Ms Peen
137 Ms Peen owns the Paterson Farm in the Hunter Valley region. She has been involved in the chicken farming industry since 1987. From the time she bought the Paterson Farm in 2001 Ms Peen had the long-term goal of converting the two existing sheds on that property to tunnel ventilation and constructing another two tunnel ventilated sheds. To do so, however, she needed the security of a long-term supply commitment from Steggles. Ms Peen received a letter from Steggles on 20 March 2001 advising that Steggles would commit to offering her a new contract on expiry of the existing contract (due in mid 2004) on the basis of conversion of the two existing sheds to tunnel ventilation. As to her two proposed new sheds, Steggles advised that its prior consent to that additional floor space would be required but Ms Peen's desire was "consistent with our longer term desire to increase average farm size".
138 Ms Peen obtained a loan from her bank of $135,000 to convert the two existing sheds to tunnel ventilation. Acting on her bank's advice, Ms Peen sought and obtained a letter from Steggles dated 14 May 2003 which advised that, although the contract then in existence was due for renewal, Ms Peen's farm was part of Steggles' "future capacity planning", and that Steggles proposed a new contract of five years duration with an option for renewal for another five years. At the time of this letter Ms Peen had converted one shed to tunnel ventilation (as referred to in the letter, that conversion fully met Steggles' requirements). The letter said that Ms Peen's second converted shed would "not be required until the first half of 2004…". Ms Peen thereafter converted the second shed to tunnel ventilation in early 2004.
139 Also in 2004, after she had grown her first batch of chickens for Steggles, Ashley Etherington (then Steggles' livestock manager) told Ms Peen that Steggles wanted her to build the two additional sheds straight away and that Steggles could guarantee chicks for those sheds as well. Ms Peen responded that she had to renovate her house first but would then build the new sheds. On 8 April 2004 Ms Peen received a letter from Steggles seeking submission of an expression of interest for the expansion of her farm. The letter said "at this stage we are looking for expressions of interest only - this is not a commitment to allow your farm to expand". This letter needs to be understood against the background discussed above in which Steggles wanted growers to convert to tunnel ventilation from at least 2000 but had some difficulty in persuading sufficient growers to do so to meet Steggles' processing capacity.
140 Ms Peen responded in writing on 15 April 2004. She noted that the conversion of the existing second shed would be completed soon and that she hoped to build two additional sheds over the next few years as they had moved to the farm with the intention of growing chickens for Steggles and building the four tunnel ventilated sheds.
141 Ms Peen's contract was renewed in or about August 2004 on the standard terms as set out above. At this time Ms Peen's farm consisted of the two tunnel ventilated sheds.
142 On 24 February 2005 Ms Peen received another letter from Steggles about her expansion plans. The letter attached the required standards for shed construction. The letter said that it was not "an approval for expansion" as Steggles "may not require all the new shedding that people offer". The letter sought a program from Ms Peen to which Steggles would respond in writing. Ms Peen responded on 3 March 2005. Ms Peen said that she intended to obtain quotes and to submit all costings to the bank for a separate loan for proposed shed 3. Once shed 3 was complete she would apply for a loan for shed 4. She would use the income from these sheds to pay off the loan as soon as possible. As to Steggles' position that there was no approval for expansion, Ms Peen noted that Mr Etherington and the author of the letter of 3 March 2005 (Mr Ryan) had "always told us that our other two sheds were incorporated in [Steggles'] long term planning".
143 In early August 2005 Ms Peen called Mr Ryan. She said that she had spoken to her bank (about the loan for shed 3). The bank asked for a letter from Steggles that Steggles "will put chickens in shed 3". Ms Peen requested a letter to that effect for the bank. Mr Ryan agreed to do so.
144 Before describing the contents of the letter Mr Ryan sent it is relevant to note that batch rates had been increasing since late 2003. At the time of Ms Peen's loan for conversion of the two existing sheds Steggles was supplying growers with 5.4 batches per year. By the first half of 2004 the batch rate had increased to 6.1 batches per year. It increased again to 6.36 batches per year for the second half of 2004. Steggles predicted to the PMIC another increase in the first half of 2005 to 6.45 batches per year (with an average growing period of 47 days and stocking density of 19.5 birds per square metre).
145 Mr Ryan wrote to Ms Peen on 12 August 2005 as requested. Mr Ryan's letter said that he confirmed previous discussions that Steggles had accepted Ms Peen's offer to build a third shed of 16,000 square feet on her farm. Further that:
This capacity will be added to your existing growing contract and the new shed will be stocked at the normal rate.
For our planning purposes I would like a definite timetable of construction and commissioning as soon as it is available.
146 Ms Peen read this letter and understood that "the normal rate" meant the same rate that Steggles had always stocked her first two sheds after they had been converted to tunnel ventilation, being 19.5 birds per square metre and six batches per year. This understanding was reasonable. It accorded with the facts then in existence. I infer that by "normal rate" Mr Ryan intended Ms Peen to understand that Steggles was promising her that, consistent with its practice for the existing sheds, Steggles would supply the two new sheds with birds at 19.5 birds per square metre and six batches per year. Moreover, it is clear that Steggles was making this promise knowing that Ms Peen intended to rely on it for the purpose of obtaining a loan from her bank to enable her to construct two new tunnel ventilated sheds on her farm.
147 In June 2006 Ms Peen provided information to the bank in support of her loan with her projected income from shed 3. Unsurprisingly, given the terms of Steggles' correspondence, Ms Peen's income projections are based on six batches per year at a stocking density of 19.5 birds per square metre. In fact, the projections range from a low of six batches per year to a high of 6.5 batches per year. The projections show that Ms Peen's capacity to repay the loan depended on these assumptions as to batch rates and stock density. Ms Peen's information as submitted to the bank also invited the bank to speak to Mr Ryan if it wished to do so.
148 On 7 July 2006 Mr Ryan sent another letter to Ms Peen, I infer at her request in response to the bank's requirements. This letter said:
This is to confirm our phone conversation about your proposed third shed.
[Steggles] will place birds at a standard 19.5 per square metre running at six complete batches per year.
A contract for the new shed will be forwarded to you. Should you or your bank require any further information, please contact me.
149 In the interim the fourth shed also came onto the agenda, apparently at the bank's suggestion for a consolidated loan. Mr Ryan sent Ms Peen another letter she had requested on 11 August 2006 as follows:
This is to confirm our phone conversation about your proposed third and fourth shed.
[Steggles] will place birds at a standard 19.5 per square metre running at six complete batches per year.
A contract for the new sheds will be forwarded to you. The commencement date of the contract covering these sheds is 1 July 2006. Should you or your bank require any further information, please contact me.
150 The bank lent Ms Peen $380,000 and $470,000 for the third and fourth sheds respectively (noting that the cost of constructing the new sheds far exceeded the conversion of the existing sheds). Ms Peen accepted the loans and decided to construct the new sheds.
151 According to Ms Peen although she always planned to build four tunnel ventilated sheds on the farm her plan was subject to having in place a long term contract with Steggles which incorporated those sheds and thus guaranteed enough income to justify the additional investment. Further, she decided to build the new sheds on the understanding that Steggles had promised her a contract to 30 June 2009 with a five year renewal option and that, during the term of those contracts, she would be provided with six batches of chickens per year at a stocking density of approximately 19.5 birds per square metre for each shed Steggles had approved. However, since Baiada had taken over Steggles (in the latter half of 2009) the batch rate had decreased as the breaks in between batches had increased to five and then seven weeks. This "played bedlam" with her income and she had to borrow again to tide her over.
152 In cross-examination Ms Peen accepted that the batch rate had increased after 2004. She accepted that if a catastrophe hit the chicken industry she would expect the batch rate to go down. However, once the batch rate had increased to six and above Ms Peen did not accept that she expected the batch right might fall below six due to factors other than catastrophe. According to Ms Peen Steggles "couldn't get enough chickens". Ms Peen accepted that it was her plan, indeed her dream, to have four tunnel ventilated sheds on the farm. This also was her plan and dream when the batch rate was 5.4 batches per year. However, Ms Peen said, on that batch rate, she could not afford to fulfil her dream and have four sheds. For four sheds, she required a batch rate of six per year. Ms Peen acknowledged that when she converted the two existing sheds she had no assurances from Steggles as to batch rates. Ms Peen also accepted that, had she not had to renovate the house instead, she would have been happy to proceed with the third and fourth sheds in early 2004. As to the contract, Ms Peen said she did not really read it as she relied on the Growers' representatives to make sure the contract was right. She knew it was for a term of five years with a five year option and that changes to the contract had to be in writing but otherwise trusted the Growers' representatives.
153 In re-examination Ms Peen confirmed that she had to borrow money in order to construct the third and fourth sheds. She was never in a position to construct those sheds without borrowing. She would not have been happy to borrow money that she could not repay as she would not then "have been able to sleep".
154 Steggles submitted that Ms Peen's evidence showed that she had not relied on any representation by it. Ms Peen did not ask for confirmation about the batch rates at any time. She asked only about the supply of chickens. According to Steggles, from 2001 Ms Peen intended to build four sheds, even when the batch rate was 5.4 batches per year. Ms Peen would have gone ahead on that batch rate in 2001 if she had the money or if Steggles had approved her expansion plans at that time or in 2003 if she did not need to first renovate the house. Ms Peen also knew that the contract had to be varied in writing. Steggles submitted further that Ms Peen had not shown any net detriment. Ms Peen had borrowed money but had also grown a large number of chickens and been paid for them. Moreover, the Standard Growing Fee formula provides for an increased base rate if batch rates fall.
155 I do not accept Steggles' submissions. The facts relating to Ms Peen satisfy each of the elements required for an equitable estoppel to arise. In summary, the subject of the estoppel is Ms Peen's expectation arising from Steggles' promise that Steggles would supply chicks to her farm for the duration of the contract at a stocking density of 19.5 birds per square metre and a batch rate of six batches per year. Ms Peen borrowed money and constructed two new tunnel ventilated sheds in reliance on that promise and her expectation, induced by Steggles, that it would not withdraw from that promise. Steggles' conduct since late 2009, in not supplying Ms Peen's farm with chicks at a stocking density of 19.5 birds per square metre and a batch rate of six batches per year and its insistence that it has no obligation to do so for the duration of the contract, is unconscionable in all of the circumstances.
156 As to the first requirement, the context was Ms Peen's decision whether to construct the new tunnel ventilated sheds on her farm. The fact that Ms Peen always dreamt of having a farm with four tunnel ventilated sheds does not undermine her evidence that she could not and would not have proceeded with any of her plans if not satisfied that she had a long-term contract with Steggles and a guaranteed supply of chicks for her sheds. More specifically, it is clear from her evidence that the construction of two new sheds involved a substantial financial commitment, much greater than that involved in the earlier conversion of the two existing sheds. Ms Peen could not construct the two new sheds without a substantial loan. She would not take up a substantial loan unless she had a high degree of comfort that she could afford the repayments. At the time Ms Peen came to commit to construction of the new sheds the batch rates had been not less than six per year at the usual stocking density of 19.5 birds per square metre for some time. Moreover, the trend was increased batch rates in a known expanding market.
157 In this context, Steggles took upon itself the role of approving the construction of her new sheds. Consistent with its practice over many years Steggles actively managed the available shed space in the region to ensure that its demands for tunnel ventilated sheds could be satisfied. As part of this active management Steggles either accepted or rejected offers to provide shed space in the region. Steggles actively sought that Ms Peen convert the existing sheds and construct the new sheds, presumably because Ms Peen was a reliable and sound grower. More specifically, when Ms Peen had to decide whether to construct the new sheds she sought and obtained certain assurances from Steggles. She did so at a time when the contract was in force and did not bind Steggles to provide any particular batch rate or stocking density. Steggles knew that Ms Peen needed loan funds to undertake the construction. It knew that the bank sought an assurance about the supply of chicks. It was obvious and Steggles must have known that Ms Peen's capacity and decision to proceed depended on receiving the required assurances about supply. Against this background, Mr Ryan for Steggles assured Ms Peen in writing that the new third shed would be "stocked at the normal rate". There cannot be any real doubt that, at the time of writing, Mr Ryan intended to refer to the normal rate of six batches per year at a stocking density of 19.5 birds per square metre. Ms Peen so understood that letter. Her understanding was reasonable and, indeed, correct.
158 Later, and again at Ms Peen's request, Mr Ryan on Steggles' behalf assured Ms Peen in writing in respect of her third shed that Steggles would place birds at a standard 19.5 birds per square metre running at six complete batches per year. When the opportunity to obtain loan funds for the fourth shed arose shortly thereafter, Mr Ryan on Steggles' behalf gave precisely the same assurance. In all cases Mr Ryan also assured Ms Peen that her two new sheds would be included in her contract. In context, the meaning of the assurances is clear. Steggles assured Ms Peen that under her contract it would supply her with birds for her farm (including the two new sheds) at a standard 19.5 birds per square metre at a batch rate of six complete batches per year.
159 These assurances must be (and were) understood as relating to all four sheds on the farm. The subject of the assurances is supply of chicks in circumstances where growers are paid on collection. For the assurances to make any sense they had to relate to all the sheds on the farm. There would be no point in Ms Peen building two new sheds to be stocked at the assured rate if the two existing sheds remained empty or stocked at a lesser rate. Steggles must have known this and must have known that this is how Ms Peen would have understood the assurances it gave in writing.
160 In these circumstances I am satisfied that, in terms of the first element, Ms Peen expected a particular legal relationship would come to exist with Steggles. The existing contractual relationship did not bind Steggles to a particular batch rate or stock density of supply; however, Steggles promised Ms Peen that if she built the two new tunnel ventilated sheds it would supply her with chicks to her farm under the contract at the nominated batch rate and stock density. The fact that Ms Peen knew that the contract could be varied in writing only is immaterial. Steggles was not varying the contract with Ms Peen. It was giving her assurances about its future legal duties and her future legal rights. The existing contractual context made the assurances more, not less, significant.
161 The same conclusion applies to the fact that, when the contract was negotiated between Steggles and the Growers' representatives in or about 2004, the Growers sought and Steggles refused to include a requirement for a minimum batch rate and stock density (see paragraphs 18E and 18F of the fast track statement and defence). This demonstrates Steggles' awareness of the importance of these factors to a grower. Knowing this importance, when encouraging Ms Peen to construct two new sheds on her farm, Steggles promised Ms Peen that she would be delivered chicks at a certain batch rate and stock density.
162 The fact that Ms Peen may have implicitly accepted that Steggles' promises might not be fulfilled in the event of some catastrophe overtaking the chicken industry either nationally or in the Hunter Valley region does not make the promises worthless or any the less capable of founding a clear expectation about Steggles' future legal duties to her. The contract itself (cl 18) defines events which may suspend the contract including disease. Steggles' promises were to supply chicks at a certain batch rate and stock density under the contract. The fact that the contract has exceptions and exclusions does not undermine the legal efficacy or commercial value of the contract. So too Ms Peen's assumed implicit acceptance that the same exceptions and exclusions would apply to Steglges' promises does not mean that Steggles was somehow reserving to itself a right to withdraw or change its position at its own discretion.
163 Mr Ryan did not give any evidence of conversations with Ms Peen by which he qualified the clear assurances given in the correspondence. In the context of communications with Mr Wood, Mr Ryan said that he only promised batch rates for the period which he could foresee (which he explained as the upcoming period of about six months or a year). However, no such qualification is apparent in, or reasonably able to be read into, Mr Ryan's communications with Ms Peen. The ordinary and natural meaning of the assurances which Mr Ryan gave Ms Peen is that, for the life of the contract, Steggles would supply Ms Peen's farm (all four sheds) with birds at a standard 19.5 birds per square metre of shed space running at six complete batches per year.
164 The second element of the equitable estoppel is also satisfied. Steggles induced Ms Peen to adopt this expectation. Steggles wanted Ms Peen's farm to increase in size as part of Steggles' own commercial aim of ensuring that supply of grown chickens to its processing plant could be maintained. It is obvious that the purpose of the written assurances given by Mr Ryan to Ms Peen in the letters of July and August 2006 was to induce Ms Peen to proceed with the two new sheds.
165 The third element of the equitable estoppel, reliance, was the focus of Steggles' submissions. There are two difficulties with these submissions. First, Steggles took parts of Mrs Peen's evidence out of context (specifically, those parts where Ms Peen confirmed that it was always her dream to have four sheds and would have proceeded earlier if she could have done so). However, when the evidence is considered as a whole it is apparent that while Ms Peen had plans and dreams, she is also a rational and sensible person. She would not proceed with her plans or dreams unless she had the financial capacity to do so. When she did not have that capacity she did not proceed. To obtain that capacity she needed to borrow money. Steggles knew this (as she had told Steggles about her need to borrow) and knew that Ms Peen needed assurances for the purpose of obtaining loans to give her the financial capacity to construct the sheds that, I infer, Steggles wanted her to construct for its own commercial ends. Second, given the factual context described above, the submission that I should infer that Ms Peen did not rely on Steggles' assurances when she proceeded to construct the two new sheds defies common sense. Ms Peen's evidence, taken as a whole, compels the conclusion that but for Steggles' assurances as to its future dealings with her, Ms Peen would not have constructed the third and fourth sheds. Ms Peen acted on the faith of the expectation which Steggles had knowingly induced in her.
166 These conclusions also mean that the fourth element of the equitable estoppel is satisfied. Steggles knew that Ms Peen was acting in reliance on Steggles' assurances. It intended that she so act. Steggles wanted the new sheds as part of its active management of shed space in the region. It wanted the new sheds available within a particular time. It approved the new sheds for the purpose of rearing its chickens. In this context it guaranteed supply at a particular batch rate and stock density. Its guarantee was intended to ensure Ms Peen constructed the sheds.
167 The fifth element, detriment, is also satisfied. Steggles' submissions to the contrary again overlook the evidence and cannot be reconciled with common sense. The adjustment provision in Appendix B of the contract by which the Standard Growing Fee increases if batch rates decrease does not offset the whole of the detriment. If her expectation is not fulfilled (as has been the case over the last six to nine months) Ms Peen's income will be substantially reduced and her capacity to repay the bank severely compromised. Steggles knows how the Growers are paid. It knows how much the Growers receive per bird. It knows how many birds it supplies to the Growers. It always knew all of these things. It knew Ms Peen had to borrow to construct the third and fourth sheds. It knew that its assurances were intended to be communicated to the bank to support Ms Peen's loan application. Steggles' submission that "net" detriment has not been proved (apparently because Ms Peen was supplied with and paid for a large number of birds) is no answer to the fact that Ms Peen has and will continue to suffer a very real detriment if Steggles continues to act inconsistently with the expectation which it induced Ms Peen to hold when it wanted her to construct the third and fourth sheds. In this regard it must also be recalled that cl 8.4(b)(1) of the contract provides that the Grower must ensure that birds supplied by Steggles are the only poultry on the farm. I am satisfied that Steggles' refusal since late 2009 to fulfil its promise to Ms Peen is unconscionable in the circumstances.
168 The sixth element is also satisfied. Steggles has not acted to avoid the detriment. To the contrary, the evidence is that batch rates have continued to fall well below the level which Steggles promised Ms Peen.
169 In terms of remedy, there is no evidence suggesting that it is impossible, impractical, or in any way difficult for Steggles to supply birds to Ms Peen in accordance with its promises. A notable feature of Steggles' case is the lack of any explanation for the dramatic decrease in supply to the Growers after the take-over by Baiada and the arising of the commercial dispute which this litigation represents. There is no evidence that the market for poultry meat has contracted, that market conditions are difficult, that profit margins are low, that some disease has affected the region or the industry, or that the Beresfield processing plant is experiencing some difficulty, or even that production levels from that plant have decreased. The only evidence is that the supply of birds to the Growers has substantially decreased over the past six to nine months after the take-over by Baiada and in the context of this dispute.
170 Although Steggles submitted that the minimum equity was not to hold it to its promise, Steggles did not identify any lesser relief which could or would ameliorate Ms Peen's detriment (apart from its contention that the proper remedy was damages, which I have rejected above). I am unable to see any way in which the detriment to Ms Peen can be avoided other than by holding Steggles to its promises. As an equitable estoppel can found a cause of action, the appropriate remedy is a declaration and, if necessary, an order requiring Steggles to supply birds to Ms Peen under the contract at "a standard 19.5 per square metre running at six complete batches per year".