New South Wales Supreme Court CITATION : Darryll Cullen v ZLB Behring LLC [2006] NSWSC 265 HEARING DATE(S) : 3/04/06 - 10/04/06 JUDGMENT DATE : 12 April 2006 JURISDICTION : Equity Division Commercial List JUDGMENT OF : Einstein J DECISION : Proceedings to be dismissed. CATCHWORDS : Contract - Certainty - Incompleteness - Exclusive Distributorship Agreement - Failure to agree upon product price - Necessary content of exclusive distributorship agreement Fair Trading Act 1997 LEGISLATION CITED : Therapeutic Goods Act 1989 Trade Practices Act 1974 ADC v White & Anor (unreported, Supreme Court of New South Wales, 8 February 1999, Einstein J) Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101 Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 Australia China Business Bureau Pty Ltd v MCP Australia Pty Ltd [2003] FCA 934 Australian and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695 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 Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 Baulkham Hills Private Hospital Pty Ltd v G R. 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 Brunninghausen v Glavanics (1999) 46 NSWLR 538 B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 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 Electricity Corporation of New Zealand Ltd v Fletcher Challenge Energy Ltd [2002] 2 NZLR 433 Gissing v Gissing [1971] AC 886 Godecke v Kirwan (1973) 129 CLR 629 Graham Evans Pty Ltd v Stencraft Pty Ltd (2000) 16 BCL 335 G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 CASES CITED : Heysham Properties Pty Limited v Action Motor Group Pty Limited & Ors (1996) 14 BCL 145 Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Limited (1990) 20 NSWLR 310 Hospital Product Ltd v United States Surgical Corporation (1984) 156 CLR 41 Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 Kofi-Sunkersette Obu v A Strauss & Co Ltd [1951] AC 243 Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 Lohar Corporation Pty Ltd v Dibu Pty Ltd (1976) 1 BPR 9177 Love & Stewart Ltd v S Instone & Co Ltd (1917) 33 TLR 475 iMackay v Dick (1881) 6 App Cas 251 Magill v National Australia Bank Ltd [2001] NSWCA 321 Masters v Cameron (1954) 91 CLR 353 Meehan v Jones (1982) 149 CLR 571 Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep 601 Prenn v Simmonds [1971] 1 WLR 1381 Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235 Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310 Sportvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103 Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290 Summer v The Commonwealth (1918) 25 CLR 144 Telstra Corporation Limited v Australis Media Holdings (1997) 24 ACSR 55 Tern Minerals NL v Kalbara Mining NL (1990) 3 WAR 486 United States Surgical Corporation v Hospital Products International [1982] 2 NSWLR 766 Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32 PARTIES : Darryll Cullen (Plaintiff) ZLB Behring LLC (Defendant) FILE NUMBER(S) : SC 50125/04 COUNSEL : Mr M Einfeld QC, Mr V Kerr (Plaintiff) Mr TGR Parker SC, Mr NJ Kidd (Defendant) SOLICITORS : Carneys Lawyers (Plaintiff) Allens Arthur Robinson (Defendant) LOWER COURT DATE OF DECISION : 04/03/2006 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Wednesday 12 April 2006 50125/04 Darryll Cullen v ZLB Behring LLC JUDGMENT The proceedings 1 These are proceedings brought by Mr Darryll Cullen who has carried on the business of importation and distribution of plasma products under the business name "MDA Pharma" [referred to herein as "MDA"]. MDA seeks to enforce its alleged rights as distributor under what is said to be an exclusive marketing and distribution agreement within Australia. The defendant is ZLB Behring LLC which manufactures and supplies pharmaceutical products [and was previously named "Aventis Behring"][referred to herein as "Aventis"]. 2 Aventis has cross-claimed against MDA. The agreement 3 The agreement the subject of the litigation is entitled "Memorandum of Understanding ["MOU"] which provided for an initial three year term commencing on 24 August 2001 and expiring on 23 August 2004. It is in the following terms: MEMORANDUM OF UNDERSTANDING This agreement dated Friday, 24 August 2001 The parties to the agreement are: MDA Pharma with head office at: MDA Pharma 28 Park Street Mona Vale NSW 2103 Australia AND: Aventis Behring with head office at: Aventis Behring L.L.C. 1020 First Avenue Kind of Prussia PA 19406-0901 With all dealings through: Aventis Behring Asia Pacific Ltd Units 1206-1208, 12/FK. Wah Centre 191 Java Road, North Point Hong Kong THE TERRITORY The "territory" referred to in this agreement is Australia PRODUCTS "Products" refers all plasma products bearing the name of Aventis Behring. "Products" also refers to the recombinant products Helixate FS or Helixate Nex Gen. TERMS OF AGREEMENT Aventis Behring agrees to provide their products exclusively to MDA Pharma for marketing and distribution in the territory for three years with a five-year option. The parties agree that MDA Pharma will use their best efforts to provide access to the Australian market as soon as practicable for the following products: Haemate P or Humate P Berinert P Rhesogamma P Helixate Nex Gen/FS Furthermore we agree that MDA Pharma will have exclusive access to all other plasma products of Aventis Behring. MEMORANDUM OF UNDERSTANDING PRICING/QUANTITIES The prices and quantities agreed upon for 12 months for the following products are: PRODUCTS PRICING QUANTITY Haemate P or Humate P US$0.50 cents/unit 1 million units Berinert P US$0.65 cents/unit 100,000 units Rhesogamma P US$50.00/vial 1.5mL 20,000 vials Helixate Nex Gen/FS To be determined To be determined The above agreed prices and quantities include CIF (Cartage, insurance, and freight) to MDA Pharma will place an order for the above products immediately on finalisation and signing of the Memorandum of Agreement. TERMS MDA Pharma will pay on invoice after 90 days for the first order. Subsequent orders with (will) be payable 60 days from receipt of invoice. MARKET CONDITIONS If for any reason the Australian Government makes changes to the import policy for the products resulting in loss of sales potential to MDA Pharma, Aventis Behring will take back any unsold quantities. PRODUCT TRAINING Product training should be provided at the expense of Aventis Behring. STOCK Stock provided should have expiry dates that are communicated and acceptable to both MDA Pharma and Aventis Behring. REGULATORY ISSUES Products must conform to the local regulatory requirements for both efficacy and safety. INDEMNITY Aventis Behring indemnifies MDA Pharma against any losses, damages, claims, demands, suits, actions, orders or judgments arising out of or in respect of defective products supplied by Aventis Behring to MDA Pharma. MARKET INFORMATION All enquiries from the Australian market for product information received by Aventis Behring will be passed on to MDA Pharma including past product enquiries. [The signatures of the representatives of both parties then appear alongside the date and over the respective names 'Aventis Behring' and 'MDA Pharma'.] Nature of the Products 4 At all relevant times, the supply of plasma products in Australia has been regulated by the Therapeutic Goods Act 1989 (the TG Act). Under the TG Act, plasma products supplied in Australia are required to be approved and registered on the Australian Register of Therapeutic Goods. However, the TG Act provides a number of mechanisms for exemption which allow access to therapeutic goods that are not registered. 5 One such exemption mechanism is known as the "Special Access Scheme" ["SAS"]. The SAS contains arrangements for the supply in Australia of unregistered therapeutic goods to individual named patients in certain circumstances. 6 In order for therapeutic goods to be supplied under the SAS it is necessary either that a medical practitioner form the view and certify that the named patient is suffering a life threatening illness requiring early treatment, or that a medical practitioner apply for and obtain the prior approval of the TGA to the supply of the unregistered product for the named patient. 7 At all relevant times, none of the plasma products manufactured by ZLB were registered on the Register maintained under the TG Act. 8 As to the four products referred to: (a) Haemate P or Humate P – is a factor VIII product, used in the treatment of haemophilia and Von Willebrand's disease; (b) Berinert P – is a C1 esterase inhibitor, used in the treatment of angioedema; (c) Rhesogamma P – is an anti D, used for treatment of new born children and their mothers; and (d) Helixate Nexgen FS – is a recombinant factor VIII product, used in treatment of haemophilia. The issues 9 Many of the issues raised are common to both the summons and the cross-claim. 10 Without necessarily being exhaustive the principal issues appear to be as follows: S42 Fair Trading Act 1997 i. whether MDA by the making of alleged representations as to the likely quantity of sales of Aventis's products that MDA would achieve, engaged in conduct in breach of s 52 Trade Practices Act 1974 and s 42 Fair Trading Act 1997; ii. whether Aventis entered into the MOU in reliance upon misleading and deceptive representations; iii. if so whether Aventis is likely to suffer loss or damage by reason of entering into the MOU. No legally enforceable agreement iv. Whether the MOU had legal effect from its inception [The issues included the contentions that, there being no mechanism for determining the price and quantities of particular products, those matters could only be determined by agreement between the parties; and/or that there was no legally enforceable agreement for products otherwise than in respect of the products where agreement on price and quantities for the first 12 months of the term had been reached] Option issues v. whether the MOU included an exercise of option: a) to extend the term by five years up to 24 August 2009 or b) to extend the term by one year to 24 August 2006 [constituting an extension for five years from inception] [The issues included the contention that the option was not exercisable unilaterally by MDA because no agreement existed as to price or subject matter or as to the identity of products that may then be the subject of the further term and their quantities] vi. whether MDA' purported exercise of option by letter dated a June 2004 was effective to extend the term of contract up to 24 August 2009. Breach by Aventis and damages issues vii. whether in breach of the exclusivity provisions, Aventis supplied particular product on particular dates to customers in Australia other than MDA viii. If so whether MDA has suffered any and if so what damages; ix. whether particular conditions were or were not conditions of contract constituted by the MOU; x. Whether even if particular matters were not conditions of the MOU, those matters were intermediate terms the breach of which would: a) deprive Aventis of substantially the whole of the benefit of the MOU, and b) entitle Aventis to treat the MOU as having been repudiated. Breaches by MDA and implied terms xi. whether particular terms are to be implied; xii. whether MDA breached alleged terms of the MOU as for example by failing to use best endeavours to promote particular sales. Termination issues xiii. whether the MOU itself terminated on particular dates or was terminated on one of a succession of dates. Relief issues xiv. Questions concerning the relief to be granted even if the MOU is enforceable and remains on foot [Aventis contended that the products being lifesaving products, the effect of the grant of an injunction would be to sterilize the supply of Aventis's plasma products into Australia] The principles 11 Neither party submits that there was no intent to enter legal relations at the time when the MOU came into creation. 12 Rather Aventis submits that the MOU is not legally enforceable because it is incomplete in essential respects. Incompleteness/uncertainty 13 In Australia China Business Bureau Pty Ltd v MCP Australia Pty Ltd [2003] FCA 934 (at [208]) Hely J expressed the well accepted principles in the following passage: "In commercial transactions the Court should strive to give effect to the expressed arrangements and expectations of those engaged in business, notwithstanding that there are areas of uncertainty and notwithstanding that particular terms have been omitted or not fully worked out. But there are limits: Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32, 67 (Ormiston J). If the parties intended to be bound, the Court will strive to find a means of giving effect to that intention by filling any gaps. But if the parties did not intend to be bound unless they themselves filled the gap (rather than leaving the task to the Court or a third party) then the agreement will not be binding if there are unagreed matters which the parties themselves regard as a prerequisite to any agreement: Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR 433, [52] to [67]." [emphasis added] 14 In Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101, Ipp J treated closely (at [111] et seq) with the necessity, once a requisite intention to enter legal relations was shown, for the Court to determine whether the contract was so incomplete or uncertain as to be void. His Honour cited the following passage from the judgment of Lloyd LJ in Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep 601 at 619: "It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over. This may be misleading, since the word 'essential' in that context is ambiguous. If by 'essential' one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by 'essential' one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by 'essential' one means only a term which the court regards as important as opposed to a term which the court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether they are important or unimportant. It is the parties who are, in the memorable phrase coined by the Judge, 'the masters of their contractual fate'. Of course, the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so-called 'heads of agreement'." 15 I draw attention immediately to the proposition that it is the parties who are "the masters of their contractual fate". It is the parties who are to decide what are the terms which are to bind them. As well be seen in what follows, the decision in the proceedings applies that proposition. 16 Questions of incompleteness and/or uncertainty are returned to below in the judgment. General approach 17 Other expressions of the general principles include: · The court is dealing with a commercial contract. In construing the meaning of a term the Court will strive to give the agreement a commercial, reasonable and rational operation: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109. · As Kirby P observed in Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Limited (1990) 20 NSWLR 310 at 313-314: "Whoever may be the parties to the agreement, it is the fundamental rule, that a Court should give the words of a written agreement the natural meaning that they bear. Subject to that rule, in giving meaning to the words of an agreement between commercial parties, Courts will endeavour to avoid a construction which makes commercial nonsense or are shown to be commercially inconvenient. This is because Courts will infer that commercial parties would not themselves normally agree in such a way". · There is abundant authority that "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 such 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 contract that the court must attend looking in that regard to the whole of the contract to discern the parties intent. · Where mechanical provisions intended to operate over an extended period of time are concerned the court endeavours to follow the mechanics and provisions expressed in the contract in the endeavour to follow, always by looking at the manner in which the matter is expressed, how the parties saw the contract as a working guide to the way forward. · As pointed out in Biotechnology at 135, the court will however not be in a position to in effect spell out that which the parties have for themselves failed to agree upon. Nor will court be no position to clarify that which is irremediably obscure. Nor will court accept for itself a discretion which the parties have, by their agreement, reserved to one or other of them. To do so would not be to give effect to the contract but to change it: Kofi-Sunkersette Obu v A Strauss & Co Ltd [1951] AC 243 at 250 (PC). Intent to enter legal relations 18 It is quite plain that the parties intended to enter into legal relations in terms of the MOU. The issue is as to the proper construction of that document in light of the matrix in which it was set, that is, the factual background known to the parties at or before the signing of the MOU, including the aim and commercial purpose of the transaction: Prenn v Simmonds [1971] 1 WLR 1381; Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 at 394. Objective test 19 The general test of objectivity in terms of construing a contract is pervasive in the law of contract. Two passages from speeches of Lord Diplock illustrate the point (as Gleeson CJ said in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 549). · In Gissing v Gissing [1971] AC 886, his Lordship said: "As in so many branches of English Law in which legal rights and obligations depend upon the intentions of the parties to a transaction, the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party's words or conduct notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party." · In Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 at 502, his Lordship said: "In each of the instant appeals the dispute is as to what seller promised to the buyer by the words which he used in the contract itself and by his conduct in the course of the negotiations which led up to the contract. What he promised is determined by ascertaining what his words and his conduct would have led the buyer reasonably to believe that he was promising. That is what is meant in the English Law of contract by the common intention of the parties. The test is impersonal. It does not depend upon what the seller himself thought he was promising, if the words and conduct by which he communicated his intention to the seller would have led a reasonable man in the position of the buyer to a different belief as to the promise; nor does it depend upon the actual belief of the buyer himself as to what the seller's promise was, unless that belief would have been shared by a reasonable man in the position of the buyer. The result of the application of this test to the words themselves used in the contract is still "the construction of the contract"." The questions 20 It is important to recognise that the issues raised in the present proceedings include questions as to whether the MOU: i. constituted a binding agreement at the time of its execution and as to what the terms of the agreement were; ii. if constituting a binding agreement at the time of its execution, at some later point in time ceased to operate as a binding agreement. Subsequent conduct 21 In relation to answering question ii, the parties later conduct is admissible. So much is apparent from the following short analysis to be found in Brambles Holdings Ltd v Bathurst City Council (unreported, 2001, NSWCA, Mason P, Heydon JA and Ipp AJA). Heydon JA set out succinctly the conventional and accepted principles of the law of contract. The first three principles were expressed as follows: "The first relevant principle of law is that pre-contractual conduct is only admissible on questions of construction if the contract is ambiguous and if the pre-contractual conduct casts light on the genesis of the contract, its objective aim, or the meaning of any descriptive term: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347-352. The second relevant principle is that post-contractual conduct is admissible on the question of whether a contract was formed: Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 at 77; Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 668, 669 and 672; B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147 [97011] at 9149 and 9154-9156; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 [97023] at 9255. The third relevant principle is that post-contractual conduct is not admissible on the question of what a contract means as distinct from the question of whether it was formed. As explained by Priestley JA (Meagher JA agreeing) in Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 326-330, the status of the relevant High Court authorities is unclear: hence unless it is demonstrated that the later decisions of the Victorian Full Court and Court of Appeal against admissibility, Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235 and FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343, are clearly wrong or they are overruled, they should be followed in New South Wales. No attempt was made to demonstrate that they are clearly wrong. 22 Post-contractual conduct being admissible on the question of whether a contract was formed, post-contractual conduct is plainly also admissible on the question of whether a contract has ceased to be binding: as for example by abandonment or termination or discharge. Masters v Cameron (1954) 91 CLR 353 23 It is necessary to recall the three classes for which the decision of the High Court is authority. The passage in question at 360 is in the following terms: "Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract. In the each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution… Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own…" 24 The seeds of what has now been called the "fourth class" were sown in the earlier case of Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310: "One in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon while expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms." (per the majority consisting of Knox CJ, Rich and Dixon JJ at 317) 25 In Love & Stewart Ltd v S Instone & Co Ltd (1917) 33 TLR 475, His Lordship Lord Loreburn stated at 476: "It was quite lawful to make a bargain containing certain terms with which one was content, dealing with what one regarded as essentials, and at the same time to say that one would have a formal document drawn up with the full expectation that one would by consent insert in it a number of further terms. If that were the intention of the parties, then a bargain had been made, nonetheless that both parties felt quite sure that the formal document could comprise more than was contained in the preliminary bargain." 26 In Baulkham Hills Private Hospital Pty Ltd v G R. Securities Pty Ltd (1986) 40 NSWLR 622 McClelland J. by reference to Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310 referred to a fourth class in terms of Masters v Cameron, namely the situation where the parties were content to be bound immediately and exclusively by the terms which they had agreed upon, whilst expecting to make a further contract in substitution for the first contract containing, by consent, additional terms. 27 On the issue which arose in Baulkham Hills of whether or not there was a binding contract, McClelland J at 627 put the manner as follows: "There was a binding contract, if and only if, by the exchange of letters the parties mutually communicated their respective assents to being legally bound by terms capable of having contractual effect: see the discussions in Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 at 9254ff and Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309. In the last mentioned case Mahoney J A (at 326) identified three questions which it is often useful to consider in such a context as the present, namely "….did the parties arrive at a consensus?; (if they did) was it such a consensus as was capable of forming a binding contract?; and (if it was) did the parties intend that the consensus at which they arrived should constitute a binding contract?" 28 On appeal to the Court of Appeal, McLelland J's decision was affirmed on the basis of the principle quoted above in Sinclair, Scott. In G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, the Court of Appeal held that: "…the decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances: Godecke v Kirwan (1973) 129 CLR 629 at 63; Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 332-4, 337. If the terms of a document indicate that the parties intended to be bound immediately , effect must be given to that intention irrespective of the subject matter, magnitude or complexity of the transaction." (per McHugh JA as his Honour then was at 634E-F, with whom Kirby P and Glass JA agreed) [emphasis added] 29 The fourth class has now passed into common parlance insofar as the courts are concerned and is referred to regularly as an accepted classification: see Tern Minerals NL v Kalbara Mining NL (1990) 3 WAR 486; Heysham Properties Pty Limited v Action Motor Group Pty Limited & Ors (1996) 14 BCL 145; Telstra Corporation Limited v Australis Media Holdings (1997) 24 ACSR 55; Brunninghausen v Glavanics (1999) 46 NSWLR 538. 30 I accept that regardless of classification, the principle that is now recognised is that there can be an informal contract with the expectation that other terms will be negotiated and by consent included in the formal document. That is, to say that such further negotiations and activity regarding other terms is still to take place does not mean the existing informal contract is not binding: Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101 (per Ipp J at 110-111). 31 The fourth class was considered in Graham Evans Pty Ltd v Stencraft Pty Ltd (2000) 16 BCL 335 [Full Federal Court (French, Whitlam and Dowsett JJ) and see also transcript of special leave application which was refused]. Evans brought an action against Stencraft claiming damages for breach of contract. The claim was dismissed at first instance. Evans appealed to the Full Federal Court. The Full Federal Court, in reversing Spender J at first instance, considered Masters v Cameron and applied Baulkham Hills and in so doing upheld the appeal unanimously. The Full Court held that parties may be bound immediately by the terms, which they agree upon whilst expecting to negotiate the terms of, and make a further contract in substitution for, the first contract. Returning to the facts 32 The evidence clearly discloses a most curious contractual relationship in terms of the conduct of the parties following the execution of the MOU. The whole of the period between the date of execution of that document on 24 August 2001 and the occasion when MDA purported to exercise the five-year option on 8 June 2004, is marked by long periods of relative inactivity by both parties. And when the parties did communicate at all, they were mostly complaining about one another's conduct. From Aventis' side of the equation, the evidence discloses that it, appearing to have been extremely anxious at having entered into the MOU, went about: i. first contending that no agreement in fact existed at all; ii. later contending that its signatory, Mr Wiegand had not had authority to commit Aventis to the contract; iii. on other occasions clearly affirming the agreement as on foot [as for example the email to be found at the bottom of PX 259 and over on to PX 260] 33 The present is one of those cases where an understanding of the environment makes many matters somewhat clearer. The pervasive fact thrown up by the evidence is that at the time when the MOU was signed, CSL Limited [the successor of Commonwealth Serum Laboratories] was the dominant force in Australia. There had been a long period of time during which the Australian market had been essentially closed having been occupied by CSL as the government instrumentality. 34 The matter was dealt with by Mr Cullen whilst in the witness box as follows: A. The environment was changing. It was dynamic. CSL had never really had total control of the market. They had had about 90 - for a period of time they had 100 percent. Q: I only want to know as at the memorandum of understanding date, up to and including that date. I don't want to know 10 minutes after the memorandum of understanding, only as at that date, how the position it was? A. It was very flux. There was considerable movement around the world and there was shortages on a number of products. There were problems with specific products that CSL were producing. There were opportunities, significant opportunities, in other words significant opportunities to compete with CSL in that marketplace. Q. …[W]as that something which had only come to be in the few months before the MOU, or was that fact that there were real opportunities, as you understood it, really around the place say even a year before the memorandum of understanding? A. Yes, there were definitely significant opportunities from 1991 right through but it grew. The competition to CSL grew. [Transcript 298] 35 At the time when the MOU was entered into there was plainly a desire on the part of Aventis to endeavour to enter the market. 36 Aventis was originally one of the group of companies part of the multinational Hoechst group. In about late 2003/early 2004 Aventis became a subsidiary of CSL which is now its ultimate shareholder. 37 The stronghold which CSL had over the relevant market for a very long period meant that there would necessarily be a period of relative uncertainty as to the extent to which, if at all, the attempts of Aventis, using MDA as its exclusive Australian marketing and distribution agent would be successful. Only time would tell. 38 An important consideration which was clearly known by both parties prior to the signing of the MOU as an incident of the supply of this type of product, concerned the need for the supplier to have orders for product well in advance. This was simply a concomitant of the facts of life in the unusual supply industry. 39 Mr Wiegand of Aventis gave the following evidence on this topic: A. …[I]n this plasma protein business it is exactly the issue that you have to consider the collection time of plasma, which is one year. Before you start supplying to the next year, you have a lead time for each product, which variates [sic] sometimes from four to six months to produce a batch. So this means it needs a very clear forecast given from the partner to the manufacturing side so that we have to plan for the whole full year in advance to fulfil a real full shelf life. If not, we can only get by chance, as we have seen here in these two cases. One was 20,000 units Berinert and one was 30,000 units Haemate, which is a relatively small part of a full batch. I can only take this out from something which was allocated to somebody else and which has not a clear definition of shelf life. If I had, for example, recalled today 20,000 Rhesogamma, one million Haemate was in the MOU, and I don't remember - I think 60,000 or 80,000 units Berinert. So this has to be now allocated for a full year to have the maximum shelf life for each batch of each product, but this was not happen until end of this year. … A. But this is the risk. In general, we have to procure first the plasma based on this quantity which we have to produce. This is the lead time. Then we have to produce a batch, which is variating [sic] between four to six months per batch, and then only the product is available with a full shelf life. This means it's variating. In our business we have products from two to five years' shelf life. Albumin is five year, which is here not considered, but all the plasma protein and the lowest shelf life is a full two years. [Transcript 389] 40 This issue of the need to cope with the lead time parameter and to have a clear forecast from a distributor to the supplier to permit proper planning, casts light upon the MOU: i. to the extent that it descended into the detail which it did, in terms of the need for placement of orders; ii. to the extent that it highlighted the importance of there not being doubt as to prices; iii. insofar as explaining why questions of immediacy were seen as fit to be dealt with in the MOU. [Immediacy of entry of particular products into the Australian market was referred to prior to the signing of the MOU: one only of the contemporaneous documents to this effect being PX 103] Dealing with the evidence 41 Both parties furnished convenient chronologies seeking to emphasise particular events. 42 By reason of the central holding it likely becomes essentially unnecessary to repeat all of the evidence or even to summarise it all. The convenient course seems to be for the Court to provide a general overview of that which the evidence established without endeavouring to travel every highway and by-way of the detail to which the parties descended in the extensive affidavit evidence read and in the extensive cross-examinations of witnesses. However as it is always appropriate to treat with the facts, I intend to include from time to time some particular detail of the evidence. Events prior to the execution of the MOU 43 On 5 June 2001, a meeting took place at the Sir Stamford Hotel in Sydney. Present at the meeting were Mr Wiegand and Mr Ghandi of Aventis and Mr Cullen and his daughter of MDA. Mr Cullen gave a presentation with slides relating to his experience in the pharmaceutical industry and the proposed entry into the Australian market of products manufactured by Aventis. 44 One of the slides (TB 98A) prepared by Mr Cullen stated "Aventis require quick entry into the Australian market with as many products as possible from the portfolio of Aventis Behring". The slide then listed, inter alia, Helixate, C1 Esterase (Berinert P), Anti D (Rhesogamma) and Heamate P and for each of those products stated NOW. Mr Cullen agreed in cross examination that he believed at the time, and intended to convey to Aventis, that those products could be got into the Australian market immediately [T147.39 – 149.30; T152.18 – 153.51]. 45 Another of the slides (TB 98C) stated that MDA had, when a partner with Immuno from 1989, been the first to break the monopoly of CSL and Red Cross, and that in 1998 Baxter had taken control of the Immuno products. 46 The slides refer to Baxter being in the market [TB 98C]. No reference was made in the slides to any proposal of Baxter to withdraw from the Australian market. 47 During the meeting, Mr Wiegand requested that Mr Cullen provide him with the likely sales volumes and the transfer prices for the products. [TB 99, 100] 48 On 11 June 2001, Mr Wiegand sent a facsimile to Mr Cullen [TB 100] in which he stated: "As discussed, we look forward to the numbers for the products which can be marketed immediately on 'venue-patient' basis in Australia." 49 The reference to "venue-patient" basis was intended to be a reference to "name-patient" basis. That was the name given to the supply of unregistered therapeutic goods into Australia in accordance with the Special Access Scheme. 50 On 18 June 2001, Mr Cullen had a conversation with Professor Rickard. Mr Cullen's note of that conversation is TB 102. Professor Rickard's evidence [aff 4/3/06 para 5], Cullen's evidence [aff 7/3/06 para 7; T 161.13 - 161.36] and Mr Cullen's file note [TB 102] all refer to Haemate P, and make no mention at all of Humate P being discussed. Mr Cullen's affidavit account includes Professor Rickard giving Mr Cullen some quantitative information about the potential market for Haemate P, however, Professor Rickard's affidavit evidence and Mr Cullen's note do not corroborate that account. They contain no record of any discussion about quantities. 51 On 20 June 2001, Mr Cullen sent an email to Mr Wiegand [TB 103], in which Mr Cullen stated: "Further to our recent meeting, I have calculated the likely sales of several Aventis products as previously discussed for the potential immediate entry into the Australian market on a name-patient basis. FORECAST Berinert P 70,000 units @.55 cents Australian/unit Haemate P 2,000,000 units @.40 cents Australian Rhesogamma P 20,000 doses of 1,000 units/200ug @.08 cents per unit. The above prices are the expected transfer prices to Australia free into our store i.e. FIS. A further issue is the protection for our efforts in the promotion and sales of Aventis products in this part of the world. I suggest a heads of agreement with an exclusivity focus in the form of a simple letter." (emphasis added) 52 On 27 June 2001, Mr Wiegand sent a facsimile to Mr Cullen in response [TB 106], setting out proposed unit prices and quantities for three named products. The fax also stated: "With respect to Berinert P, we would like to inform you that the only other manufacturer of C1 Esterase Inhibitor Baxter has planned to discontinue its manufacturing, we will therefore be the only supplier in the future." 53 Mr Cullen agreed in cross-examination that that was the first time anyone from Aventis had informed him of that fact [T 151.24; T 173.42]. 54 No timeframe was stated in the 27 June fax as to the likely time when Baxter planned to discontinue. All that was said that it was planned to happen "in the future". 55 On 24 August 2001, a meeting was held at the Sir Stamford Hotel in Sydney. Attending the meeting were Mr Wiegand, Dr Ghandi, Mr Cullen and his daughter. Mr Cullen produced a form of contract which he had drafted [TB 109-110], representing the agreement that Cullen hoped to make. [T 183.41 – 184.46]. At the meeting, various provisions of the proposed contract were negotiated. 56 In relation to prices and quantities, it is common ground that the parties negotiated the prices and quantities that had been the subject of their prior exchange of correspondence, and that the result of those negotiations was the prices and quantities recorded in the MOU [T 180.33]. 57 Immediately after the 24 August 2001 meeting, Mr Cullen went back to his office and redrafted the Memorandum of Understanding. Later on the evening of 24 August 2004, Mr Cullen presented the redrafted Memorandum of Understanding to Mr Wiegand. Mr Wiegand read the document, and then signed and exchanged it with Mr Cullen. Events between 31 August 2001 and January 2002 58 On 31 August 2001, MDA placed a purchase order with Aventis for 30,000 units Humate P and 20,000 units of Berinert P. The order for Humate represented 3% of the quantity referred to in the MOU. No order was placed for any quantities of Rhesogamma or Helixate. At the time of placing the purchase order, MDA stated in its facsimile: "As discussed, I will expect to hear from yourself or Isabelle Yip in your logistics department regarding our customer number within approximately 4 weeks. Let's discuss product shelf life prior to shipment." 59 In about mid September 2001, Mr Wiegand, after making enquiries with the Aventis supply chain personnel, informed Mr Cullen that Aventis could immediately supply Berinert P with a relatively short shelf life and that batches of Berinert P with a 2 year shelf life were in the process of production. 60 On 20 September 2001, Mr Cullen sent an email to Mr Wiegand stating that he would wait for the Berinert P with 2 year shelf life. 61 On 11 October 2001, Aventis sent a facsimile to MDA stating that following the events of September 11 in the US, Aventis had placed a strict ban on all travelling and Aventis would therefore be unable to attend the Australasia Haemophilia Conference in Christchurch, New Zealand the following week. 62 On 15 October 2001, Aventis sent a facsimile to MDA which stated, inter alia: (a) Humate P was only available for the US market and Aventis could only supply Haemate P to Australia. Accordingly, the Australian physicians had to order Haemate P for their patients and Mr Wiegand would try and have the quantities needed allocated for Australia; (b) MDA had to generate prescriptions for Berinert P, whether or not Baxter continued to supply its product in the Australian market; (c) Mr Wiegand had blocked the quantities of Rhesogamma P that MDA needed, so MDA should place its purchase order for that product. 63 Mr Cullen gave evidence that he understood Mr Wiegand to be asking Mr Cullen to place his order for the US$1 million of Rhesogamma set out in the MOU [T 248.46 – 249.26]. 64 MDA responded to Aventis by facsimile dated 24 October 2001. The fax stated: (a) in relation to Haemate P, MDA's initial order for that product still stands; (b) MDA had actively promoted Berinert P to immunologists at a conference in Perth in late September 2001; (c) no mention was made of Rhesogamma P. 65 On 9 November 2001, Aventis sent a facsimile to MDA stating that Aventis had 30 vials of Haemate P (which totalled 30,000 units) with an expiry date of July 2004, and an expected delivery around the second week of December. The facsimile requested that MDA confirm the quantities and advise its shipment schedule. 66 On 13 November 2001, Mr Cullen telephoned Mr Wiegand and made allegations that Haemate P had been supplied by Aventis directly into the Australian market. 67 On 20 November 2001, MDA sent two facsimiles to Aventis: (a) in the first facsimile, MDA repeated its allegation that Haemate P/Humate P had been supplied to the Australian market, and requested a response from Aventis; (b) in the second facsimile, with the subject line "Haemate P (Purchase Order 913)", MDA put its purchase order on hold. 68 On 29 November 2001, MDA declined an invitation to attend an Aventis Regional Distributors Meeting in Singapore. [TB 142, 138] 69 On 12 December 2001, MDA sent to Aventis an amended purchase order. The facsimile attaching the amended purchase order stated: "You will notice that the required quantity of Haemate P has been adjusted to 50,000 units. As per facsimile of 9/11/01, we are happy to accept stock for this order with the expiry date of July 2004. As we are now going into our Christmas/summer vacation period, we will not require delivery of this order until the final week of January 2002. Can you please advise your ability to ship our order at this time?" (emphasis added) 70 No suggestion is made in the facsimile that Haemate P (as opposed to Humate P) was not acceptable, nor was any suggestion made that Aventis was not entitled to supply Haemate P (as opposed to Humate P). 71 The facsimile from MDA was sent in the second week of December 2001. This was the week in which Aventis estimated in its 9 November 2001 facsimile that 30,000 units of Haemate P ordered by MDA could be delivered. However, MDA had placed that initial order on hold on 20 November and it was not until 12 December 2001 that MDA placed an amended order. Aventis claims that the suspension by MDA of its order on 20 November 2001 (which had been scheduled for delivery in the second week of December) and the failure of MDA to re-place that order until 12 December 2001, resulted in the supply of the order missing the scheduled delivery time. 72 On 21 December 2001, Aventis sent a facsimile to MDA stating that Mr Wiegand had made in depth inquiries regarding Mr Cullen's allegations of direct supply of Haemate P into Australia, and had not found any evidence of sale of Haemate to any doctor or distributor by Aventis. The facsimile went on to state that it was most likely that whoever had imported Haemate P into Australia had done so through international drug agencies which can send the product to any country in the world if required on a "name-patient" basis. Events between January 2002 and late 2002 73 On 21 January 2002, Aventis sent an email to MDA relating to MDA's amended purchase order. The email: (a) reminded MDA that Aventis was offering Haemate P not Humate P, and requested that MDA amend the purchase order accordingly; (b) stated that 50,000 units of Haemate P had been allocated, with an expiry date of November 2004, and an earliest shipment of mid-March 2002; (c) states that 40,000 units of Berinert P had been allocated, with an expiry date of February 2004, and an expected shipment of mid-February 2002. 74 On 25 January 2002, MDA sent an email to Aventis stating that MDA would prefer Humate P if it is available and requesting that if not, Aventis send a statement advising the plasma source of the Haemate P proposed for supply to MDA in March 2002. 75 On 5 February 2002, MDA sent an email to Aventis requesting that MDA be recorded on the Aventis website as the Australian contact for Aventis products. On 15 February 2002, Aventis responded stating that Aventis could not place MDA on Aventis's website as they did not have a signed agreement between MDA and Aventis. 76 On 19 February 2002, Ms Cullen emailed Mr Ho requesting clarification, and on 19 February 2002 Mr Ho responded stating that as a general company policy Aventis does not normally put its customers' information on its web-site. 77 On 25 February 2002, a meeting was held in Sydney between Mr Cheng and Mr Ghandi of Aventis and Mr Cullen and Ms Cullen of MDA. The meeting had been arranged in December 2001 and January 2002 for the purpose of introducing MDA to Mr Cheng. An agenda had been agreed for the meeting. The meeting in Sydney was arranged following Mr Cullen's inability to attend a meeting of regional distributors in Singapore in December. 78 At the 25 February 2002 meeting, Mr Cheng said that as far as Aventis was concerned there was no agreement between the parties. 79 Later on 25 February 2002, Aventis sent a facsimile to MDA confirming the status of MDA's order. The facsimile stated that 50,000 units of Haemate P were expected to be delivered at the end of March 2002 and 20,000 units of Berinert P were expected to be delivered by mid-March 2002. 80 On 8 March 2002, MDA sent a facsimile to Aventis cancelling its purchase order. 81 On 11 March 2002, Aventis sent an email to MDA requesting that MDA give its justification for the cancellation of the order, and noting that the cancellation will create a negative impact to future stock allocation to Australia. 82 MDA did not respond. 83 On 20 March 2002, Aventis sent a letter to MDA which stated that: (a) Mr Wiegand was not empowered to sign the MOU; (b) Aventis was concerned about the commitment of MDA to represent Aventis in Australia and that despite the signing of the MOU in August 2001, Aventis had not received any material firm orders from MDA, and Aventis was particularly concerned about MDA's cancellation of its order, of which no proper explanation had been given; (c) because of that, Aventis wished to terminate the MOU with immediate effect; (d) if Aventis did not hear from MDA within 14 days, Aventis would assume MDA's acceptance of the termination notice. 84 On 28 March 2002, MDA sent a facsimile to Aventis stating that MDA did not accept Aventis's termination notice. The facsimile stated: "You will hear from me regarding this matter within the next 10 days." 85 No further contact was made by MDA with Aventis in the next 10 days. 86 From about 28 March 2002, Aventis commenced selling Fibrogammin P directly to customers in Australia (other than MDA). 87 In May 2002, MDA received an inquiry from a prospective customer concerning the possible supply of Fibrogammin P. MDA sent a fax to the prospective customer, advising him to contact Aventis directly and providing Aventis's contact details. 88 On 5 June 2002, Aventis sent a letter to MDA in the following terms: " Re: Memorandum of Understanding (dated August 24, 2001) We refer to our letter of March 20, 2002 and to your response of March 28, 2002. Following receipt of our letter, you have failed to provide any appropriate response or to take any remedial steps or to properly perform your obligations under the Memorandum of Understanding. The lack of access to the Australian market is causing substantial harm to our group's business prospects in that territory. We cannot continue to pursue a relationship that has failed to produce any results. Please let us have your immediate advice how you intend to comply with your obligations under the Memorandum of Understanding and, in particular, your obligations to provide our products access to the Australian market and to order products in the prices and quantities set out in the Memorandum of Understanding. If you fail to provide this information within 14 days of this letter and continue to fail to comply with your obligations under the Memorandum of Understanding, we will have no alternative but consider that you do not propose to provide this information and do not intend to comply with your obligations under the Memorandum of Understanding. If so, we reserve our right to terminate the Memorandum of Understanding without further notice and to claim damages suffered as a result of such failure. All of our rights are hereby reserved. No action or conduct by us, including responding to enquiries or processing orders, shall be considered a waiver of such rights." 89 On 19 June 2002, MDA wrote to Aventis claiming that Aventis had breached the MOU and that MDA had consequently cancelled its order. MDA also stated that MDA would be willing to comply with its obligations under the MOU provided Aventis could assure that it complied with its obligations. 90 On 8 July 2002, Aventis responded by claiming MDA had failed to comply with its obligations under the MOU. 91 Each of the parties positions was that their obligation to perform was conditional on the other party performing, but the other party was not performing. 92 On 3 September 2002, Mr Ho of Aventis had a telephone conversation with Mr Cullen. According to Mr Ho, the conversation included words to the following effect: Mr Ho: "We are interested in doing business with you but the MOU was not approved or seen by Aventis Behring management. We cannot accept that it is an agreement. If you want to do business with us, we need to sign a professional agreement that is mutually acceptable to both parties and approved by our legal department." Mr Cullen: "I have no objection to that but I would like to see a draft agreement." 93 That version of events is supported by Mr Cullen's handwritten note of the conversation [TB 198 – 199; T 285.12 – 286.30], which includes the statements: "A more well structured and better prepared agreement We can modify terms. Mutual agreement not one sided again If I am in agreement they can send new info… …Send a template after phone call They want to start a business" 94 Later on 3 September 2002, Mr Ho of Aventis sent an email to MDA which stated: "As discussed today, we would like to resume our partnership agreement in Australia. The basis of this partnership, however, is to sign a distributorship agreement (to replace the previously signed MOU) which need to be reviewed and approved by our management and legal department. We would like to have a more formal agreement that are acceptable to both parties. Attached please find our standard template for your review and comments." 95 On 17 September 2002, Mr Ho telephoned Mr Cullen. According to Mr Ho, during that conversation Mr Cullen said that he did not agree with executing a new agreement and that he wanted to pursue the old agreement. Mr Ho requested whether Mr Cullen was still interested in doing business with Aventis. Mr Cullen replied that he was only interested in maintaining a dialogue with Aventis, and that Mr Cullen was in a meeting and would call Mr Ho back or write to Mr Ho later that day. 96 MDA made no further contact with Aventis on that topic. 97 On 4 November 2002, Aventis sent an email to MDA stating that a representative of Baxter will be contacting MDA shortly about the supply of Berinert P for both Australia and New Zealand. Baxter was a supplier of a product that competed with Berinert P, but Baxter was withdrawing its product from the market. Events between late 2002 and late 2003 98 MDA had correspondence and meetings with Baxter in late 2002 and early 2003 concerning MDA taking over Baxter's customers. Baxter provided MDA with Baxter's customer list (TB 202A, 235) and sales data (TB 250 – 252), and a letter was prepared to be sent to customers (TB 202A, 244A. 253A). 99 In January 2003, the parties attempted to negotiate an agreement on the price for the supply by Aventis to MDA of Berinert P [TB 252A- 252C]. MDA asserted that the market re-sale price was A$2. Aventis said that they were told by Baxter that it was A$3.20 and asked MDA to double check. MDA responded by claiming that the MOU fixed the transfer price at US$0.65. Aventis said that the MOU price was for 12 months and then quoted a transfer price of US$1.20. MDA responded by saying at that price they have no interest. Aventis then reiterated that the re-sale price was A$3.20 (or US$1.85) and that with a transfer price of US$1.20, MDA would have a margin of US$0.65. Aventis requested a counter offer from MDA. MDA responded with a transfer price of US$0.60. That offer was lower than the previous offer MDA had made of US$0.65. MDA never challenged Aventis's claim that the re-sale price was A$3.20 (US$1.85) and never gave any justification for the price that MDA offered. The cost to Aventis of manufacturing the product was US$0.67. Accordingly, MDA's offers were to pay below cost. 100 On 5 February 2003, Aventis proposed a meeting in Australia in March to discuss the price for Berinert P [TB 253C]. Aventis stated that it could not understand why it should sell the product for US$0.60 when the re-sale price was US$1.80. 101 On 17 February 2003, MDA sent an email to Aventis stating in effect that MDA would not attend any meeting with Aventis to discuss pricing for Berinert P unless Aventis sent to MDA within 3 days firm pricing and estimated time of arrival for another product, Haemocomplettan P. The proposed meeting did not proceed, and discussions ceased. 102 Shortly thereafter, Baxter informed its customers that the arrangements with the new distributor (MDA) had fallen through [TB 262A-262E]. Baxter continued to supply the market in the absence of any other distributor. 103 Some 10 months later, on 11 December 2003, MDA sent a letter to Aventis stating "Can you please advise when [Aventis] will commence supply of the products to Australia according to our contract". At that point in time, there were no open orders placed by MDA with Aventis for any products whatsoever, and there had not been any open orders since 8 March 2002, almost 2 years previously, when MDA cancelled the order that it had made on 12 December 2001. 104 Thereafter, in December 2003, the parties corresponded by email about the possibility of meeting to discuss their business relationship. They could not even make an agreement to meet. Events between early 2004 and 18 June 2004 105 On or about 31 March 2004, Aventis was acquired by CSL Limited (formerly Commonwealth Serum Laboratories). 106 During the period 12 February 2004 to 4 June 2004, MDA placed 5 orders for Fibrogammin P with Aventis, which Aventis supplied, having a total price of US$37,555. These were the first orders placed by MDA with Aventis since the date of the MOU in August 2001 (other than the single order which had been put on hold by MDA on 20 November 2001 and subsequently cancelled by MDA on 8 March 2002). 107 During the period June 2004 to August 2004, MDA also placed 3 orders with Aventis for Berinert P, which Aventis supplied at a price below cost, having a total price of US$35,750. 108 In about June 2004, Aventis also made a sale of Berinert P directly to CSL in Australia. 109 On about 8 June 2004, MDA purported to notify Aventis of the exercise of an option to extend the MOU for 5 years until 24 August 2009. 110 On about 18 June 2004, Aventis sent a notice to MDA purporting to terminate the MOU on the basis, inter alia, of MDA's failure to order products in the quantities contemplated by the MOU and MDA's failure to use its best efforts to provide access to the Australian market for Aventis products. The letter also rejected MDA's claim to have a unilateral right to extend the MOU for a further 5 years. Post 18 June 2004 111 No further purchase orders have been placed by MDA with ZLB. 112 Since about August 2004, CSL Bioplasma (a member of the CSL Group) has managed the distribution of ZLB products into Australia. The essential matters litigated 113 The evidence establishes that both parties misconducted themselves in terms of what was to be expected from the other as appropriate in terms of the MOU. 114 It does not seem to me particularly constructive to allocate blame otherwise than in overview fashion. This is because of the manner in which it seems to me that the proceedings must fail on the technical legal basis that the MOU ceased to bind the parties at the expiration of the initial 12 months of the initial term. It ceased to so bind the parties because they were not able to agree upon prices for nominate product at any stage following the expiration of the initial 12 month period. MDA complaints 115 Treating then with the respective cases on an overview only basis, one begins with MDA's complaints. Not all of these complaints were pleaded. Product training 116 MDA had a legitimate complaint in that it had anticipated product training which was provided for in the MOU. Prior to the signing of the document the discussions between Mr Weigand and Mr Cullen had clearly proposed a training programme to take place at about the time the conference was planned in Christchurch due to occur in October 2001. This was an Australasian Haemophilia conference and Mr Wiegan was to travel to Christchurch to assist in the training and to be present during the conference. He accepted that he saw the training programme as an important component in the new business relationship being contemplated and as the kind of process that needed to take place in the early stages of the distributorship agreement. He accepted that it was not good enough for Aventis to provide brochures and documents relating to specifications and that the type of interaction with participants in the industry in introducing new distributorship and its benefits was very important. 117 The point is that by reason of company policy concerned with the 9/11 events, the Aventis participation in the conference simply never took place. There was never any further attempt to provide personal training. As will appear from what follows, Aventis resists the contention that it was guilty of wrongdoing on the basis that there were no requests made by MDA for Aventis to provide training. I do not accept that the statement by MDA in its letter of 24 October 2001 that it had spent a considerable amount of time and money training new personnel for the new product in preparation for the Christchurch conference may be equated as having stated that no close and focused training was needed from and with the assistance of Aventis. 118 It should be noted in passing that the failure of what, qua Christchurch, had been contemplated to be the springboard for commencement in terms of promotion of the new exclusive distributorship is said by MDA to be a real reason for its dismal failure to be able to progress in furthering market demand for product. Source of plasma 119 The next serious course of complaint was the failure of Aventis to provide the detail source as to the source of plasma of the Haemate P which was proposed for supply to MDA in May 2002. This complaint goes as far as to contend that Aventis positively misled MDA by stating in its facsimile of 15 October 2001 that both Humate P and Haemate P " are absolutely the same" [PX 131]. The contention is made out on the evidence. Delayed deliveries 120 The next source of complaint was the delayed deliveries. This is a two-way street as the unfolding of the chronology discloses. However the clear early conduct of Aventis denying that a binding agreement had been brought into existence was plainly repudiatory and meant that MDA did not know where it stood. 121 Each party in fact from time to time acted unreasonably. Orders were placed, only later to be withdrawn. Not many orders were placed at all. 122 The notion of a vibrant ongoing exclusive distributorship fell away very early in the peace, only to be replaced by internecine disputation going, in so far as Aventis was concerned, into denials that there was any binding agreement, followed later by withdrawal of those denials. Exclusionary provisions 123 The next source of complaint by MDA was the alleged breach of the exclusionary provisions and of the express provision requiring that all inquiries from the Australian market for product information be passed on to MDA. This is also generally summarised in the unfolding chronology. Commonwealth request for expressions of interest 124 Another serious course of complaint was the failure of Aventis to provide MDA with information to assist it to tender for the National Blood Authority "Request for Expressions of Interest for Supply of Defined products" put out by the Commonwealth Department of Health and Ageing in December 2002. 125 MDA in mid December 2002 sought from Aventis, advice as to which product it would be in a position to supply and as to pricing and quantities for the express purpose of responding to the Expression of Interest. It received no assistance at all from Aventis which gave the excuse that holidays in December meant that it was unable to obtain feedback from its clients for the supply. If anything, all that Aventis had to say amounted to an expression of what might describe as lukewarm interest [PX 244.2] 126 Without travelling through each of these sources of complaint is very plain that MDA had considerable room to complain. Particularly was this the case with respect to Aventis denial that a contract existed. However it was far from blameless in terms of its own conduct and the evidence which unfolded included much that could be sheeted home by way of legitimate complaint from Aventis. This is also apparent from the more detailed chronology as it unfolds. Aventis' complaints 127 Aventis's complaints are generally put as breaches of the MOU and/or as indicia of what is said to have been an abandonment by both parties of their anterior contractual relationship. 128 Aventis put forward a number of matters in this regard, descending from time to time into its defence of MDA's claims of inappropriate supplier conduct: First Breach-failing to order and purchase agreed quantities of named products i. The MOU included the following provision: Aventis Behring agrees to provide their products exclusively to MDA Pharma for marketing and distribution in the territory for three years with a five-year option. ii. MDA breached the MOU, and did so in a fundamental way: (a) No order for any quantities of Rhesogamma was ever placed by MDA. The sales of Rhesogamma specified in the MOU comprised almost two thirds of all sales specified in the MOU (US$1 million out of total sales of US$1.56 million). (b) No order for any quantities of Helixate was ever placed by MDA. (c) One order for 30,000 units of Humate P was placed (being 3% of the specified annual quantity of 1,000,000 units). However, the order was put on hold in November 2001, then increased to 50,000 units in December 2001 before being cancelled without explanation in March 2002. No sales of Humate P or Haemate P were effected in the first 12 months of the MOU, or at any time thereafter. (d) One order for 20,000 units of Berinert P was placed. However, the order was put on hold in November 2001, before being cancelled without explanation in March 2002. No sales of Berinert P were effected in the first 12 months of the MOU. Second Breach – Failing to use best endeavours to promote the products iii. The MOU came into force, the MOU must contain at the very least an obligation on the part of MDA to use its best endeavours to promote the sale within Australia of those products, and of all other plasma products of Aventis (which were the subject of Aventis's promise of exclusivity). US authority recognises that exclusivity and the obligation to use reasonable endeavours to promote sales are two sides of the same coin. iv. MDA has breached that obligation in respect of each of the four products, and all other plasma products of Aventis. v. In his affidavit of 7 March 2006 (para 4), Mr Cullen set out a long list of people that he claimed to be MDA's staff in the "early 2000's". However, in cross examination it became apparent that virtually all of those people has ceased working for MDA by August 2001 [T 212.34 – 216.32] During the period from August 2001 to date, Mr Cullen had no staff, apart from his daughter Danielle (who worked three days per week until she left in April 2003 [Danielle Cullen aff 30/8/05 para 2]), his son (who, according to Danielle filled in on one occasion when she was on annual leave [T 318.20], a part time personal assistant [T 215.28], and perhaps Michelle Chambers during 2001 [T 213.2]. vi. Mr Cullen's tax returns [TB 412 – 465] for FY2002, FY2003 and FY2004, and trial balances for FY2002 to FY2005 [Ex D5], do not record any wages, salary or superannuation expenses at all, and record only small amounts for consultants expenses. vii. Far from having a "field force of medical representatives" as he claimed [T 108.4], Mr Cullen's operations had in truth been in decline since Baxter took control of the Immuno products in 1997, and since April 2003 at the latest he has been a one man band. viii. Mr Cullen agreed that if he was to effect sales of the quantities of products which are specified in the MOU, he would need to have available a warehouse with refrigeration facilities [T 201.33; T203.51]. ix. In paragraph 3 of his 7 March 2006 affidavit, Mr Cullen made reference to his Apollo Street warehouse. In doing so, he was intending to convey that those were the warehouse premises that he had available to store the quantities of products referred to in the MOU [T 202.40]. x. In fact, the Apollo Street warehouse have at all times since August 2001 been continually rented out [T 208]. On 28 March 2002, Mr Cullen granted a lease of the premises for 2 years, with an option for the lessee to renew for a further tem of 2 years [Ex D3]. xi. Mr Cullen's evidence was that he did intend to use the Apollo Street warehouse for Aventis products [T 210.38], but that between 2001 and 2005 he had not taken made any attempt to make the warehouse available for Aventis products [T 210.24] xii. In para 81.4 of his affidavit of 22 August 2005, Mr Cullen said MDA had a telephone hotline available 24 hrs 7 days per week. However, it turned out that Mr Cullen was the only full time staff member, and the so-called hotline was Mr Cullen's mobile phone [T 217.25] xiii. There is no evidence of any written communication between MDA and the TGA relating to Aventis's products at all. xiv. There is no evidence of any written communication between MDA and any potential customer, where MDA makes known the availability of Aventis products. xv. There is no evidence of any specific oral communication between MDA and any potential customer, where MDA makes known the availability of Aventis products. xvi. There is no evidence that MDA provided any of the marketing literature received from Aventis to any potential customer. xvii. The sales recorded in the MOU for the first year had a value of US$1.565 million. Mr Cullen gave evidence that he expected to make a gross profit on re-sales of US$2.3 – US$2.4 million for the first year . [T 199.30], including a gross profit on re-sales of Rhesogamma of US$1.5 million for the first year [T 199.52] xviii. Total sales made between Aventis and MDA in that 4 ½ year period are US$73,305. Best Endeavours - Rhesogamma xix. In relation to Rhesogamma, at all times since August 2001 there has been a market for the sale of Rhesogamma in Australia. xx. Yet MDA has never placed a purchase order for that product, and has never made a sale of that product in Australia. xxi. There is no adequate explanation for that state of affairs, other than that MDA did not use any endeavours, much less best endeavours, to promote sales of Rhesogamma. xxii. Rhesogamma is a product prescribed by gynaecologists for mothers and newborns, not by haematologists [T 402]. There is no link between the two markets. Best Endeavours – Haemate/Humate xxiii. In relation to Haemate P/Humate P, at all times since August 2001 (until at least about April 2003 when Biostate became available), there has been a market for the sale of Haemate P/Humate P in Australia [see Rickard report pp 5-6] . Indeed, Mr Cullen's evidence is that a market for Haemate in Australia has continued to exist, notwithstanding the introduction of Biostate [Cullen 22/8/05 para 90]. xxiv. Professor Rickard's evidence was that if Haemate P had become available he could have used it for "several patients per year" with a dosage of between 20,000 and 30,000 units per patient {Rickard aff 4/3/06 para 6 and 7]. xxv. However, MDA has never purchased any of that product from Aventis. MDA placed one order for 30,000 units in August 2001 (being 3% of the 1million units specified in the MOU), but later put on hold, and later still cancelled that order. Best Endeavours - Berinert xxvi. In relation to Berinert P, at all times since August 2001, there has been a market for the sale of Berinert P in Australia [see Campbell para 23]. Mr Cullen conceded that Berinert could be sold into the Australian market in competition with Baxter's product, at least "for a brief period of time" [T 152.27]. The suggestion by Mr Cullen that Berinert could not compete with the Baxter product is inconsistent with the slides he presented on 5 June 2001 [TB 98A – 98C], and with the fact that the value of estimated Berinert sales increased threefold between the time of MDA's 20 June sales forecast and the sales set out in the MOU. Mr Cullen could provide no explanation for that increase [T 183.25]. The explanation is that on 27 June 2001, Aventis had informed MDA that it understood Baxter was planning to discontinue its product [TB 106] xxvii. In any event, in late 2002/early 2003, MDA was offered Baxter's market. That offer amounted to the offer of a gift of an established market for Berinert, but inexplicably MDA refused it. In January 2003, Baxter provided to MDA its customer list, sales data and took steps to introduce MDA to the customers. However, in February 2003, MDA informed Aventis that MDA had no interest in Berinert P in the short term and refused to meet with Aventis to discuss the transfer price of Berinert unless Aventis gave MDA a firm price and E.T.A. for another product (Haemocomplettan P) within three days. After the discussions with MDA in early 2003 fell through, Baxter continued selling its product until June 2004. xxviii. The only orders placed by MDA for Berinert P in the 4 ½ years since the date of the MOU are an order on 31 August 2001 for 20,000 units (which order was put on hold by MDA in November 2001 and cancelled in March 2002) and three orders in the period June 2004 to September 2004 for a total of 55,000 units (which were supplied by Aventis at below cost). xxix. The Berinert customers of MDA in June 2004 complained about the freight charges that MDA charged, and the failure of MDA to respond to calls [TB 320A-F; 326A-B; 330A-B; 343A-C] Best Endeavours - Helixate xxx. In relation to Helixate, at all times since August 2001 (until at least about 1 July 2003 when Baxter was awarded a contract by the National Blood Authority to supply recombinant factor VIII), there has been a market for the sale of Helixate in Australia (see Campbell para 41). According to Mr Cullen, there was and continues to be a market in Australia for Helixate (Cullen 22/8/05 para 92). xxxi. However, MDA has never placed a purchase order for that product, and has never made a sale of that product in Australia. Best Endeavours – Other plasma products xxxii. There has at all times since August 2001 been a market for the sale in Australia of other plasma products of Aventis, including Fibrogammin P, Haemocomplettan P and Zemaira [see Campbell paras 44, 46 and 47]. MDA has failed to use its best endeavours to promote the sale of those products in Australia – Mr Cullen 22/8/05 para 94, 95. MDA's purported justifications for tiny volumes of orders xxxiii. MDA appears to seek to excuse its breaches on the basis that its obligation to perform is interdependent with Aventis's obligation to perform. xxxiv. Aventis's response is that, if that is right, interdependency goes both ways, and Aventis has been excused from performance of its obligations by MDA's breaches. xxxv. MDA points to a number of alleged breaches by Aventis Product Information xxxvi. There is no express obligation in the MOU requiring Aventis to provide any particular product information. Nor is anything pleaded by MDA relating to the fact of, or significance of, any failure to provide product information. xxxvii. Mr Cullen agreed that it was the role of the distributor to tell the supplier what information was needed, because the distributor was the one who was aware of the local conditions [T 144.29]. xxxviii. On 30 August 2001, MDA requested certain information from Aventis [TB113-114] The request did not ask for the plasma source of Haemate or Humate. xxxix. In September, Aventis provided voluminous material in response [TB 118, 124, 125]. The information included a Product Monograph for Humate [Ex D4] which gave information as to the source of plasma for that product [T 309.35, 310.15]. xl. On 4 October 2001, MDA requested information as to the plasma source of Berinert and Humate [TB 128]. Aventis provided the requested information for Berinert on 11 October 2001 [TB 128]. xli. As to the plasma source for Humate, MDA already had that information [T 310.19]. In any event, on 15 October 2001, Aventis wrote to MDA saying that the brand Humate is for the US market, and Aventis would be supplying Haemate to MDA [TB 131]. xlii. On 24 October 2001, MDA wrote that the order for Haemate P still stands [TB 135]. xliii. The order was put on hold on 20 November, before being re-placed on 12 December 2001. xliv. On 25 January 2002, MDA requested information as to the plasma source of the Haemate proposed for supply in March [TB 160]. It is evident that Aventis immediately took steps to respond to that request [TB 160, top email]. xlv. However, MDA cancelled the order on 8 March 2002, before the order was delivered. xlvi. Aventis never refused to provide any product information that MDA requested. There is no evidence that any absence of product information caused MDA to be unable to make sales. xlvii. In any event, any failure to provide product information cannot seriously be suggested to relieve MDA of its obligations under the MOU for the subsequent 4½ years. Haemate v Humate xlviii. The MOU provided that products must conform to the local regulatory requirements for both efficacy and safety. xlix. In its Defence to Cross Claim (paras 10-17), MDA pleads that Haemate P breached that obligation, and accordingly MDA was relieved of its obligations under the MOU. l. There is no evidence whatsoever that Haemate P did not conform to the local regulatory requirements for both efficacy and safety. li. Rickard's evidence was that there was a market in Australia for Haemate or Humate. Whilst there came a point in time where there was a preference to Humate over Haemate due to the lower risk of infectivity, both products were preferable to the existing product (Factor VIII concentrate) and both products were acceptable in the Australian market [T 233.25 – 236.13]. lii. Mr Cullen agreed that he was happy at all times to import Haemate [T 143.50]. It was not until 25 January 2002 [TB 160] that MDA expressed a preference for Humate P over Haemate P, and that preference was expressed in terms that made it clear MDA would also accept Haemate P. Prior to that time, MDA's correspondence referred to both Haemate P and Humate P with apparent interchangeability. That is consistent with MDA not having a preference at that time for one product over the other. liii. In any event, Aventis's offer to supply Haemate rather than Humate does not excuse or explain MDA's breaches. Delay in supply liv. MDA pleads that Aventis breached an implied term of the MOU that product would be delivered within a reasonable time of order [ Defence to Cross Claim paras 11, 19]. lv. MDA placed its order on 31 August 2001 for Berinert and Humate. lvi. Mr Cullen told Mr Wiegand in September 2001 that he would wait for a new batch of Berinert P. lvii. On 15 October 2001, Aventis told MDA would supply Haemate to MDA, and on 24 October 2001 MDA accepted that. lviii. On 9 November 2001, Aventis notified MDA that it had scheduled the supply the ordered quantities of Haemate P and Berinert P by the second week in December 2001. However, on 20 November 2001 MDA placed its purchase order on hold. lix. On 12 December 2001 (being the week the product would have been delivered if MDA had not placed its order on hold), MDA placed an amended order and stated it did not require delivery until the final week of January 2002. lx. On 21 January 2002, Aventis notified MDA that delivery would occur in mid March 2002 (for Haemate) and mid February 2002 (for Berinert). lxi. On 25 February 2002, those dates were revised to late March and mid March respectively [TB 170]. lxii. On 8 March 2002, MDA cancelled the order. lxiii. There was no unreasonable delay, in the circumstances. lxiv. In any event, any unreasonable delay does not relieve MDA of its obligations under the MOU for the subsequent 4½ years. lxv. None of the matters put forward by MDA can excuse MDA's failure to place any orders at all for Rhesogamma and Helixate in 4 ½ years, nor MDA's failure to ever purchase one unit of Haemate, nor MDA's failure to purchase any Berinert P until June 2004. 129 Here again there was much substance in the complaints made by Aventis, but here again the matter remained a two-way street and Aventis too was far from blameless. It seems to have had the most tepid of interest in the new distributorship demonstrated very soon after the MOU was entered into, and continued almost at sufferance in a stop-start manner. To say the relationship was an easy or cooperative one would be the understatement of the year. A more accurate characterisation is that the relationship was for extended periods simply non-existent for all intents and purposes. Dealing with the issues 130 MDA contends that the MOU had as its subject matter, nothing more than an identification of the kinds of price that might be payable by MDA in the event that a large quantity of product was acquired, that is to say purchased during the initial 12 month period. It contends that the quantities were not definitive in the sense of being mandatory. Using the words of Mr Einfeld QC, leading counsel for MDA in his opening address: "Understood in the context of the surrounding circumstances, the subject matter of this part of the agreement is an acknowledgement by us that we will pay the prices set out, and the figures on the right are nothing more than an estimate of the sorts of volumes that one is expecting, the parties were expecting would be likely to penetrate the market between August 2001 and August 2002. If it were read literally, we would be obliged to have placed an order for a million units of Haemate - P, or Humate - P immediately after the agreement was signed, and [for] the other products, and manifestly that didn't happen and manifestly it was never intended to happen… " [Mr Einfeld went on to add that there was no obligation in MDA to even buy one unit during the first 12 months] We would use our best endeavours to market, … and we would purchase whatever - because, particularly as you will see, the purchase is largely purchase as against order. What I mean by that is …that because we are purchasing largely, although not exclusively against orders from physicians to us, the concept of taking a million units, bearing in mind it has limited shelf life, defies what might otherwise have been thought to be a literal understanding or a literal reading of the terms, and the parties never had it as their objective intention at the time the contract was made." [Mr Einfeld went on to contend that the pricing of US 0.50 cents per unit, for instance, for the first product, was regardless of shelf life] [Transcript 42] 131 Aventis for its part contends that: i. if the MOU is to be upheld at all, then commercially it only makes sense if there are meaningful obligations on the distributor to effect sales, as the quid pro quo for the exclusivity which the contract, if valid, would grant; ii. it is not a commercially sensible outcome to think that Aventis would have locked these products up for whatever the period of the contract was, including any option period, without any obligation at all on MDA to sell any one of those products; iii. there was an express obligation to provide access to the Australian market; iv. there was an obligation on the distributor to use best endeavours to effect sales [in effect an obligation of the type upheld in United States Surgical Corporation v Hospital Products [1982] 2 NSWLR ]; v. if the Court concludes that there is any restriction on Aventis, the quid pro quo comprised an obligation not merely to make the product available, but to actually create sales of the product. Construing the order provision 132 An immediate question arises in terms of what was meant where the MOU recorded that MDA would place an order for the named products "immediately" on the finalisation and signing of the MOU. In my view the text as well as the context, suggests that the parties were agreeing that the prices and quantities 'agreed upon' for 12 months for the named products were as set out. MDA was to place an order for some only of the name products immediately on finalisation and signing of the MOU. The matter is a close one. The words are: "will place an order for the above products". They are not: "will place an order for all of the above products". They are not: "will place an order for the above quantity [or for the entirety of the above quantity] of the above products". 133 The fact that these were prices in quantities agreed upon for a 12 month period supports this construction. The expressed obligation, in terms of pricing and quantity of purchases of the first three named products, was intended to bind the parties for the first 12 months, the parties anticipating that they would be in a position to agree as and when required, on the acceptability or unacceptability of expiry dates in respect of stock to be provided. Clearly there had not yet been, but was anticipated to be, agreement on the fourth named product in terms of pricing and quantity. 134 Having indicated the above construction, I readily concede that the alternative construction could well be correct: namely that the initial order was mandated to be an order for at least the first three named products, with the intent that it be warehoused in Australia pending purchase orders coming in. 135 I do not see that any ambiguity is assisted by any of the pre-contractual conduct disclosed by the evidence. 136 I do not accept that the post contract events are admissible to assist in the construction of the provision: cf Magill v National Australia Bank Ltd [2001] NSWCA 321 per Ipp JA at 50 – 52, applying Bryson J's analysis in Sportvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103 and rejecting the analysis of Santow J in Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290. What is the necessary content of a distributorship agreement 137 To my mind there is a question which concerns whether or not it was necessary in order for a binding three-year agreement to have included [as the MOU in fact attempted to do in relation to the first three products], identification of pricing and quantity of products across the full three years. 138 Perhaps the question may be tested at by postulating an attempt to create a binding distributorship agreement ["a minimalist agreement"] which would have only the following terms: i. that the principal agreed to provide its products exclusively to the distributor for a particular territory over a particular period; ii. that the distributor would use its best efforts to provide access for the products to that market as soon as practicable; iii. that the distributor was to have exclusive access, not only to named products, but also to all other products of the principal. 139 The question is whether a binding distributorship agreement would be created by use of those terms and no others. Would such an attempt fail as being illusory by reason of being too vague or uncertain, notwithstanding the existence of a clear intent to enter into legal relations?. Would the agreement be necessarily incomplete and/or uncertain.? Are there essential terms of the agreement which remain to be agreed upon? Is the agreement simply void as an agreement to negotiate? 140 Essentially the answer seems to repose in identifying the minimum content of a distributorship contract. But what is such a contract? And what are its essential incidents? 141 A measurement of assistance is to be found in United States Surgical Corporation [sub nom Hospital Product Ltd v United States Surgical Corporation in the High Court: 1984 156 CLR 41]. Mason J [as his Honour then was] at pages 92 – 95, made a number of observations as to the fundamentals of an exclusive distributorship agreement and in particular, observed that such an agreement was not in general, a joint venture in which the parties pooled their resources in an undertaking carried on for their mutual or common benefit [although accepting that it was possible that some aspects of a distributorship agreement may have joint-venture characteristics]. Mason J went on to make the point that where, as there [and as in the present case], the distributorship agreement contemplated that the principal would sell and the distributor would purchase the product, for resale to customers, the distributor, subject to the provisions of the contract, was entitled to set the prices payable on resale, because its profit would depend largely on the difference between those prices and those payable to the principal. In making the resale, the distributor would resell as principal. The distributor in carrying on its business was entitled to make decisions in its own interests, subject to the express terms of the contract. Likewise reference was made to the entitlement of the principal to increase its prices, which may well have a tendency to have effects adverse to the market in which the distributorship agreement was to operate. 142 The essential point was to make clear that even a bald distributorship agreement, entitles the respective parties, subject always to the express provisions of the contract, to make business decisions calculated to advance their own interests. 143 In Australia China Business Bureau Hely J, in dealing with the situation where particular questions concerning product categories were subject to agreement being reached as to matters such as specification, quality and pricing, held that the parties had not intended to be bound in relation to the goods falling within any product category, unless and until they reached agreement themselves on the matters in relation to which a particular process flowchart dealt with required mutual agreement. 144 Whilst the decision is one of some complexity it is convenient to note that his Honour (at [251]) summarised at least one segment of the findings in the following terms: "On my findings, the contract then subsisting between the parties did not extend beyond products within the 'pre-pack'category because in relation to other product categories, there was merely an agreement to agree. On my findings there was no contract between the parties obliging MCP to lodge further orders for products in the 'pre-pack' category because…MCP was not obliged to lodge further orders for those products as there was no agreement as to the price." 145 His Honour had earlier contraposed the following situations: i. Circumstances in which there was a legally binding contract such that terms may be implied imposing a duty to cooperate in relation to contractual obligations or requiring the exercise of good faith in the performance of the contract; ii. The situation where there was no binding agreement, there being no more than an agreement to agree at some time in the future: hence there being nothing into which it was necessary to imply a term obliging the parties to act in good faith to achieve business efficacy. To use his Honour's words: "co-operation may sensibly be required by implication in relation to the performance of contract, but not in relation to its formation ." [at 221] 146 It is of course common ground that any uncertainty or incompleteness in the MOU was not able to be cured by recourse to any machinery provisions of the agreement, or by a dispute resolution clause, or by any agreement that terms may be supplied by a third-party. It would have been possible for example, for the parties to have provided that the prices would be the standard list price of the supplier or a price which the supplier charged distributors in New Zealand from time to time or the supplier's cost of manufacture plus a particular percentage calculation based upon some parameter. A number of other methods of rendering certain the need to fix the price may have been available. 147 Mr Parker SC, leading counsel for Aventis, conceded that a failure to identify quantity may be addressed through the obligation to use best efforts/best endeavours. I accept this submission as of substance. 148 On occasion, an apparently incomplete or uncertain agreement is capable of enforcement if the court is able to imply terms relating to essential matters not expressly dealt with. Carter on Contract [04-150] gives as one example, the implication of a reasonable time for performance as well as a reasonable price for the subject matter of the contract. Having referred to many of the cases concerning conveyancing transactions and situations where there may be a readily ascertainable external standard, enabling a court to flesh out a provision which would otherwise be uncertain, the learned author continues: "Expressed in this way, the principle of implied terms looks to be based on the need to find terms to which the parties have not adverted but which the law supplies in order to complete the contract for the parties. The qualification in relation to complex commercial contracts reflects the absence of general implications for unique transactions. This may explain what otherwise appears to be an inconsistent proposition, namely, the law does not permit a court to imply terms for the purpose of making incomplete negotiations an enforceable contract. The proposition seems to be based on the view that in order for an implication to be made, the parties must have finally agreed on a bargain. Accordingly, it is not sufficient for a court to be able to identify terms which, if they were implied, would complete an otherwise incomplete agreement. Instead it must be possible to infer-under normal principles governing implication-that the parties impliedly agreed to the matter which has not been the subject of express provisions. Expressed in a slightly different way, where, for example, a contract is silent on matters such as the price or quality of the subject matter of the contract, it must be possible to infer that the parties agreed to a particular standard which a court is capable of implying. Accordingly, an implication of a reasonable price or reasonable quality can only be made if that was the agreement. Mere consistency with the contract is not enough for the simple reason that a court cannot make a contract for the parties." 149 Carter further draws attention to Australian and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695 which is another case where there was held to be no enforceable contract where essential terms, including the price, size, style and design of goods to be supplied was not agreed. The court would not imply terms to deal with those matters as there was, in the Court's view, nothing to indicate the basis for implication. 150 To my mind the approach taken by Hely J in Australia China Business Bureau was entirely correct. His Honour appears to have focused upon the significance of complex contractual terms. There is a limit in the extent to which a court can define for the parties, what they ought themselves to have defined, in order to reach agreement. In the present instance this is particularly the case when one takes into account the failure to agree upon prices and quantities for all but the initial 12 months of the term. Finding as to binding agreement 151 In my view the MOU accomplished a limited purpose in that a binding agreement was reached but only for the first 12 months and only in terms of the first three named products. The fact that the parties saw fit to provide for an agreed regime of pricing and quantity for the first 12 months is a most emphatic indicator that the parties did not intend to be bound in the absence of being able to follow suit in terms of reaching like agreements, for the following years. 152 Insofar as the fourth named product was concerned, the parties intended that unless and until they agreed upon pricing and quantity, that product be excluded from the ambit of the initial 12 month period arrangement 153 I do not see that the necessity for the parties to agree upon expiry dates, renders that portion of the MOU uncertain or void, as an agreement to agree. I would read into the MOU an implied term that the product supplied would require to have a reasonable shelf life in terms of marketability. 154 In the result the parties are seen to have reached a limited agreement operative for the initial 12 months in respect of which Aventis had granted to MDA an exclusive distributorship agreement covering the initial three products. 155 The parties obviously intended that during the initial 12 months term they would be in a position to agree upon prices and quantities to be operative for the following 12 months and in due course for the final twelve months of the initial term. They were obviously content to go forward, anticipating that the missing detail, in respect of the products and pricing and quantities, would be the subject of further agreement. 156 Arguably the route to the above finding is simply that of construing the MOU. Reference has already been made to the parties being the masters of their contractual fate. That is exactly what has happened here. The express reference to prices and quantities included in the MOU makes relatively transparent what was the intent. If it be necessary to approach the analysis by an implied term route, the same result follows. It was clearly an anticipation of the parties that they would in fact be able to agree upon matters such as price and quantity of product. It was an implied term of the MOU, that in the absence of being in a position to so agree, the parties intended that their exclusive distributorship agreement would no longer be binding upon them 157 The extent to which the agreement that MDA would have exclusive access to all plasma products of Aventis [otherwise than the four named products] was enforceable is unnecessary for present decision. Likely that segment of the MOU could not be binding unless and until the necessary definition came forward in a consensual fashion. The exclusive access provision had to be tethered to a binding agreement. It could not survive in vacuo. Such a provision could endure only as attached to so much of an agreement as proved to be enforceable. The parties anticipated that form of agreement coming forward, but until it did, this provision could not be enforced. 158 It is strictly unnecessary to go further in terms of determining the issues in this case. The fact is that on the evidence there never was agreement reached in terms of identification of prices and quantities for products following the initial 12 month period. The agreement insofar as binding the parties for the first 12 months, simply ceased to bind them at the end of the initial 12 month period. Alternative analysis 159 However before continuing it is appropriate to recognise MDA's case in terms of the posited minimalist binding distributorship agreement which would have only the terms earlier hypothesised. 160 A mainstay of MDA's case is that such a minimalist distribution agreement constitutes a bargain which effectively binds the principal [which renders itself unable to distribute within the territory otherwise than through the distributor]. The proposition is that this inhibition would mark the obviously intended need for the parties to be able to agree upon such matters as price and quantity and the like. Effectively the contractual bargain would be akin to a conventional right of first refusal. The proposition is that this would have been seen by the parties as placing tremendous emphasis on the need for the parties to be able to later agree on matters such as price and quantity. The proposition is that there would be considerable advantages and very little disadvantages to either party in carrying out their best efforts to so agree. Hence MDA's contention would presently, if accepted, have the result that such a contract would be binding from its commencement. Applied to the present circumstances that contention may have led to a holding that the agreement would continue even after the initial 12 months and even in the absence of any further agreement as to price and quantity of product. 161 The case so sought to be made is flawed by reason of: (1) the absence of essential terms; (2) the parties having failed to provide a mechanism which would permit the uncertainty/incompleteness to be cured. 162 As earlier noted, the holding is that the MOU only bound the parties for the initial 12 month period. Had the parties been able to reach agreement as to prices for the remainder of the three year term, the agreement would have continued to bind the parties. Option unenforceable in any event 163 The options would in any event have been unenforceable. This is so for the following reasons: i. the MOU fail to stipulate when the option was to be exercised; ii. it failed to identify the terms of the agreement to come into effect upon the exercise of the option. 164 An exercise of the option would have occurred in the absence of any agreement or discussion whatever concerning prices for the further term. The purported exercise of the option could only be devoid of content in the absence of agreement as to essential matters. The way forward 165 The curious situation which obtains concerns the fact that notwithstanding from time to time in later years having contested the validity of the MOU, Aventis prior to the purported exercise by MDA of the option, appears to have affirmed that the MOU was on foot. As a matter of law it was wrong. The MOU had ceased to bind the parties at the expiration of the initial 12 month term. 166 In a conveyancing context it is possible for a vendor, having first purported by notice to make time of the essence of a contract and thereafter purported to terminate the contract for failure to comply with the time so delimited, to then, without prejudice to the claimed validity of the termination, give a second notice purporting to make time of the essence of the contract. Such a second notice is properly construed as an "offer to start up again" [that is to say as an offer to re-instate the contract, being an offer capable of being accepted by the purchaser]: Lohar Corporation Pty Ltd v Dibu Pty Ltd (1976) 1 BPR 9177. 167 The present context however is quite different. There was no communication from Aventis by way of an offer to start up again. To the contrary, its approach as the end of the initial term approached, was to give notice terminating the MOU effective on 24 August. 168 The relationship had always been stalled. It remains stalled. The notice terminating the MOU was simply misconceived. The agreement had long since ceased to have operative binding effect. It had ended at the expiration of the initial 12 month period. 169 Returning briefly to the concerns or the courts to strive to uphold an agreement where the parties clearly intended to enter into an immediately binding agreement and believed they had done so on the principle that the Court's should be the upholders and not the destroyers of bargains, this has been a particularly difficult case to deal with. That the parties, notwithstanding their appearing to approach one another at arms length through most of the first three year period [when they remembered to communicate at all], seemed to pay lipservice to the proposition that they had an agreement of some type in place, simply means that the Court has to scrutinise very carefully the approach taken by each of them on the pleadings. Notably no party contended that the original contract had, as a matter of law, been varied by conduct, following the end of the initial 12 month period. No pleading advanced the proposition of an estoppel based on a conventional acceptance by the parties of some form of varied agreement. Doubtless that was because of the lack of content to the terms of a variation. 170 As already observed in the result the parties having been 'the masters of their contractual fate', were themselves responsible for the limited 12 month life of the binding arrangement recorded in the MOU. Abandonment 171 That a contract can be terminated by an abandonment is not in issue as one is reminded by the judgment of Hope JA in Air Great Lakes Pty Limited v K S Easter Pty Limited (1985) 2 NSWLR 324. 172 During the hearing Aventis sought leave to amend its pleadings so as to plead abandonment. The amendment was opposed upon the basis that MDA had not prepared its case in those terms and would have required to carry out additional investigations in order to be fairly able to deal with that case. A decision was reserved to be handed down in the final judgment. 173 It seems to me that the amendment should be allowed for the reason that every facet of the dealings between the parties seemed to have been thoroughly treated with in preparation for the hearing. No new facts were put forward by Aventis. In particular I do not accept that internal communications of Aventis would have been relevant to the issue. Abandonment takes place where the parties are seen so to have conducted themselves as mutually to abandon or abrogate it. 174 In Summer v The Commonwealth (1918) 25 CLR 144 Isaacs J held that the contract the subject of the proceedings before him had been mutually abandoned by the conduct of the parties. The contract was for the supply of blocks of marble. Each party adopted a different view as to what the seller was bound to do in performance of the contract. After months of disputation the purchaser purported to give a notice of cancellation of the contract, which Isaacs J held to be ineffective. Having so concluded his Honour said: "...But after that the plaintiff took no step towards performing his contract, which originally was to have been completed in four months. He seems to have maintained his determination not to proceed on the defendant's basis, and to have acquiesced in considering his obligation at an end. The Department also considered it at an end, because they procured the marble from Walker and it has been used in London... Whatever the terms of a contract may be, it is possible for the parties so to conduct themselves as mutually to abandon or abrogate it... In my opinion that is the legal position here. Informally, but effectively the parties have so acted in relation to each other as to abandon or abrogate the contract." 175 Bearing in mind the manner in which the primary findings have approached the analysis, it is unnecessary to deal with the abandonment defence. The contract fell away after the initial 12 months by reason of its terms, whether express and/or implied. It was no longer in force thereafter. The concept of abandonment would only have required consideration if there had been a binding contract to be abandoned. There was not. Affirmation 176 I do not accept that Aventis has been shown to have elected to confirm the MOU by supplying MDA's five orders [two in February 2004 and three in June 2004 -August 2004]. The only conduct pleaded by MDA as amounting to affirmation by Aventis was the making of those five sales in 2004. The making of a sale was not unequivocal conduct consistent only with the MOU being on foot. Cross-claim 177 As was conceded during final address by Mr Parker, the cross-claim insofar as constituting a claim to Trade Practices Act/Fair Trading Act s 87 relief was always a shield and no more. It constituted a claim to damages of an equivalent amount to that which may have been awarded against Aventis in the event that MDA had succeeded in its claims on damages. 178 For that reason the cross-claim grounded upon the basis must fail. 179 There are a number of answers to the cross-claim insofar as it seeks damages for the alleged breach by MDA of the contract to acquire the first three named products in the initial 12 months of the term. 180 The finding is that Aventis has failed to prove its damages claim. Aventis has failed to prove on the balance of probabilities that had MDA complied with its contractual obligation to order the first three named products in the quantities provided for in the MOU, it would have been able to produce and provide those products consistently with such orders. The evidence before the Court of the very significant delays that were involved in Aventis providing MDA with even the small orders in fact placed during the year, highlights the significance of Aventis discharging the onus of proof of having been in a position to both manufacture and/or supply the product which ought to have been ordered during the initial 12 months of the term. Aventis has not discharged that onus of proof. 181 There is yet a further obstacle in the path of Aventis in its endeavour to prove its damages case. The analysis in Exhibit D6 where Mr Ho sets out the damages calculation, effectively derives a gross profit figure rather than a net profit figure. Mr Ho gave evidence that he had no precise knowledge of what costs were included. There is simply no, or no satisfactory evidence that describes effectively the indirect costs associated with the manufacture and supply of the subject products. The presumption against the wrong doer principle referred to below works in two ways – first in an expansive approach to damages against the wrong doer, and second, in a careful scrutiny of a claim to damages pursued by a wrong doer. Hence for this reason also the damages case pursued by Aventis fails. 182 A further obstacle in the path of Aventis' claim to damages in respect of MDA's failure to acquire the stipulated quantities of the first three identified products during the initial 12 months of the term is to be found in the finding that the conduct of Aventis during the initial 12 months of the term played a significant part in explaining MDA's failure to acquire the products. As already noted in the reasons: i. Aventis as early as late February 2002 denied that an agreement existed at all; ii. In May 2002 Aventis contended that Mr Wiegand was not empowered to sign the MOU; iii. Aventis in late March 2002 commenced selling Fibrogammin P directly to customers in Australia (other than MDA). 183 Indeed and also as noted in the reasons, by September 2002 Mr Ho continued to contend that Aventis could not accept that a binding agreement existed. 184 Nor should one overlook the fact that Aventis refused to place MDA onto its web site, doing so by reason that it did not have a signed contract. 185 For all of these reasons MDA was clearly entitled to act upon the basis that it was not required to honour the contract until the position clarified. The notion that a party is able to enforce a contractual obligation over a period during all or a substantial part of which it actively denies that such a contract exists, only needs to be stated to be dismissed. 186 During final submissions from counsel appearing for MDA attention was drawn to Lord Backburn's frequently cited dictum in Mackay v Dick (1881) 6 App Cas 251 at 263. 187 Clearly the implied obligations were: i. to do all such things as are necessary to enable the other party to have the benefit of the contractual promise; ii. not to hinder or prevent the fulfilment of the purpose of express promises made in the contract bound both parties. 188 Equally clearly Aventis' claim for damages cannot stand in the light of its above described conduct which at the very least placed MDA into a situation in which the very existence of the contract was being vehemently denied. 189 This is not the first occasion when the law has dealt with this type of conduct. MDA is also assisted in this regard in relation to the proper approach to be taken by the Court in terms of the approach to the proof by Aventis of its damages. MDA for the purpose of quantifying damages, is able to rely upon the "presumption against the wrongdoer". 190 This principle relies upon the maxim 'nullus commodum capere potest de injuria sua propria' - 'no man can take advantage of his own wrong': cf ADC v White & Anor (unreported, Supreme Court of New South Wales, 8 February 1999, Einstein J) at [89] et seq. There is a long line of authority to this effect [Cf. Broom's Legal Maxims, 10th edition, Pakistan Law House, 1989 at 191 et seq., noting that this maxim, being 'based on elementary principles, is fully recognised in Courts of law and equity, and indeed, admits of illustration from every branch of legal procedure'. Other defences 191 In my view it is unnecessary to go further through the gamut of other defences advanced by Aventis. Short minutes 192 It seems to me appropriate to permit the parties an opportunity to consider these reasons before bringing in short minutes of order. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.