Sagacious Procurement Pty Limited (subject to a Deed of Company arrangement) v Symbion Health Limited

Sagacious Procurement Pty Limited (subject to a Deed of Company arrangement) v Symbion Health Limited - [2006] NSWSC 654 - NSWSC 2006 case summary — Zoe

[7]

ADC v White [1999] NSWSC 43 Allen v Carbone (1975) 132 CLR 528 Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101 Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Australia China Business Bureau Pty Ltd v MCP Australia Pty Ltd [2003] FCA 934 Australian Granodiorite Limited v Devex Pty Limited (unreported, Supreme Court of New South Wales, Brownie J, 28 May 1991) Australian Workers Union New South Wales Branch v Minister for Natural Resources & Ors (1991) 26 ALD 461 B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147 Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 Briginshaw v Briginshaw (1938) 60 CLR 336 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Commonwealth v Verwayen (1990) 170 CLR 394 Electricity Corporation of New Zealand Ltd v Fletcher Challenge Energy Ltd [2002] 2 NZLR 433 FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343 Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551 Hadid v Australis Media Limited (unreported, Supreme Court of New South Wales, J Sperling, 30 June 1997, BC 9707967) Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 CASES CITED : Inland Revenue Commissioners v Raphael [1935] AC 96 Integrated Computer Services Pty Limited v Digital Equipment Corporation (Australia) Pty Limited (unreported, Supreme Court of New South Wales Court of Appeal, McHugh, Mahoney and Hope JJA, 23 December 1988 BC 8801158)) International Fina Services AG v Katrina Shipping Ltd ("The Fina Samco") [1995] 2 Lloyd's Rep 344 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 Kofi-Sunkersette Obu v A Strauss & Co Ltd [1951] AC 243 L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 Lakatoi Universal Pty Ltd & Walker [2000] NSWSC 113 Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 210 CLR 181, (2001) 76 ALJR 246 Masters v Cameron (1954) 91 CLR 353 Meehan v Jones (1982) 149 CLR 571 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 Optus Vision Pty Ltd v Australian Rugby Football League Ltd [2004] NSWCA 61 Pascoe v Commissioner of Taxation (Cth) (1956) 30 ALJ 402 Pedler v Richardson (unreported, Supreme Court of New South Wales, 16 October 1997, Young J, BC9705263) Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114 Pobije Agencies Pty Ltd v Vinidex Tubemakers Pty Ltd [2000] NSWCA 105 Prenn v Simmonds [1971] WLR 1381 Raguz v Sullivan (2000) 50 NSWLR 236 Reardon -Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 Ryan (Receiver & Manager of Homfray Carpets Australia Pty Ltd) v Textile Clothing & Footwear Union Australia [1996] 2 VR 235 Troulis v Vamvoukakis (unreported, Supreme Court of New South Wales Court of Appeal, Gleeson CJ, Mason P and Stein JA, 27 February 1998, BC 9800395) Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32 Watson v Foxman (2000) 49 NSWLR 315

[56]

"When one speaks of the intention of the parties to the contract one speaks objectively - the parties cannot themselves give direct evidence of what their intention was - and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties." [ Reardon -Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989] 35 Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1907) 5 CLR 647; Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548-549; Geebung Investments (supra); Anaconda Nickel (supra) are also authorities supporting the proposition that in ascertaining the relevant intention, that is the intention to contract, relevant circumstances may include prior negotiation and subsequent conduct. 36 Presently a fundamental question falling for consideration is whether the conduct of the parties viewed in the light of surrounding circumstances shows or is indicative of a new agreement having come into existence by dint of the 16 April letter. 37 The similar issue [often arising when there is no anterior contract being replaced] has been the subject of the following observations: "In an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at any particular time in the relationship may by reason of the parties' subsequent conduct become sufficiently specific to give rise to legal; rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed." [Per McHugh JA in Integrated Computer Services Pty Limited v Digital Equipment Corporation (Australia) Pty Limited (unreported, NSWCA, McHugh, Mahoney and Hope JJA, 23 December 1988); see also Raguz v Sullivan (2000) 50 NSWLR 236 at 251]

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In so far as acts or statements of the kind referred to, not involving communications between the parties, are claimed to be relevant in a case such as the present upon the ground that they constitute an admission, it seems to me that it will often be necessary to identify with some care the fact which is said to have been admitted. As was noted, there may be cases in which the issue is such that the fact of the subjective state of mind of one or other of the parties is relevant. Normally, however, what is in issue is not their subjective state of mind but their "intention as expressed" (cf Inland Revenue Commissioners v Raphael [1935] AC 96 at 142 per Lord Wright) and caution may need to be exercised in relating the fact which is said to be admitted to the fact which is legally relevant." [emphasis added] Commercial contract/certainty/construction 43 The court is dealing with a commercial document. In endeavouring to discern the parties intent and in construing the meaning of the words used, the Court will strive to give the document a commercial, reasonable and rational operation: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; Hide & Skin Trading v Oceanic Meat (1990) 20 NSWLR 310. 44 There is abundant authority that "the court should be astute to adopt a construction which will preserve the validity of the contract": per Mason J, Meehan v Jones (1982) 149 CLR 571 at 529; Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 at 132, per Kirby P. Further the court will strive in dealing with a commercial contract to discern the objective intent of the business relationship or other parameters of a contract in order to give effect to that which the parties may be seen to have bargained for. But always it is to the words of the document [here suggested as amounting to a binding contract] that the court must attend looking in that regard to the whole of the document to discern the parties' intent. 45 In Biotechnology Kirby P observed at 135:

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"To this I would add the observation of Lord Steyn, writing extra-judicially on "The Intractable Problem of the Interpretation of Legal Texts" (2003) SLR 1 at 7. After pointing to the shift from literal to purposive interpretation, he adds the caveat that it would be an oversimplification to say that there has been a homogenous shift towards a purposive interpretation of all legal texts. Nonetheless he says: " In a network of contracts governing a construction project, parties ought generally to be able to rely on the obvious meaning of the interlocking texts". 55 Hence I take it as axiomatic that: · the Court endeavours to give primacy to unambiguous words used in a written contract, this matter generally being approached in the manner outlined by McColl JA in Peppers Hotel Management supra; · the proper approach seeks the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably been available to the parties in the situation in which they were at the time of the contract" (Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 citing Lord Hoffmann, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912; [1998] 1 All ER 98 at 114; Peppers Hotel Management Pty Ltd supra at [66 et seq]; · commercial contracts should be construed so as to be given a sensible commercial operation: Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 437; Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; Hide and Skin Trading v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313-4; Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 per Giles JA at [64]. The unusual parameter requiring to be treated with 56 As will appear from the narration of material events to be found in the judgment, Sagacious being a small start-up company, was very conscious at all times of the huge significance of the Mayne connection to its prospects. Sagacious had no desire to raise the litigation gun against Mayne. Its approach to contractual/logistic problems was 'softly softly'. 57 The case put by Sagacious is that following the acknowledgement and acceptance of what is said to have been a set of binding terms and conditions to be found in the 16 April 2002 letter, Sagacious continued to treat with Mayne, which without any reference to that letter as having binding content, had proceeded to prepare a detailed contract for consideration/negotiation. Sagacious contends that depending upon the precise terms which could be so negotiated, it was prepared to endeavour to be reasonable and to move into another and substitute form of contract, which if entered into, would replace the binding 16 April 2002 letter for which Sagacious contends. 58 In many cases the focus of post-contractual conduct in the determination of the question as to whether or not a contract had been earlier formed, centres upon inconsistencies between:

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          Kevin Dalton Date
          Operations Manager - Services
  The approach taken to witnesses
  68 It is well established that it is unnecessary for the Court to refer to all of the evidence. It is fair to say that of the several witnesses who gave evidence in relation to the period of time between 18 Jan 02 and the June/July 02 period albeit that there were many emails and faxes and meetings between the parties, there are only a few specific factual issues thrown up for determination in a structural sense: i.e. casting real light on the objective intent qua the bringing into existence of the final form of the 16 April letter. Hence it is with an eye to focusing only upon those specific factual issues that a relative brief overview of the evidence given by witnesses is given in this judgment.
  Reliability of witnesses
  69 From beginning to end there is a difficulty with:

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ii. the many occasions when the evidence of Mayne which was adduced leaves important gaps as to who was in control, and of what, in terms of the negotiations with Sagacious [to the extent that there appears to have been either a dramatic failure of communication between the relevant Mayne employees and/or a simple failure on their behalf to attend to the necessary detail. [For all the many e-mails passing between those employees there are many occasions when there does not appear to have been a cohesive team dealing with Sagacious]. 70 Furthermore, of the witnesses called by Mayne, there were only a limited number of Mayne employees who had played a part in the relevant meetings or who may well have been in a position to cast light on questions such as the authority issue. Time and time again Mr Cotman SC, leading counsel for the plaintiff, was forced to ask questions of those witnesses who were called by Mayne, as to how it could have come about that invoices [for the two monthly payment for May and June 2002] in the sum of 2.6 million sent to Mayne by Sagacious, could have been processed and with whose authority. The Court is left to infer what was the answer. An evidentiary onus clearly passed from the plaintiff's side of the Bar table to the defendant's side of the Bar table obliging the defendant to dispel the suggestion that the proper inference was that those invoices were paid with authority. That evidentiary onus was not discharged. That does not however answer the question as to the basis upon which the authority to pay the invoices, was given. Mr O'Shanassy 71 Mr O'Shanassy plainly had an interest in Sagacious' success in these proceedings. His reliability as a witness is dealt with through the judgment as occasion demands. In a number of areas he is regarded as giving reliable evidence. He may not always have had an accurate recollection but the nuts and bolts of the respective positions taken by the parties are fairly reflected in his evidence. 72 In other areas his evidence can only be accepted when consistent with contemporaneous written materials or with the evidence given by others who are accepted as reliable. Because of his interest in the proceedings all parts of the evidence which he has given are examined against contemporaneous documents and in light of the Court's findings as to the reliability of the witnesses who were cross-examined. Mr Dalton 73 Mr Dalton had made a statutory declaration on 23 August 2002. In his affidavit evidence read by Mayne in these proceedings he is seen to have substantially departed from much of what had been said in that statutory declaration. 74 Mr Dalton has sought to explain the inconsistencies between the statutory declaration and his affidavit evidence as due to the fact that the statutory declaration had been prepared after a conference which he had with a solicitor for Sagacious which took place over a few hours, [Mr Dalton not being able to recall whether or not he was actually shown any documents during that meeting]. His affidavit evidence is that he briefly reviewed the statutory declaration when it was forwarded to him but did not closely review the content of the document. He contends in his affidavit evidence, that having had an opportunity to carefully review the relevant documents and consider the entire background of the matter, he later came to appreciate that there were a number of inaccuracies and oversimplifications within the statutory declaration. He seeks to explain those in his affidavit evidence. 75 The matter of a witness having sworn to the truth of a statutory declaration and then later moving away from the declaration in many places, causes considerable difficulty in terms of an acceptance of the reliability of the witness. In truth there are very often no less than three versions of what Mr Dalton appears to have sworn to:

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(b) Basically Ms Woods understood that the trial, as to the terms of payment, was continuing during this period and negotiation of the new agreement was still continuing. 81 For these and other reasons referred to below her evidence cannot be accepted as generally reliable unless clearly supported by contemporaneous written material and/or by the versions given by other witnesses whose evidence was accepted as reliable. Other lay witnesses 82 As and when appropriate the reasons which follow will deal with the reliability of other lay witnesses. However the fact is that some of these witnesses: [Mr Briscoe, Mr Mitchell and Mr McKennay] were really only called in relation to the formal proof of documents or in relation to relatively formal matters. And although taken into account together with all of the other evidence, it has been generally unnecessary for the Court to travel into the intricate detail treated with by a number of witnesses on both sides with an eye to expressing their opinions as to the viability/prospects which Sagacious had [ or in respect of which it fell short] in terms of ultimate viability. Had it been the case that quantum required to be dealt with, this exercise would have been elevated to an entirely different dimension. 83 The evidence of Mr Laurance requires to be assessed in light of the fact that he or his company, Pivot, had a potential interest in the outcome of the proceedings [although he did not know on his evidence, what that was]. Further his affidavit was only sworn on 10 May 2006 many years after the proceedings commenced. Additionally it is true to say that he produced no relevant internal documentary evidence of his or of Pivot in support of any of his assertions. 84 In relation to his evidence [only given in the witness box] of his concerns communicated to Mr O'Shanassy in relation to the authority of particular persons within Mayne to commit it to a transaction, this evidence must be weighed against his considerable uncertainty of events in other respects. He had no recollection for example, of seeing the 16 April letter at the time but appeared to be sure that " Mr O'Shanassy [had told him] he signed up Mayne" [Transcript 506.45]. 85 My assessment of Mr Laurance also takes into account the fact that he did not appear to be particularly closely involved in the affairs of Sagacious as for example his not being able to recall that by June 2002, the $11.50 PPD. guarantee had cost Sagacious a lot of money. In fact it was his son, Mr Ben Laurance who was the person within Pivot who was directly concerned with the proposed transactions. I do not doubt that this witness genuinely believed to be true that which he stated in his affidavit and in the witness box as the events which he recalled. However failing memories are a common experience in the courtroom and the Court cannot give his evidence in terms of the crucial issues going to reliability such as the authority issue, any real live weight. This is not to express any view at all as to the weight of his evidence concerning the prospects of Sagacious viability which would have, but does not, fall centrally for examination on the liability issues treated with in this judgment. The overall picture established on the evidence 86 There is no doubt but that Mayne at particular points in time of relevance, was undergoing considerable difficulties of one kind or another. These included:

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iii. In the fullness of time, a wholesale battle between the hospitals and doctors on the one hand and Mayne on the other hand [essentially concerning the hospitals' and doctors' dissatisfaction with the centralisation of the procurement arrangements put in place between Mayne and Sagacious]. 87 The initial heads of agreement and following strategic alliance involved the concept of Mayne paying a management/administration fee to Sagacious. The fee was to be 4.75% based upon gross expenditures relating to procurement and supply of catering goods. 88 The Mayne connection was Sagacious' lifeline from the commencement of the relationship. The financial position of Sagacious for most of the time was extraordinarily difficult. It set its sights upon the Mayne connection and business as its springboard into the future. Sagacious was not about to prejudice its prospects with Mayne unless as a matter of final last recourse. It was prepared to take risks to achieve, a solid tenure in terms of an agreement into the future. 89 Mayne was well aware of its importance to Sagacious. 90 At commencement of its dealings with Mayne there was no way in which Sagacious could foresee the problems which lay ahead in terms of a number of parameters, but most particularly and awkwardly, including the many occasions where Sagacious would simply find it close to impossible to find anyone from Mayne 'at home', when Sagacious would need to understand what its contractual position was and/or why it had been dealt with in a particular way by Mayne. 91 These were awkward and pressing times, particularly because Sagacious for reasons already given, could not risk offending Mayne, but mostly had to take the way in which it was being treated 'on the chin' [in effect slowly and repeatedly trying to continue this very difficult relationship, albeit that it continued to involve a contractual obligation on both parties to act in good faith]. Approximately December 1999 92 An indication of the types of matter discussed in at least one meeting and follow-up conversation prior to the entry into of the heads of agreement, can be gleaned from the following account, accepted as generally reliable and given by Mr O'Shanassy:

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ii. resistance to the implementation of the plaintiff's model of food procurement, particularly by the defendant's regional hospital sites; iii. the existence of pre-existing contractual arrangements in place at the defendant's hospital sites that did not have fully functional kitchen facilities (whereby those hospital sites were "co-located" with nearby public hospitals). 100 None of these issues justified the unilateral and global postponement of the whole of the implementation task. It would plainly have been possible for Mayne to approach a resolution of each of these issues without the dictate of the whole rollout being stopped in its tracks. However Mayne elected to use a sledgehammer approach and was disentitled from doing so by its contractual obligation. 101 The clear evidence is that Mayne [at least by some of the officers such as Mr McKennay who were heavily involved in assessing the relevant rollout issues] gave very close consideration to whether the benchmarking model under the SAA was providing an accurate depiction of the savings being achieved and considered that financially the SAA was not a sound contract for Mayne. Mr McKennay formed the view that Mayne should end the relationship with Sagacious because it did not appear to be deriving much benefit from it, even although a penalty for early termination of approximately $600,000 would be payable. The clear evidence is that Mayne was about endeavouring to 'tread water' whilst reaching a decision as to whether or not to permit the contract to go forward. This was its motivation for the stop roll out order. 102 Whilst it is true that there were also certain logistical issues which meant that the implementation task was more complicated and time-consuming than the parties had originally envisaged when entering into the Heads of Agreement and SAA, these issues could plainly have been approached in an entirely different fashion to the prescriptive approach adopted by Mayne. 103 Indeed the evidence as to the difficulties which Sagacious encountered in even being able to arrange meetings with relevant Mayne employees or officers who were in a position to treat with the subject, bespeaks the uncompromising and dictatorial approach taken by Mayne to the rollout issue. 104 The matter is dealt with in the affidavit of Mr O'Shanassy of 25 August 05 (at [31]-[55]), all of which evidence is accepted as reliable. 105 At one stage Mr O'Shanassy [after having unsuccessfully and for a real period attempted to speak with a representative of Mayne], managed to speak to Mr McKennay [the business operations and support manager-Hospitals at Mayne who had been appointed to a new position following a restructuring replacing Mr McDonald]. 106 Mr O'Shanassy's version of this conversation, which is accepted as reliable, is as follows:

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Where there is a waiver, in either sense, in relation to a right such as the right to terminate for breach or repudiation by a promisor, the promisee, although no longer able to choose one of the rights available in respect of the breach, retains the right to sue for damages in respect of the breach which gave rise to the rights. However, in some cases waiver has an even greater effect. This is because, albeit rarely, the word 'waiver' is used in relation to a remedy rather than a right." 110 The Court's finding is that nothing in the dealings between the parties between the occasion when Mayne dictated that the rollout be postponed and the occasion when the rollout recommenced, constituted acquiescence, waiver or compromise by Sagacious leading to it forfeiting its otherwise rights to damages for a breach of the SAA. 111 Sagacious did not conduct itself so as to lead Mayne to act upon an assumption, departure from which would operate to the detriment of Mayne so as to make it unconscientious on the part of Sagacious. Unconscientious in this formulation means a departure from the induced assumption that would, in all the circumstances, be unjust and oppressive: Commonwealth v Verwayen (1990) 170 CLR 394 at 444-445. 112 The finding is that the implementation phase was delayed by approximately 7 months. 113 Sagacious has established its right to damages. 'Nullus commodum capere potest de injuria sua propria' 114 I accept that insofar as elements of uncertainty are likely to remain in relation to the quantification process qua these damages, Sagacious, for the purpose of quantifying damages, is able to rely upon the "presumption against the wrongdoer". In an affirmation of that principle in which the actions of the defendant had made it "difficult to assess the compensation due to the plaintiff", Handley J put the matter as follows: "In my judgment the Court should assess the compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party 'whose actions have made an accurate determination so problematic'": Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46, per Handley JA at 59.

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Q… [A]nd you knew as at 18 January 2002 that apart from the delayed roll-out there were a number of hospitals in respect of which the roll-out had not occurred at all? A. Yes, I was aware of those hospitals, yes. [transcript 214] 118 The hospitals in question are Armidale Private Hospital, Frances Perry Private Hospital, Melbourne Private Hospital, The Geelong Private Hospital and The National Capital Private Hospital. 119 There was perilously little evidence given in relation to this claim, it apparently being conceded that access had never been given for Sagacious to provide food procurement services to these hospitals. 120 There is no evidence that following the resumption of the rollout, Sagacious advanced complaints on the five hospital issue. 121 In relation to this claim the finding is that Sagacious indeed forfeited its claim by having acquiesced in the continued failure by Mayne to permit any access at all to these hospitals. In relation to this matter it is fair to say that Sagacious conducted itself so as to lead Mayne to act upon an assumption, departure from which would operate to the detriment of Mayne so as to make it unconscientious on the part of Sagacious to press its claim. 122 Plainly the claim requires to be dismissed. The per patient fee day basis - December 2001 et seq 123 In late December 2001 and early January 2002 Mayne made clear to Sagacious that it wished to move to a new basis for paying for procurement services. It indicated that it wished to change the previous charge arrangements management fee of 4.75%, so that Sagacious would instead charge a fixed amount per patient per day ["per patient day rate" or "PPD"]. 15 January 2002 124 During a meeting of 15 January 2002 attended inter alia by Mr Dalton and Mr O'Shanassy, Mr Dalton, [as noted in a diary note PX 2564, tab 296 made by Mr O'Shanassy], gave as the reasons for a push to make savings, the fact that "Mr Tissot [CFO] under pressure to get results-needed to show $1.5 [meaning million] plus savings to help P & L". The PowerPoint presentation given by Sagacious at the same meeting outlined the basis for a Sagacious guarantee of the food costs at $11.50 per patient day giving on particular parameters, a saving estimate of $1.347 million. 125 This new development really sets the stage for the period following 18 January 2002, being the date of an agreement by which Sagacious acceded to accommodating a new pricing scheme on a per patient day rate. 126 The following months involved close negotiations on a number of matters concerning the new billing regime, an important parameter of which would involve Sagacious raising invoices by pre-billing for the coming month [the pre-billing to be based on forecast patient numbers for that month.]. 127 The matter is best described by the following segment of the affidavit of Mr O'Shanassy accepted as reliable and accurate:

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The document at tab 12 is a print out of the slides that were shown during the course of the presentation on 15 January 2002. Mr Kyne then gave a presentation to Mr Dalton and Mr Dunne that was generally in accordance with the terms of those slides. In short, Mr Kyne stated that, amongst other things, that: · as per slide 3, the purpose of the proposal was to provide Mayne with an immediate quantifiable saving following on from Mayne's request for such a proposal in late 2001; · as per slide 4, that based on present information, to convert Mayne's spending on procurement under the Strategic Alliance Agreement to a per patient day rate, the present rate was about $13. The per patient day figure of $13 was the product of an estimate of existing expenditure with Sagacious coupled with an estimate of the cost of some additional services that Mayne had suggested Sagacious provide, and in particular non catering items such as crockery; · as per slide 5, a reduction in that rate to $11.50 would produce a saving in the order of $1.347m; · as per slide 7, if the charge basis was to move to such a low per patient day rate, Sagacious would need to pre-bill Mayne. Mr Kyne said that this would involve Mayne paying for anticipated procurement services monthly in advance, with a subsequent adjustment to reflect the actual level of services provided; · as per slide 8, an important condition in order for the $11.50 per patient day rate to have any prospect of being maintained going forward was that a new menu be implemented. A new menu discussed at this presentation by Mr Kyne was a new co-ordinated national menu that was one element of a larger cost saving initiative designed to centralise and bring consistency to the way in which the various individual Mayne health centres purchased goods and services; · as per slide 10, the implementation and adherence of certain operational matters designed to increase the prospect of $11.50 being an acceptance per patient day rate going forward. The various cost saving initiatives included the introduction of a national menu, pursuant to which the item to be procured by Sagacious for Mayne hospitals would be standardised around Australia. Another was that Sagacious would no longer be required to supply hospital cafeterias - one of the initiatives proposed was that hospital cafeterias would be removed and Mayne were looking at various methods of removing cafeterias, including selling off all leasing and operating rights to a national operator.

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We refer to Appendix C which is a copy of the contemporaneous notes taken during and immediately after the meeting. Essentially, the negotiations and the amended Agreement have created the basis for what is called "promissory estoppel" whereby Sagacious has done something/taken certain steps or actions which is potentially to its detriment or risk in exchange for a commitment or promise from the other party (Mayne). Whilst it is highly unlikely that the relationship with Mayne will deteriorate to the extent of having to call upon a legal doctrine to enforce our rights, it does add further weight to our position. The CFO will brief the meeting as to the relevant impacts and processes which have arisen out of the amended Agreement with Mayne." [emphasis added] 130 I do not accept that anything sinister can be inferred from this particular report. Indeed it would seem surprising if an attempt to 'set up' an estoppel case would be so carefully documented rather than being hidden. The Court was satisfied from all of the materials that what was reported, albeit using legal phraseology, was at this date simply putting the position which obtained. Businessmen aware of legal principle are entitled to the benefit of estoppels which arise in appropriate circumstances. Where an estoppel succeeds in any court of law, that will be the case not because the party entitled to such a finding was at all material times aware of the relevant principles, but rather because the elements of an estoppel are made out. 131 However the document is an early indicator of a mindset to use the law as a tool if necessary. The crucial period of time for the purposes of the matters in issue- 18 January 2002 - 16 April 2002 132 Crucial in terms of the issues in the proceedings is the period of time between the 18 January 2002 letter and the 16 April 2002 letter. A very close focus upon what occurred during this period of time is necessary. Overview thumbnail sketch 133 It may however be convenient to immediately give an overview thumbnail sketch of what followed. 134 The evidence establishes that Sagacious was providing food under the 18 January 2002 arrangement at $11.50 PPD ["per patient per day"]. That was the rate needed to achieve the requisite budget spend saving of $1.3 million up to the end of June. 135 However Sagacious continued to incur losses on that arrangement and would necessarily do so: [transcript 594.43] and this where the actual PPD was $3.00 above the $11.50 as at January 2002. 136 The evidence establishes that the prospect of reducing the PPD rate by negotiations with suppliers was not something which could be achieved quickly enough to achieve the economies needed. 137 It was plain to Sagacious that unless it continued at the $11.50 PPD until June 30, the savings required by Mayne could not be achieved. 138 The options open to Sagacious were limited. Sagacious could revert to the SAA terms (4.7 per cent of COGS and reimbursement of COGS) under the 18 January 2002 letter terms (clause [12]). It was therefore not bound by a nominate term to produce the $11.50 PPD rate. 139 Representatives of Sagacious and Mayne discussed the prospect of a renewed term contract in December 2001 when discussing the PPD proposal and on other occasions prior to a 28 March 2002 meeting. At this meeting Sagacious made clear that it had in fact incurred significant losses to March 2002 by dint of the $11.50 PPD rate. The Sagacious representatives said that they thought the PPD rate could be brought down over time. 140 From time to time the discussions had included reference to the possibility that a feasibility study into Mayne operating through super kitchens could succeed. Such a feasibility study was seen as something which would take considerable time to complete but was to be kept as a background consideration against the event that the very substratum of the need to utilise the services of Sagacious would fall away should that study prove viable. 141 A national menu had been introduced during 2001. It was common ground that a far more powerful new national menu was intended to roll out on 1 May 2002, it being hoped that this rollout would assist the bringing down over time of the PPD rate. However the cost savings anticipated to come forward and by reason of the rollout of the new national menu would only come forward after a considerable time lag for reasons including the need for the suppliers to be given an opportunity to treat with the new supply arrangements. 142 The fact that the new national menu would roll out on 1 May 2002 points up a significant reason for it being appropriate that the parties would commit to some form of binding legal obligation to cope with the new initiative constituted by the national menu roll out. But by far and way the most significant indicator of it having been appropriate for the parties to so commit prior to 1 May 2002 was the fact that the new, 'two-month invoice in advance' arrangement, was to commence on that very day. 143 It was at about this time that Sagacious proposed a continuation of the PPD rate with a 2.5 year term, two months advance billing and other matters generally shown in the PowerPoint presentation referred to below. 144 It was apparent to both parties that Sagacious needed a respectable term arrangement in order to be in a position to maintain the $11.50 PPD rate. 145 This was the environment in which the parties through essentially March/ April 2002 continued to negotiate and in which the so-called 16 April letter of agreement came into existence. Sagacious contends that that letter of agreement would at one and the same time:

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iii. both? 116 The question as to whether there was an agreement for the trial period as a separate matter, only has relevance to the case if there was a term of that agreement that at the end of the trial period, the rates which the plaintiff had agreed to charge for it were to be retrospectively varied so as to make up any loss which the plaintiff had suffered as a consequence of the guaranteed Per Patient Day rate ("PPD"). If, as we submit, no such term can be extracted in any event, the question of whether there was such an agreement is otiose. " 152 As Mayne has submitted, in terms of the objective matrix of fact, it would seem to be nothing short of astonishing if Mayne would be likely, as at the end of April 2002, to give away the whole of the benefit for which it had bargained when gaining the Sagacious guarantee on the PPD arrangement documented by the 18 January 2002 letter. No case advanced in terms of an adjustment of a subset of the trial period 153 I did not understand any case being pursued by Sagacious to the effect that the parties should be seen to have agreed to cover, what would be, in effect, a subset of the trial period: that is to say an agreement that in respect only of the months following April 2002 and terminating at the end of the trial period, Sagacious would be entitled to the adjustment importing such retrospectivity as would be relevant ["the subset case"]. 154 It is appropriate to indicate in passing that had such a case been put, barring other problems which may be posed for such a case, that case would at least not run foul of the notion that Mayne had simply given away the whole of the anterior benefit. An alteration of the arrangements current as at the end of April and to be effective for only the months following April, would have been an entirely different matter to any suggestion that Mayne had agreed to give away the entirety of the anterior benefit. 155 The subset case, even had it been put, would likely have run into the difficulties posed by:

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"We will not be interested in any new agreement with you unless it is more transparent in respect of the costs and benefits to Mayne. For example, we would want details of any supplier rebates you receive. The terms and conditions will need to be evaluated depending on the benefits to the customer, Mayne Health. Once those terms and conditions are agreed, they will form part of any new agreement with Mayne. The basis of any agreement will be Mayne's standard terms and conditions. The agreement will be subject to review by Mayne Legal. Any changes you want to make to the standard template will have to be discussed. We can't agree to any changes unless we have approval from Mayne Legal. The agreement will need to follow our standard execution process. That involves approval via sign-off by the parties involved in the commercial deal. The actual agreement will have to be executed by Mayne's CFO." Mr O'Shanassy said words to the effect: "Well who has the authority to commit to any new agreement?" I said words to the effect: "The only person that has the authority to commit Mayne to an agreement formally is the CFO, upon execution of the final agreement." I also said to Mr O'Shanassy and Mr Kyne words to the effect: "The role of Group Procurement is to negotiate and document the terms of any contract based on the operational requirements of the customer, in this case Mayne Health. We have a strict authorisation process. There is no commitment until there is a contract in place, executed by both parties. I suggest you write to us indicating the things you would want in an agreement with us." [Affidavit 5 April 06] [It is convenient to interpolate that in contra distinction to this evidence given by Ms Woods, if one disregards the evidence given by Mr Dalton which I have already indicated is generally not regarded as reliable, the only witness who at first supported the version given by Ms Woods was Mr Dunne : Mr Dunne initially in his affidavit evidence [87] stated that: Ms Woods had said that "any new agreement will need to be drafted and finalised by us in accordance with Mayne's standard terms and conditions. It will have to be in Mayne's format. there is no point in your preparing a standard agreement. It must be in our standard terms." Mr O'Shanassy had responded: "Who will sign off on it." "Ms Woods said words to the effect "Procurement kind signoff on it. It will need to go through Mayne legal for the okay, then it will have to be approved and signed by Paul Tissot." Under cross-examination of Mr Dunne where it was put to him several times that he was mistaken in his recollection as to who had attended the meeting, he conceded that the meeting had taken place a long time ago and that he might be mistaken] 168 During Ms Woods' cross-examination it eventuated that she had not had a diary note of any conference to take place on that day (transcript 669.44), even though it is her usual practice to record meetings in a diary (transcript 670.23).

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176 In re-examination, Ms Woods was taken to her handwritten notes on the power point presentation (from transcript 727.20). Ms Woods gave evidence that she wrote the note "We own palm pilots" (transcript 730.04) after she had asked, to her recollection, Mr Kyne about who would actually own the hardware and that note was the response to her question given by Sagacious (transcript 730.10). 177 In my view the evidence given by Ms Woods of events at the meeting cannot be regarded as reliable. Assessing that evidence with care in terms of weighing the same against evidence given, in particular by Mr O'Shanassy, leads to a finding on the balance of probabilities that Ms Woods over the years has become confused as to what in fact occurred. 178 It is very plain that Ms Woods was extremely busy in her role with the Mayne group. She attended numerous meetings. Her usual practice was to record meetings in a diary, yet she had no note of any conference to take place on the day in question. The fact that she had made some notes on the PowerPoint presentation document is not conclusive for the reason that those notes could easily have been made outside of attendance at the meeting and during the discussions which she clearly did have with Mr Dalton and with Mr Dunne at some time after the meeting in discussing the PowerPoint presentation. 179 Experience shows that from time to time witnesses are able to persuade themselves of a version of events which a Court is unable to accept in terms of the weight of other evidence, the court taking into account the reliability of a number of witnesses in that regard. That is not to suggest that such a witness has deliberately misled the Court, but simply that the passage of time can very easily result in mistakes being made as to exactly what occurred or when. This likely is the case with the instant situation involving the recollection of this witness. The Court proceeds on the balance of probabilities bearing in mind the whole of the evidence adduced. Dealing with the central issue in the case 180 The central issue for decision concerns whether or not the 16 April 2002 letter constituted a binding agreement:

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(b) reveal no more than an objective intent that the parties would not be legally bound to a long-term agreement unless a formal document was executed]. 183 The credit question which underlies the matter referred to in i above is very difficult to answer on the evidence. This is especially so because of the problems in accepting the affidavit evidence sought to be given by Mr Dalton [in contra-distinction to the evidence which he had given in the above described statutory declaration]. There is precious little in any evidence given by any other of the witnesses called by Mayne which can conclusively bear on the subject. Mayne essentially relies upon the evidence of the contemporaneity of the discussions which Mr O'Shanassy was having in relation to the obtaining of further finance/the proposed float. Ultimately in my view the evidence given by Mr O'Shanassy is on the balance of probabilities to be relied upon in relation to this issue. Notwithstanding the closest of cross-examination on the subject, he quietly and repeatedly denied having induced Mr Dalton to sign the letter on the basis that it was only needed to be shown to investors. He denied that such a conversation had ever taken place. That denial is accepted as the truth. Once one is not able to rely upon the evidence given by Mr Dalton, the balance of probabilities must favour the version given by Mr O'Shanassy. This is consistent with the proper approach to seriousness of the allegation made by Mayne. Notwithstanding the state of the pleadings [which put the case in terms of s 52 of the Trade Practices Act and in terms of an estoppel], effectively the content of the allegation if made out, would constitute one of fraudulent intent or as close as may be to such an allegation. Such an allegation, whether one of fraudulent intent or similar, is one of the most serious allegations capable of being made. 184 There is a plethora of authority in support of the proposition that the Court is bound to see that a case of such serious wrongdoing is clearly proved. The gravity of an allegation of such serious wrongdoing has been said to be such that whereas section 140(1) of the Evidence Act 1995 (NSW) stipulates a single standard of proof for all civil cases, namely the balance of probabilities, Section 140(2) preserves the doctrine in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362; Pedler v Richardson (unreported, Supreme Court of NSW, 16 October 1997, Young J) at 10-11. See also McLelland CJ in Eq in Watson v Foxman (2000) 49 NSWLR 315, 319. 185 More recently in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 the High Court has put the matter in the following terms:

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We are pleased to advise that, conditional to your acceptance of the terms and conditions of Supply Agreement 10105 C (attached), Sagacious Procurement Pty Ltd has been successful as the ongoing supplier of catering supplies to Mayne. This agreement ( based on your proposal on 16 April 2002) supersedes the strategic Alliance of July 2000 as of January 2002 [emphasis added] 196 What was known to both Mr O'Shanassy and Mr Dalton was that the words "based on your proposal on 16 April 2002" had emanated from Mr O'Shanassy. Even accepting Mr O'Shanassy as a witness of reliability, this description [of the 16 April 2002 letter] which he volunteered as apt to be included in the 10 May 2002 letter, is totally inconsistent with the notion that the 16 April 2002 letter was, or was to be regarded as a binding document insofar as providing for the long-term. Mr O'Shanassy was a lawyer. The characterisation of the 16 April letter was a matter of very great significance in the instant environment. To suggest that use of the word "proposal" can be explained away by a looseness of language, would be very far-fetched, bearing in mind the environment in which the letter came to be written. 197 The fact that this word was inserted into the letter at the express request of Mr O'Shanassy is an extraordinarily powerful indicator that both Mr O'Shanassy, as well as Mr Dalton, had at all material times, regarded so much of the 16 April letter as involved the long-term proposition, as no more than a proposal. This underlines the probability that the parties intended that they would not be legally bound to a long-term agreement, unless and until a formal document was executed. 198 It is appropriate to add that notwithstanding that Mr Dalton had indeed been the signatory of Mayne's acceptance of the terms of the 18 January 'Billing Option' variation to the anterior contractual arrangements, there can be perceived to have been a dimensional difference between on the one hand, that January short crisp 'one off' variation to the extant contract, and on the other hand, the ambit of the 2½ year suggested term, provided for in the relatively formal and complex 16 April letter. 199 Nonetheless one is left with requiring to cope with why the 16 April letter was countersigned by Mr Dalton, if it were not to be regarded as a binding agreement. This is one of the mysteries of this case, particularly so in the light of Mr Dalton having sworn in the statutory declaration that he had considered that the letter countersigned by him indeed procured an agreement to secure Sagacious' procurement services for the next 2½ years. The balance of probabilities seems to me to suggest that the intent may well have been that the only part of the arrangement posited in the 16 April letter which would bind the parties, was that dealing with a subset case: namely that dealing with the intermediate short-term position covering the trial period commencing only from May 1. And this although no witness gave evidence to this effect. As already indicated any such intent was not documented with sufficient precision for the court to be able to hold a binding agreement to this effect. 200 Perhaps all that may be said about this mystery is that (1) the Court reaches its findings based upon all of the evidence before it; and (2) that the communications between the parties, both before, as well as following the countersigning of the letter by Mr Dalton, are strong indicators that the letter was never intended by the parties to operate immediately in terms of a long term binding agreement. In that regard the letter may be regarded as falling within the third Masters v Cameron classification. In all of this it is important to keep in mind the sense in which the court approaches the ascertaining of the parties intention: what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties [cf Reardon -Smith Line Ltd v Hansen-Tangen supra]. 201 The balance of probabilities appears to me to favour the proposition that the parties intended that a new deal commence only for that section of the trial period as would commence on 1 May and that, in that respect, the parties simply failed to achieve such an aim with the appropriate words in the document. The closest indicator of such an intent is arguably to be found in clause 2 of the letter Agreement where Sagacious agrees to provide its services as described in the proposal, for a period commencing 1 May 2002. All of this would be entirely consistent with the concerns which to the knowledge of Mayne, Sagacious had at the time during the March/April period, in terms of not being in a position to go forward with the continuity of the recurring anterior losses which could no longer be sustained. 202 There is no particular problem in an analysis which would view the 16 April letter as intended to bind, but only in so far as dealing with the subset case analysis commencing on 1 May, which analysis albeit not finding express mention, is at least not at odds with the contemporaneous documentary evidence. That analysis is consistent with the email [PX11 Tab 421] from Mr Dalton to Ms Woods of 10 May 2002 written in relation to the draft letter of intent and reading:

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