 2018, Mr Warr had signified that ISS was still working through the baseline numbers for New Zealand with Goodman Fielder. The spreadsheet showed a baseline (for Australia) of $23 million. After 24 April 2018, when Goodman Fielder sent back its proposed consolidated baseline spend data (excluding offices) of $21.7m, there was further correspondence about baseline data between the parties. Mr Warr for ISS indicated that the parties were between $616,000 and $1 million apart. Depending upon what 'Additional Services TBC' might mean (as it was apparent in Exhibit A, vol 3, p 1236) the Baseline Spend presented on 11 May was either $18.7m or $24.7m.
Beyond its reference to its general argument of construction, it was not clear to me where this information, existing prior to 11 May 2018, led in regards to the Court's determining whether, without knowing it, on 11 May 2018 ISS had submitted a revised offer on terms contrary to the Key Terms. The parties' references of different figures for Baseline Spend have to be seen in a context whereby, as at 5 February 2018, the $25m Baseline Spend was only "estimated". The matters which Goodman Fielder referred to may point to differences with the Key Terms and may suggest "revision", but they do not address the question as to whether what was submitted on 11 May 2018 was a revised "offer" with the features that I have referred to.

[34]

Insistence upon terms?

An immediate difficulty for Goodman Fielder was its inability to identify, with precision, which term, or terms, ISS "insisted" upon for inclusion in any proposed agreement within the period of due diligence. It was notable that the experts were only asked to opine on whether proposals were less financially favourable than the Key Terms. They were not asked to engage in a similar analysis in relation to specific terms that they were to assume were "insisted" upon by ISS.
In his closing submissions, Counsel for Goodman Fielder submitted that by 11 May 2018, ISS was indicating a move away from the 'vested' model upon which Key Terms were based towards something that was only partially vested. This was the model described by ISS in its July 2017 RFP (Exhibit A, vol 3, p 1183), which was intended to provide for mutual incentives by both parties to find savings and, for ISS, to get its profit after those savings had been met. In the 'Vested Process Flow' chart in the 11 May 2018 update (Exhibit A, vol 3, p 1229), it was suggested that questions might be met with 'yes' or 'no' answers which might alter substantive outcomes in a way fundamentally different to what the Key Terms in Appendix 1 might provide for. What was now indicated within the chart was the use of rates.
The difficulty with the suggestion that that which was contained in the flow chart in the 11 May 2018 update amounted to an insistence upon something different from a 100% vested model was that although it contained ISS' musings as to whether a hitherto agreed model was sustainable in the light of variable circumstances, there is nothing on the face of that chart, or anywhere else within the 11 May 2018 update to suggest a clear alternative model without which ISS would not enter into a long term agreement. ISS' thinking, at this point at least, appeared to remain. There was no express or implied indication by the chart to suggest that ISS was pressing something fundamentally different to the vested model in the face of actual or apprehended opposition by Goodman Fielder.
It does not assist Goodman Fielder to compare the 11 May 2018 update against other circumstances occurring earlier within the due diligence period, such as the updated project plan supplied on 20 April 2018 (Exhibit A, vol 3, pp 1212 - 1215), which, its Counsel suggested was an indication of some insistence on ISS' part. On its face, the spreadsheet appears only to reflect ISS' forecasted plans. It was unclear to me what emerged from this document.
It is true that certain Key Terms were omitted from the 11 May 2018 update, which is relevant to the aspect of whether the proposal (i.e. offer) as a whole is less financially favourable. This was relevant to the issue of 'favourability' of the proposal overall. But there is no term identified as being a substitute for the omitted Key Terms and, still less, nothing to suggest that any substituted term was "insisted" upon by ISS for entry into a proposed agreement.
Plainly, as I have already noted, there is a question whether the Baseline Spend presented by ISS on 11 May 2018 was less financially favourable than what was capable of being calculated in the Key Terms, but that was because ISS intimated to Goodman Fielder that it was uncertain and incomplete: the category of 'Additional Services' was not quantified. It was not insisting upon a Baseline Spend figure on 11 May 2018, as it was still trying to figure it out. At page 17 of the proposal (Exhibit A, vol 3, p 1236), the figure of $24.7m was identified but was on its face an estimate (hence the word 'potential'), subject to the quantification of the Additional Services. I do not see any persistent demands by ISS, inconsistent with or derogating or diluting the operation of the Key Terms. There is no indication of the sort of intransigence on the part of ISS signifying to a reasonable entity in Goodman Fielder's position its demand to have a term derogating from the Key Terms. The Baseline Spend figure remained uncertain by the expiry of the Due Diligence Agreement.
The circumstance that Mr Scanlon expressed disappointment with what he saw during the due diligence period may help to explain what motivated ISS, but unless ISS' conduct towards Goodman Fielder could be objectively characterised in the way I have interpreted the two contingencies in cl 10, the evidence of Mr Scanlon's feelings do not take the issue any further.
Accordingly, Goodman Fielder has not persuaded me that either of the alternative exceptional circumstances in cl 10 have been established.
By operation of cl 8, Goodman Fielder's obligation to reimburse ISS is engaged.

[37]

Meaning of 'financially less favourable'

The expression 'financially less favourable' is not defined in the Due Diligence Agreement. All of the words are words of plain English meaning. However, in a commercial contract, a reasonable business person in the position of the parties would, I think, construe it in the same fashion as these parties: that is, they would be guided by the opinion of accountants or financial professionals, such as Messrs Ross and Potter, whose stock in trade, by dint of their training and experience, is to evaluate financial proposals and to advise business persons on whether they are 'financially favourable' or not, in comparison with an alternative proposal. In effect, these accountants serve as proxies for the views of business persons. Further, although the Court will not abdicate its role in construing a term such as this, it is entitled to place significant weight on the principles and criteria that Messrs Ross and Potter applied.
Thus, I accept and adopt the principles and criteria that those experts jointly agreed, which I have referred to. They strike me as being compatible or consistent with business 'common sense'. To which, I would add, whether the terms of a proposal are less favourable than another document (i.e. the Key Terms in Appendix 1) requires an evaluative judgement overall. In my view, it is not enough when evaluating an "offer" to simply isolate a single term for comparison with a Key Term and because of its inclusion, or perhaps, the omission of a single Key Term, that it must necessarily be less favourable. The approach of Mr Ross, with whom Mr Potter agreed, on this point, recognises this. Mr Ross developed multiple criteria, and evaluated the proposal against each of those criteria before arriving at a conclusion. Nevertheless, omissions of one or more Key Terms have evidentiary force in the overall evaluation.
On the main point of division between the experts, I prefer the approach of Mr Ross, to Mr Potter, when considering how a reasonable business person would respond to the 11 May 2018 proposal (and any subsequent 'revised offer'). That hypothetical person is entitled to presume that, to the extent possible, terms and words mean what they say and should not be placed in the position of having to second-guess whether other matters are said to be implied, inferred or incorporated those other matters are not apparent in what has been discussed. I agree, in this respect, that if what was submitted on 11 May 2018 could be characterised as a revised offer, it was intending to put its best foot forward and was unlikely to have held back matters favourable to it. There is also force in Goodman Fielder's submission that if there was anything missing from Mr Ross' assumptions, which had been the subject of negotiation at about the time when the 11 May 2018 proposal was considered, the opportunity was there for Mr Rose to give evidence about it at trial.
In saying so, I agree with the point raised by Counsel for ISS with the effect that the hypothetical reasonable business person is to have attributed to him knowledge of matters actually known to the actual parties; which are not necessarily indicated on the face of the written proposal; that is, the surrounding circumstances. A difficulty with this approach, and I say this without criticism of them, or the parties who engaged them, is that neither expert could possibly be placed in the position of a hypothetical reasonable business person who not only has had regard to a particular 'revised offer', but is imputed to have the universe of facts known to the parties. That is a natural and obvious limitation upon the exercise about which both experts were embarked. Contrary to the ISS submission, however, that does not render the exercise upon which the experts were embarked as lacking utility.
I do not consider that it is ultimately necessary for any concluded comparison in terms of overall financial effect, to be drawn between what appeared in the 11 May 2018 proposal and the Key Terms. Indeed, it would be absurd to do so in the circumstance that the former omitted commercial information.
It follows that assumption (f) contained within paragraph 30 of the joint report, in which Mr Ross stated his assumptions for his analysis do not arise in the 11 May 2018 proposal is not valid. Otherwise, subject to a qualification, I accept the balance of his assumptions [10] . In this respect, there was disagreement as to how the management fee (assumption (d)) was to be calculated. I accept Mr Ross' approach to the calculating of that fee which accords with the methodology in Appendix 1. I also agree that the Upfront Payment in the Due Diligence Agreement is proportional to the Baseline Spend (assumption (f)), which reflects the provisions in cl 16(a)-(b) of the Due Diligence Agreement.
The qualification is the difficulty I had with Mr Ross making an assumption about the Baseline Spend. His subsequent adoption of Mr Potter's Baseline Spend did not cure this problem. Mr Ross was asked not to take into account the Notes in the 11 May 2018 proposal (at Exhibit A, vol 3, p 1242). The instruction given to him in this regard made his assumption unrealistic for being contrary to facts known to the parties.
But if, contrary to what I have found, the scope of services as proposed in the 11 May 2018 proposal are located in an "offer", for the purposes of cl 10, I accept that the offer may be said to be "revised" so as to engage the first limb of the exception in that provision.
What is of greater significance is Mr Ross' 'Minimum Information Requirement' and 'Guaranteed Minimum Benefit Requirement' and 'Multiple Pathways Requirement'. The more incomplete and uncertain a "proposal" is, inherently the less favourable a proposal it must be; if for no other reason than there may be difficulties in later having it enforced. If, as Mr Potter apprehends, there is ambiguity or doubt about what is proposed, then that works against ISS, in the sense of making the proposal less financially favourable.
I accept Goodman Fielder's submission that each expert agreed that, having regard to all of the criteria, if the 11 May 2018 proposal (and, for that matter, all other proposals) was (or were) taken on its (or their respective) terms, it (and they) was (or were) less financially favourable to Goodman Fielder than what was contained in the Key Terms. That conclusion was, in my view, inevitable once it appeared, and there was no reason to think that the omission was otherwise then deliberate, that cardinal features of the Key Terms were missing from the proposal. I understood Counsel for ISS to accept this conclusion (T 203.36). I refer, in this regard to the 'Minimum Savings Guarantee' and 'Catch-up' provisions in the Key Terms.

ISS Facility Management Pty Ltd & Anor v Quality Bakers Australia Pty Ltd & Ors

At a glance

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Judgment (42 paragraphs)

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Legislation Cited (1)

Cases Cited (16)

Cited By (2)