Reported Decision : 72 IPR 102 New South Wales Supreme Court CITATION : Perfection Dairies v Australian Co-operative Foods [2007] NSWSC 176 HEARING DATE(S) : 29, 30 and 31 January 2007; 1, 2, 5, 6, 7 and 9 February 2007 JUDGMENT DATE : 12 March 2007 JUDGMENT OF : McDougall J at [1] DECISION : See paras [235] and [236] of judgment CATCHWORDS : CONTRACT - where parties in current contractual relationship agree on new terms - whether intention to be bound immediately to new terms until formal instrument of agreement executed - relevance of subsequent conduct - whether terms sufficiently certain - implied terms - whether terms to be implied in law or in fact - breach - whether fundamental breach of repudiation - ESTOPPEL - whether defendant estopped from relying on, or has waived, any breach LEGISLATION CITED : Trade Practices Act 1974 Australian Broadcasting Corporation v XIVth Commonwealth Games Limited (1988) 18 NSWLR 540 Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd & Ors (1986) 40 NSWLR 622 B P Refinery (Westernport) Pty Limited v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266 Butt v M'Donald (1896) 7 QLJ [68] at 70-71 Fitzgerald & Anor v Masters (1956) 95 CLR 420 CASES CITED : G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 Hillas & Co Limited v Arcos Limited (1932) 147 LT 503 Masters & Anor v Cameron (1954) 91 CLR 353 Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310 The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1967) 118 CLR 429 Update Constructions Pty Ltd v Rozelle Child Care Centre Limited (1990) 20 NSWLR 251 PARTIES : Perfection Dairies Pty Ltd (Plaintiff) Australian Co-operative Foods Limited (trading as Dairy Farmers) (Defendant) FILE NUMBER(S) : SC 50182/06 COUNSEL : B W Rayment QC/D T Kell/E Raper (Plaintiff) B C Oslington QC/B P Jones/J A Watson (Defendant) SOLICITORS : Warren F Ball & Co (Plaintiff) Allens Arthur Robinson (Defendant) INDEX Perfection Dairies v Australian Co-operative Foods [2007] NSWSC 176 [Para] The issues for decision 2 Credibility 6 Mr Lester 7 Mr Peel 13 Mrs Halfpenny 16 Mr Gordon 19 Mr Maritz 22 Mr Morrison 23 Mr Langdon 25 Mr Buxton 26 Messrs Toomey and Gentili 27 Narrative of relevant facts 29 The trade mark licence agreement 29 Changes in the course of dealings 36 Bottles 37 The accepted Perfection offer 40 Dealings after 27 October 2004 48 Threats to terminate 51 Fresh Start and Fortress 53 Perfection decides to make its own bottles 55 Changes in volume 59 The relationship deteriorates 64 "Moove" packaging 74 Perfection considers terminating the relationship 81 The meeting of 16 October 2006 85 The telephone conversation of 8 November 2006 88 Perfection's board discusses the ultimatum 91 9 and 10 November 2006 102 The meeting of 15 November 2006 109 Intention to contract on the terms of the accepted Perfection offer 114 The relevant principles 118 The factual matrix 125 Uncertainty 161 The relevant principles 162 Analysis 164 Implied terms 184 The relevant principles 186 Implication in fact 186 Implication in law 188 Analysis 191 Breach 201 Opportunity to remedy breach and other issues: waiver, estoppel, substituted performance 206 Opportunity to remedy 207 Waiver, estoppel and substituted performance 212 Miscellaneous issues: P2 and P13 218 Six months' notice 219 Relief 225 Conclusions and orders 235 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST McDOUGALL J 12 March 2007 50182/06 PERFECTION DAIRIES PTY LTD v AUSTRALIAN CO-OPERATIVE FOODS LIMITED (TRADING AS DAIRY FARMERS) JUDGMENT 1 HIS HONOUR: On 30 September 1997, the defendant (Dairy Farmers) and the plaintiff (Perfection) entered into agreements relating to the processing, packaging, sale and purchase of milk. Only one of those agreements (which I shall call the trade mark licence agreement) is relevant for the purpose of this litigation. Perfection's case is that that agreement continued in force, with relatively informal variations, up until 27 October 2004; and that it was amended, supplemented or replaced by a further agreement made on that date. Dairy Farmers says that no concluded or immediately binding agreement was reached on that date, and that in law the relationship between the parties continued to be governed by the trade mark licence agreement as informally varied from time to time. Dairy Farmers says further that Perfection repudiated whatever agreement was in force between them, and that on 15 November 2006 it, being entitled so to do, terminated whatever agreement was then in force. Alternatively, Dairy Farmers says, whatever agreement was then in force was susceptible to termination by either party without cause on six months' notice, and that it has exercised that right. The issues for decision 2 At my direction, the parties prepared a "combined statement of issues arising" setting out what they contended were the issues for decision. Not all of those issues were agreed, in the sense that they were said not to arise on the "pleadings" (an inaccurate but convenient term, and one that I shall use where necessary in these reasons). 3 The issues stated by the parties were: " Issue [D1] The parties agree that the 1997 Trade Marks [sic] Licence Agreements (TMAs) were documents with some contractual force or effect in the period of at least October – November 2006. [D3] It is common ground that the defendant's purported termination of the agreement on 15 November 2006 was because of the plaintiff's conduct in packaging Dairy Farmers' milk in different bottles without first obtaining the defendant's approval to do so. Contractual terms [D2(a)] Was the 27 October 2004 Heads of Agreement intended by the parties to be a binding contractual agreement? [D2(b)] If the answer to [D2(a)] is "yes", nonetheless were the terms of the 27 October 2004 Heads of Agreement sufficiently certain to be enforceable as a contract? Issue [P1] Whether the parties are bound by the 2004 Heads of Agreement (in addition to the 1997 written agreement). [P3] Whether the agreement between the plaintiff and the defendant contained an implied term that the plaintiff would only package the defendant's milk in bottles manufactured by Pippak unless it first obtained the defendant's approval to use different bottles. [P4] Whether the agreement between the plaintiff and the defendant contained an implied term that the plaintiff would not change the bottles into which it packaged milk for the defendant without first obtaining the defendant's approval to a change. [P5] Whether either of the implied terms relied upon by the defendant was term [sic] of the agreement between the plaintiff and the defendant, any breach of which by the plaintiff gave the defendant the right to terminate. [P8] Whether, in the circumstances, the conduct of the plaintiff evinced an intention not to be bound by the agreement, so as to give the defendant the right to terminate. [P9]+[D3] Whether, in the circumstances, the breach entitled the defendant to terminate any contract in place as at 15 November 2006? Opportunity to remedy breach [P6]* Whether the defendant offered the plaintiff an opportunity to remedy the (alleged) breach. [P7]* If the defendant did offer the plaintiff an opportunity to remedy the (alleged) breach, whether the defendant in fact provided the plaintiff with the opportunity so offered? Issue [Dn] If, contrary to the defendant's submission, the issue (in P6-P7 above) arises on the pleadings, was the defendant obliged to offer or to give the plaintiff an opportunity to remedy the (alleged) breach? Waiver, estoppel, substituted performance [P10] If there was an implied term in the form alleged by the defendant, whether, by its conduct referred to in the Amended Reply the defendant should be taken to have waived any right to terminate the agreement for breach of the implied term. [P12] If there was an implied term in the form alleged by the defendant, whether the defendant by its conduct referred to in the Amended Reply, is estopped from relying upon the conduct by the plaintiff as a breach of the agreement as giving rise to any right to the defendant to terminate the agreement. [P11] If there was an implied term in the form alleged by the defendant, whether by its conduct referred to in the Amended Reply the defendant should be taken to have agreed to or accepted substituted performance by the plaintiff under the agreement. Miscellaneous issues [P2]* Whether the plaintiff informed the defendant prior to the execution of the 2004 Heads of Agreement that the plaintiff proposed to establish its own blow moulding operation including for the purpose of processing and packaging work to be done under the agreement between the parties. Issue [P13]* Whether the bottle produced by the plaintiff was, at least, comparable to the Pippak bottle and suitable for use as a disposable milk bottle. 6 months' notice [D6] If the defendant's determination for cause on 15 November 2006 was invalid, was the defendant nevertheless entitled to terminate on 6 months' notice without cause? [P14] Whether the 2004 Heads of Agreement had the effect of varying clause 11 of the 1997 written agreement so as to provide for a five year term, with the plaintiff having an option for a further five years, such that the agreement between the plaintiff and the defendant is not terminable without cause on 6 months' notice. [P16] If the agreement is terminable on 6 months' notice, whether the oral or written communications by the defendant on 15 November 2006 constituted effective notice pursuant to clause 11 of the 1997 written agreement such that the agreement would come to an end on 15 May 2007 (being 6 months from 15 November 2006). Relief [P17] What is the appropriate relief in the matter, including whether the plaintiff should be entitled to injunctive relief in addition to declaratory relief. [D8]* If it is held that the defendant's termination as at 15 November 2006 is ineffective, is the plaintiff entitled to an order for specific performance? [D9] If it is held that the defendant's termination as at 15 November 2006 is ineffective, and if it is held that the plaintiff is not entitled to an order for specific performance, is the plaintiff entitled to a declaration that the defendant's purported termination as at 15 November 2006 is ineffective? [D10] If the Court determines that the defendant is in breach of any contract with the plaintiff, is the plaintiff entitled to damages? In particular (a) what is the basis for the plaintiff's entitlement to damages, as the case has been framed by the plaintiff?; (b) is the plaintiff limited to damages for the period of 6 months' notice (from 15 November 2006)?; (c) is the plaintiff entitled to damages for 5 years or 10 years (from 27 October 2004)?" * Denotes an issue that was not agreed between the parties. 4 Dairy Farmers submitted that the following issues did not arise: (1) Issues P6 and P7, on the ground that they were not identified in the summons or in the amended reply, and that there was not identified any obligation to afford an opportunity to remedy. (2) Issue P2, on the ground that it was not relevant. However, Dairy Farmers said, if this issue was said to be relevant, it should be supplemented by adding at the end the following words: "that is, that the plaintiff proposed to pack the defendant's branded milk into these bottles without any further consultation". (3) Issue P13, on the ground that the real issue was whether Perfection was obliged to comply with the alleged implied term. 5 Perfection submitted that issue D8 did not arise, on the ground that it did not "presently" seek relief by way of specific performance. Credibility 6 Before I turn to the facts and the issues, I shall indicate my views on the credibility of the witnesses called. Mr Lester 7 Mr Stephen Charles Lester is, and for a number of years has been, the General Manager of Perfection. In that position, he reports directly to the board of Perfection. His evidence was that the board made all significant decisions on behalf of Perfection, down to a level of very considerable detail, that his actions and decisions as general manager were very much dictated by the board, and that he had very little independent autonomy (T27.35-28.10). 8 Mr Lester impressed me as an astute, strong willed and forceful individual who strove, in his dealings with Dairy Farmers, to achieve the very best outcome that he could for Perfection. It was plain, and indeed he made no secret of it, that in doing so he sought to exploit to the full any commercial or tactical advantage that he thought that Perfection might have. 9 It is apparent that Mr Lester had formed very strong views about Dairy Farmers, its senior management, and the way that Dairy Farmers and its management had treated him, and Perfection, over the years. It is apparent that those views were very unfavourable. 10 Although Mr Lester gave his evidence in a clear, confident and forthright way, there were a number of aspects of it that I found very difficult to accept. For example (and this is by no means a comprehensive list): (1) He prepared a document, styled "Company Options", dated 27 August 2006, for the consideration of Perfection's directors at a board meeting to be held the following day. That document proposed three options: (i) selling the company; (ii) continuing in its present mode of operation; and (iii) establishing independence and building its own identity. The third option was detailed as involving "Break From D.F." over a "Time Frame (18 months/2 years)". It was plain that Mr Lester appreciated that this document could be viewed as inconsistent with Perfection's case that on 27 October 2004 it had concluded an enforceable agreement with Dairy Farmers having a term of at least five years. Mr Lester sought to explain away the significance of the "break from Dairy Farmers", in a way that I regard as unacceptable (T68.25-69.45). (2) The minutes of the meeting of Perfection's directors held on 28 August 2006 record that the following took place in relation to the "company options" document: "1. The General Manager tabled a report (copy attached) outlining the options (and risks) available to the company so that a definite path for progression can be put in place. Following intense consideration of each option the Chairman asked each Director to vote as to which of the options should be pursued. R. Halfpenny, H. Halfpenny and the Chairman voted for option three. D. Peel abstained from voting. The General Manager was instructed to pursue option three." Mr Lester acknowledged that these minutes, like all others, were prepared by him in draft for the consideration of the board. The particular minute was signed by the chairman of the board, Mr Robert Peel, as a true and correct record. Mr Lester nonetheless sought, in my view disingenuously, to explain the resolution not one requiring him "to pursue option 3" (as clearly it was) but, instead, as one requiring him only to "investigate it" so that the board could thereafter "have a look at it" (T69.5-.35). I do not accept that explanation of the resolution, which I consider was made for the purpose of seeking to explain away what Mr Lester clearly perceived to be a potential danger to Perfection's case. I need only add that Mr Peel accepted, although not without some equivocation, both that the relevant part of the minutes correctly recorded the resolution in question and that it meant what it said (T151.20-.40). (3) In similar vein, Mr Lester sought to explain away the significance of a resolution passed by the board of Perfection at their previous meeting, held on 25 July 2006. Item 10 of those minutes reads as follows: "10. A lengthy discussion took place on the position of the company at this point in time and the future direction and opportunities that may become available. In particular was the item of the company operating in an independent mode and severing ties with Dairy Farmers. Following this it was agreed that the General Manager pursue the option of attaining a Lease on a factory at Moorabbin in Melbourne,s [sic] south eastern suburbs and constructing coolroom facilities." Again, the minutes were prepared in draft by Mr Lester and signed as accurate by Mr Peel. Mr Lester was asked about the reference to "severing ties with Dairy Farmers". Firstly, he gave a non responsive answer (T67.25). When pressed, he said that what this meant was that Perfection was "locked up till October 2009" and that it could not sever its ties with Dairy Farmers (T67.50-68.10). In my view, Mr Lester once again sought by those answers disingenuously to explain away something that he perceived to be dangerous to Perfection's case. (4) On 16 October 2006, there was a meeting between Messrs Peel and Lester (representing Perfection) and Messrs Ian Langdon and Robert Gordon (representing Dairy Farmers). The meeting discussed the deteriorating relationship between the two companies. A week later, Mr Peel sent to Mr Langdon a letter that Mr Lester had drafted. The letter concluded with the following paragraph: "As I said to you I will report to our next Directors [sic] meeting on the 31st October 2006 and contact you shortly after on whether we should try to salvage our relationship or go our separate ways". Messrs Gordon and Langdon gave evidence to the effect that, at the meeting, Mr Peel or Mr Lester had expressed views to the effect of those set out in that passage. Mr Lester would not accept that this was said, saying "I don't believe that was said at all" (T71.5). In context, and having regard to Mr Lester's demeanour and the general nature of his responses, it was plain that he was denying that words to the effect of those contained in the letter had been uttered at the meeting. He then gave an explanation of the last paragraph of the letter, saying "I was trying to put a bit of pressure on them to get everything working again" (T71.10). I regard this evidence as untrue, and as motivated by a desire to explain away what he perceived to be another danger to Perfection's case. His subsequent attempts to elaborate and rationalise his position (T71.15-72.25) are entirely unconvincing and, in my view, motivated by the same desire. 11 These considerations (and I repeat that they are not comprehensive) give me very serious concerns about the accuracy of Mr Lester's evidence. In general, I do not regard it as compelling; and I have concluded that I should be slow to accept it in areas of contest, except to the extent that it is against interest, or corroborated by other, acceptable, evidence, or accords with the probabilities objectively ascertained. 12 In addition, I have concluded that Mr Lester's evidence requires very close scrutiny when it is relied upon in relation to critical aspects of Perfection's case where, although there is no contradictory evidence, there is also no truly independent corroboration (for example, the events and outcome of the directors' meeting on 9 November 2006, with which I deal in paras [91] to [101] below). Mr Peel 13 As I have said, Mr Peel was the Chairman of Perfection's board of directors. He impressed me as an astute and capable businessman. However, I formed the impression that his recollection of a number of topics was general and hazy. 14 In addition, there were some aspects of Mr Peel's evidence that gave me cause for concern. For example (and again, what follows is not comprehensive): (1) His evidence as to the clear import of option 3 and the resolution passed on 28 August 2006 to adopt it was clearly structured to seek to avoid what in my view is the clear meaning of the document and resolution, and in my view reflected a recognition of the dangers that this might pose to Perfection's case (T147.50-152.15). (2) Although he agreed that the minutes "would be deadly accurate" (T150.55), at one point he sought in effect to suggest that they did not accurately record the sense and substance of what was discussed on 28 August 2006 (T150.50, 151.15, 151.40-152.5). (3) Although he agreed that he sought to put pressure on Mr Langdon at the meeting of 16 October 2006 (T154.10), he was evasive and in my view untruthful as to the nature of the "pressure" that he sought to apply (T153.50-154.35). 15 I am hesitant, in relation to disputed questions of fact, to accept Mr Peel's evidence where it is not corroborated by other, acceptable, evidence. Further, I have the same reservation as to the acceptability of Mr Peel's evidence in relation to critical matters such as the directors' meeting of 9 November 2006 as I have expressed in para [12] above in relation to Mr Lester's evidence. Mrs Halfpenny 16 Mrs Helen Mae Halfpenny is a director of Perfection. It is plain that she was closely involved in its business activities. She, along with the other board members (her husband Mr Russell James Halfpenny, Mr Peel and Mr Peel's brother, Mr David Peel) or their interests are in substance the owners of Perfection. 17 In general, Mrs Halfpenny appeared to have a good recollection of relevant events. However, there was one aspect of her evidence that concerned me. When cross-examined on the resolution of 28 August 2006, she sought to escape from, or to play down, the instruction given to Mr Lester to "pursue option 3". She said that he was simply instructed "to look into it" (T140.40) and "that we would look at the situation again then" – ie, in eighteen months to two years' time (T140.50). It is plain from the whole of her answer at T140.45-55 that she clearly appreciated the significance of this resolution to Perfection's case that it had a minimum five year contract with Dairy Farmers. 18 In consequence, I have some hesitation in accepting Mrs Halfpenny's evidence as acceptable corroboration for (for example) the evidence of Mr Lester as to contested questions of fact. Mr Gordon 19 Mr Gordon is the Managing Director and Chief Executive Officer of Dairy Farmers. It is obvious that he did not get on with Mr Lester. Indeed, Mr Peel said that they were like "two bulls in the same paddock" (T147.30). 20 Mr Gordon is plainly an intelligent and astute man. He appeared to have a good recall of the events of which he gave evidence. However, I regret to say that I do not regard him as a witness whose evidence can be accepted with any degree of confidence. There are a number of features of it that I regard as unacceptable (and again, what follows is not intended to be comprehensive): (1) He showed a marked and repeated tendency to deliver non responsive speeches in answer to questions where it was clear that a simple "yes" or "no" was all that was required: see for example T185.20-.35 (where the speech was intercepted) and T189.15-.30 (where it was not). Despite the warning given after this last episode (see T189.35), Mr Gordon did not completely abate his enthusiasm for this mode of answer: see, by way of example only, T214.25-.30. (2) There was a serious dispute between the parties as to when it was that Dairy Farmers' management (including Mr Gordon) learned that Perfection was setting up its own plant to manufacture milk bottles. In paragraphs 12 and 13 of his affidavit affirmed 23 November 2006, Mr Gordon seemed to suggest that he had not learned of this until "in or about early June 2006". However, it is plain from an e-mail that he sent to colleagues at Dairy Farmers on 5 December 2005 that he was then aware "that Steve Lester at Perfection is intending to start blow moulding his own bottles in the new year". Mr Gordon's attempts in cross-examination to rationalise this significant discrepancy were entirely unconvincing (T241.5-242.40). (3) Dairy Farmers prepared a "Leak Strategy for Project Fortress". (I explain this in para [65] below.) The document was apparently intended to show how the release of information about the project should be managed. In a version of that strategy dated 16 October 2006, the background was said to include the following: "Dairy Farmers to directly compete with current partner Perfection – partly as a result of a deteriorating relationship". Mr Gordon was questioned about the word "partly" and asked, in substance, what other reasons there were for Dairy Farmers' decision to compete with Perfection. He denied that one of the reasons was to garner to Dairy Farmers the profits currently made by Perfection on the packaging business (T253.45). This denial was palpably false: the business case for Project Fortress made it plain that one of the benefits was that Dairy Farmers itself would make those profits. Further, when pressed, Mr Gordon gave an answer that was manifestly nonsensical (T253.50-254.5): "Q. What was the other part, as you understood it, of the reason for the direct competition? A. It was because we were building a contingency plan in case we needed to service our customers in the case that Perfection had terminated us and we had no way of servicing it. HIS HONOUR Q. That was the contingency plan that was necessary if the deteriorating relationship deteriorated to the point where it collapsed, wasn't it? A. Indeed. Q. What was the other part? A. I don't know what was in the mind of the person preparing it. That's how I read it, that is, that in the case where not only is it the deteriorating relationship but if it fails we needed to be able to service our customers." I regard that evidence as false and evasive, and intended to provide an escape from the consequences of his earlier false denial. 21 In general, I do not accept Mr Gordon's evidence on contested issues of fact except to the extent that it is against interest, is corroborated by other, acceptable, evidence, or accords with the probabilities objectively ascertained. Mr Maritz 22 Mr Ryan Maritz is Dairy Farmers' Group Sales Manager. He gave his evidence in a clear and forthright manner, and appeared to have a good recall of the relevant events. I formed the view that he was a truthful witness, and one on whose evidence I could rely, particularly in the resolution of disputed questions of fact. Indeed, no submission to the contrary was made. Mr Morrison 23 Mr John Morrison is Dairy Farmers' Supply Chain Capability Manager. He too gave his evidence in a clear and forthright manner, and did not seek to equivocate or dissemble when answers that he gave could have been perceived as unfavourable to Dairy Farmers' case. Mr Morrison kept detailed contemporaneous file notes of a number of relevant conversations (in some cases, supplemented by "recollections" added some months later, when this litigation was under way). It was not put to him that his contemporaneous file notes were concocted, or otherwise knowingly false. A submission was made that I should view them with caution, because of what were said to be Mr Morrison's dual and incompatible roles (as manager of the relationship with Perfection and as one of those chiefly responsible for Project Fortress). That proposition was not put to Mr Morrison. In any event, nothing in the notes or in his evidence suggests that I should accept it, and I do not. 24 In my view, Mr Morrison was a truthful witness and one on whose evidence I could rely in resolving disputed questions of fact; this extends to his file notes as well as his affidavit and oral evidence. Mr Langdon 25 As I have said, Mr Langdon is the Chairman of the board of directors of Dairy Farmers. He appeared to me to have a reasonable recall of the events of which he gave evidence. I formed the view that he was a witness of truth, and one on whose evidence I could rely in resolving disputed questions of fact. Mr Buxton 26 Mr Buxton is Dairy Farmers' General Manager, Supply Chain. He appeared to have a less than clear recall of relevant events. However, I formed the view that to the extent that his memory permitted, he was a truthful witness. In particular, I formed the view that his file note of the telephone conversation of 8 November 2006 is the best guide to what was said during that conversation, with the exception of its closing words (as to which, see para [90] below). Messrs Toomey and Gentili 27 Mr Toomey is a consultant to Dairy Farmers, who was specifically engaged in what became Project Fortress. Mr Gentili is the Factory Site Manager of the bottle production facilities of Pippak and Full-View. 28 Messrs Toomey and Gentili impressed me as witnesses of truth on whose evidence I could rely. Indeed, no submission to the contrary was made. Narrative of relevant facts The trade mark licence agreement 29 As I have said, the trade mark licence agreement was made on 30 September 1997. It was executed under seal by Perfection and by Dairy Farmers' then Chief Executive Officer, Mr Alan Richard Tooth, pursuant to a power of attorney. 30 By clause 1 of the agreement, Dairy Farmers granted an exclusive licence to Perfection to use certain trademarks in "the Territory": a defined area comprising much of the north western Sydney region and areas nearby (it appears to extend to the Hawkesbury River in the north, to Mount Victoria in the west and to be bounded by the Great Western Highway on the south, to Wentworthville, and thence by Pennant Hills Road and the Pacific Highway on the southeast and east). 31 The licence granted appointed Perfection the exclusive agent of Dairy Farmers in the Territory for the following purposes: (1) The processing, packaging, distribution and selling of whole milk to supermarkets and convenience stores in the Territory (clause 1(a)); (2) The distribution and selling in the Territory of certain specified "modified milk products" (clause 1(b)(i)); and (3) The processing, packaging, distribution and selling in the Territory of other specified modified milk products (clause 1(b)(ii)). 32 Perfection agreed to increase its purchases of milk from the then NSW Dairy Corporation by approximately 30 million litres annually. That milk was to be used firstly for the processing, packaging, distribution and selling of whole milk in the Territory (as contemplated by clause 1(a)) and, secondly, to the extent that it was not required for that purpose, to be processed and packaged for and delivered to Dairy Farmers. 33 Clause 3 provided for a remuneration to be paid by Dairy Farmers to Perfection in respect of the 30 million litres of milk the subject of clause 2. 34 Clause 11 provided that the agreement should "endure until 30 June 2001 and thereafter … continue unless terminated by either party on six months' written notice given to the other." 35 Clause 18 provided "that in the event of an emergency at either of [the parties'] plants, each party will make their production capacity for milk available to the extent they find themselves able to do so in conformity with their legal obligations." In other words, each party agreed to render emergency assistance to the other where possible. It appears to be common ground that, at least for the purposes of the trade mark licence agreement, emergency milk supplied pursuant to clause 18 should not count towards the 30 million litres the subject of clause 2. Changes in the course of dealings 36 Perfection and Dairy Farmers continued to do business, substantially on the terms of the trade mark licence agreement, well past 30 June 2001. There were changes from time to time (for example, in relation to the processing "fee" payable pursuant to clause 3); neither party has submitted that such changes are of any present relevance. A particular change occurred on 1 July 2000, when the milk market in New South Wales became fully deregulated. Perfection thereafter ceased to obtain milk from the NSW Dairy Corporation, and supplied Dairy Farmers' requirements either from its own resources or from milk bought in from others. The parties appear to have accommodated this change without any difficulty, and without perceiving the need formally to amend the trade mark licence agreement. Bottles 37 At all material times, at least up until late October or early November 2006, Perfection obtained the bottles into which it packaged milk for Dairy Farmers from external suppliers. Mr Lester said that the external supplier was Full-View Plastics Pty Limited (Full-View) of Blacktown. Dairy Farmers' evidence was that some bottles were supplied to Perfection by Full-View, but others were supplied by Pippak Pty Limited (Pippak). Pippak was a joint venture between Dairy Farmers and another entity, known as Brickwood, in which Dairy Farmers had a majority interest. Pippak's bottle manufacturing plant was located within Dairy Farmers' Lidcombe plant, and fed bottles to Dairy Farmers' processing line. 38 Dairy Farmers had no direct interest in Full-View, but Brickwood did. The relationship was so close that both plants were managed by the one person, Mr Renato Gentili (an employee of Brickwood). 39 Mr Gentili gave evidence, the effect of which was that at least one employee of Perfection, Mr Steven Kelly, knew that Perfection received bottles from Pippak as well as from Full-View. That evidence was not challenged or controverted, and I accept it. I find it difficult to believe that someone like Mr Lester, who quite clearly exerted very close control over all aspects of Perfection's operations, would have been unaware of this. However, he was not challenged on the specific evidence given by Mr Gentili. Nonetheless, I find that Perfection, through Mr Kelly, was aware that it received bottles from Pippak as well as from Full-View. The accepted Perfection offer 40 It appears that Perfection – specifically, I think, Mr Lester – became dissatisfied with the terms of the trade mark licence agreement, and sought to renegotiate it. Those negotiations culminated in a Dairy Farmers' document described as the "Perfection Offer", dated 22 October 2004. There had been a number of earlier drafts of that document, with changes in the terms reflecting the course of negotiations. 41 The terms of the document had been negotiated between Mr Lester on behalf of Perfection and Mr Laurence Robinson and others (including Mr Arthur Aroney) on behalf of Dairy Farmers. Mr Robinson was Dairy Farmers' Chief Financial Officer up until 21 July 2005. Mr Lester's uncontroverted evidence (Mr Robinson had sworn affidavits, but they were not read and he was not called) is that he told Mr Robinson that the Perfection offer, in its 22 October 2004 form, was acceptable to Perfection. Mr Lester and Mr Robinson signed the document, which I shall call the accepted Perfection offer, on 27 October 2004. 42 One of the principal provisions of the accepted Perfection offer was an increase in the total volume of milk to be processed and packaged by Perfection for Dairy Farmers, from 30 million litres per year to 45.4 million litres per year (together with, apparently, provision for further supply up to a total of 70 million litres per year). Another provision was for a "10 year term for the licensing of the Dairy Farmers' brands plus processing arrangements with Perfection having an option after 5 years." 43 Mr Lester said also that when the accepted Perfection offer was signed, Mr Robinson said, and Mr Lester agreed, that "[w]e will start operating under the bullet points immediately and we can move to a more formal agreement later." 44 As I have said, Mr Robinson was not called to give evidence, although he had sworn, and there had been served, two affidavits. No explanation was given of the failure to call him. In those circumstances, and notwithstanding what I have said above, I accept this aspect of Mr Lester's evidence. 45 Mr Lester said also that at no stage did anyone from Dairy Farmers say to him that the accepted Perfection offer should be regarded in any way as conditional. Again, I accept that evidence. 46 A meeting of the board of directors of Dairy Farmers was held over 27, 28 and 29 October 2004. The minutes of that meeting record that Mr Robinson (I think, on 27 October 2004) advised the board as follows: "L Robinson provided an update to the board as to discussions with Perfection and confirmed that agreement had been reached regarding milk production and distribution for a five year period, with a further five year option exercisable by Perfection." 47 Those minutes then noted "that the agreement will be strategically important to Dairy Farmers though, it was noted, at a greater cost than previously discussed." They noted also that Mr Robinson informed the board that "[n]otwithstanding other options available to Perfection, the strong recent performance of the current arrangements had been a factor" (presumably, in persuading Perfection to agree on the terms of the accepted Perfection offer). Dealings after 27 October 2004 48 After 27 October 2004, the parties acted on the basis that at least some aspects of their relationship were governed by relevant provisions of the accepted Perfection offer. For example, after 27 October 2004, the parties acted on the basis that the minimum annual volume of milk to be processed, packaged and supplied by Perfection to Dairy Farmers was 45.4 million litres. 49 It is plain that the parties expected a new formal agreement to be negotiated and executed. What is now in dispute is whether they intended the accepted Perfection offer, read in conjunction with so much of the trade mark licence agreement as survived it (or was not inconsistent with it) to have contractual force, so as to govern their relationship until the execution of the new formal contract. 50 The relationship between the parties became strained after October 2004. It is apparent that Mr Lester resented some aspects of the way that Dairy Farmers and its employees treated Perfection. There was also some degree of instability in the dairy industry in New South Wales at this time, and there were rumours that one party or the other was to be taken over by, or to form an alliance with, other participants in that industry. Threats to terminate 51 It is Dairy Farmers' case, advanced through a number of its witnesses, (including Messrs Morrison and Maritz) that Mr Lester, on a number of occasions during 2006, made threats or statements to the effect that Perfection would terminate, or walk away from, its relationship with Dairy Farmers. With one exception (in relation to a threat that he said he did not mean) Mr Lester denied making such statements. I do not accept that denial. On the contrary, I accept the evidence of Messrs Morrison and Maritz, and find that such threats, or statements, were made. 52 At least up until recent times – specifically, early November 2006 - the relationship with Perfection was of very great importance to Dairy Farmers. That is because, until recent times, Dairy Farmers did not have sufficient capacity at its Lidcombe plant to process and package all the milk that it required for its Sydney operations. Messrs Lester and Peel were well aware of this. Mr Peel accepted that it was his view that Perfection had a strong bargaining position in its dealings with Dairy Farmers. Mr Lester would not agree that he was conscious of this. I do not accept his denial. It is inconceivable that a man as astute as he was would not have perceived the strength of Perfection's position, deriving from Dairy Farmers' need of Perfection's processing capacity. Fresh Start and Fortress 53 It is plain that Dairy Farmers took seriously Mr Lester's threats to terminate or withdraw from the relationship. (Indeed, the actions that it took confirm that, contrary to Mr Lester's denials, he did make such threats.) In about August 1996, Mr Gordon or other employees of Dairy Farmers initiated, with the approval of the board, "Project Fresh Start". That was intended to remove inefficiencies in Dairy Farmers' Lidcombe plant and to increase its production capacity. This project was overtaken by what became known as "Project Fortress". The aim of Project Fortress was to ensure that Dairy Farmers was self sufficient, so that it could process and package all the milk that it needed without help from Perfection; and to equip Dairy Farmers to compete with Perfection. 54 It may very well be that Projects Fresh Start and Fortress had their geneses in Dairy Farmers' need to protect itself should Mr Lester carry out his threats, so that it lost access to Perfection's production capacity. Indeed, I find, this was always an objective of Project Fortress. However, as Mr Gordon made plain to his board, the projects had very significant financial benefits to Dairy Farmers: the capital cost would be recouped in under two years if Dairy Farmers itself processed all the milk that, to date, was being processed for it by Perfection. Further, the project would be profitable, although on a lesser scale, even if the relationship with Perfection remained in place. It is plain, despite Mr Gordon's unwillingness to recognise it (to which I have referred above, in discussing his credibility), that this was another – in my view, the other – significant reason why Dairy Farmers undertook Project Fortress. Perfection decides to make its own bottles 55 Mr Lester said that, during the negotiations that led to the accepted Perfection offer, he told Mr Robinson "that the plaintiff was proposing to buy its own blow moulding machines", that this was "because the plaintiff had experienced numerous price changes in its deal [sic] with Full-View Plastics" and that "this would enable prices to be stabilised", providing "savings to both companies". Mr Lester said that "Mr Robinson had no objection to my proposal" (see Mr Lester's affidavit sworn 18 November 2006, paragraph 27). 56 Notwithstanding the view that I have formed as to Mr Lester's credibility, I accept that evidence. It was not shaken in cross-examination. More importantly, Dairy Farmers did not call Mr Robinson (see para [44] above). That decision means that there is no relevant factual contest as to this conversation. It is not inherently improbable. Indeed, I think, because of the prospect of price stability, Mr Lester might have regarded it as something that aided his position during the negotiations. 57 Dairy Farmers did not insert into its Perfection Offer of 22 October 2004 any provision dealing with the source of bottles used by Perfection in packaging its milk. (No one suggested that it did not do so because it was content with whatever the trade mark licence agreement said on that topic.) So far as the evidence goes, Dairy Farmers raised no objection to Perfection's proposal, either during the negotiations or subsequently (up until 8 November 2006). 58 There is no doubt that after 27 October 2004, other employees of Dairy Farmers became aware of Perfection's proposal to manufacture its own bottles. There is no doubt that they appreciated that such bottles would be used in the packaging of milk for Dairy Farmers. There is no doubt of this latter point because employees of Dairy Farmers appreciated that if Perfection carried out this plan it would have an adverse impact on the profitability of Pippak. As I have said, Pippak was a joint venture operation in which Dairy Farmers had the majority interest. Changes in volume 59 After the accepted Perfection Offer was signed, Perfection began to supply Dairy Farmers with milk at an increased weekly rate. On the evidence, the rate of supply was about 42 to 44 "loads" on average. The size, or volume, of a load varies; but a typical load was said to be 19,440 litres. 60 At a later time after the accepted Perfection Offer was signed, Dairy Farmers suffered an outbreak of listeria at its Lidcombe plant. It is unclear precisely when this occurred, because the evidence dated it as being in the first quarter of a "year", without specifying whether it was the 2005/2006 financial year or the 2006 calendar year. The contamination affected the ability of Dairy Farmers to supply milk. Perfection processed and packaged additional milk for Dairy Farmers until the contamination was cleared up. As a result, if this "emergency milk" were to be taken into account, Dairy Farmers' orders from Perfection for the year (and it does not matter whether the year is a financial year or a calendar year) in question were likely substantially to exceed 45.4 million litres if weekly deliveries remained at the level of 42 to 44 loads. 61 On 31 May 2006, Mr Gordon instructed his subordinates in Dairy Farmers to reduce by five to six loads per week the number of loads taken by Dairy Farmers from Perfection. That decision was conveyed to Mr Lester, who was plainly unhappy: not surprisingly so, given the need for Perfection to plan in advance the efficient utilisation of its plant and labour. A compromise "with a hard edge" was reached: 38 loads per week (the quotation comes from an e-mail sent by Mr Morris to a colleague on 31 May 2006). 62 Perfection and Dairy Farmers disagreed as to Dairy Farmers' entitlement to reduce the weekly load in this way. It is plain that Dairy Farmers was taking the view that the emergency milk should be counted towards the annual total, so that it was entitled to reduce loads to ensure that it took no more than it was obliged to take. It is equally plain that Perfection thought otherwise. 63 Subsequently, Dairy Farmers came to appreciate that there was a risk that purchases at the rate of 38 loads per week might mean that it did not take the contractual total of 45.4 million litres per annum. It considered the concept of "catch up". On 15 August 2006, Mr Gordon sent an e-mail to Mr Morrison proposing that the latter "plan ahead of time to have a make up order with [Perfection] to catch up their contractual shortfall say every quarter". Mr Gordon said "that this would be a better way of handling the arrangement than a massive catch up at the year's end." The relationship deteriorates 64 Whilst all this was going on, Dairy Farmers continued to seek to protect itself from the consequences of the loss of Perfection's processing capacity. On 8 August 2006, the board of Dairy Farmers approved the capital expenditure required for Project Fresh Start. 65 The aim of that project, as stated in a "business case" dated 27 July 2006 and presented to the board, was to increase the processing and packaging capacity of Dairy Farmers' Lidcombe plant by some 48 million litres annually, which was said to include 21 million litres of milk from Perfection packaged in two litre containers, a further 11 million litres of milk from Perfection packed in three litre containers, and a further 6 million litres of milk from Perfection packaged in cartons. Thereafter, Project Fresh Start either changed to or was subsumed by Project Fortress; but the (or a) fundamental aim of each – to remodel the Lidcombe plant so that Dairy Farmers would not suffer if it lost access to Perfection's processing capacity – remained the same. Project Fortress went further, in that it assumed not only that the relationship between Dairy Farmers and Perfection would terminate, but also that Dairy Farmers would actively compete with Perfection in Perfection's Territory. 66 Further, as these plans developed and began to be implemented, Dairy Farmers began looking for a "trigger" that would enable it to terminate its relationship with Perfection. Ultimately, Dairy Farmers decided that the "trigger" became available to it when Perfection began to package milk for Dairy Farmers in containers manufactured by Perfection, not in containers sourced from Pippak or Full-View. 67 Messrs Lester and Gordon met on 2 May 2006. Mr Gordon's evidence is that during that meeting Mr Lester said words to the effect that he had had enough of Dairy Farmers and wanted to get out of the relationship. Notwithstanding my view as to Mr Gordon's credibility, I think it likely that Mr Lester did say some such words at this meeting. As I have said, I think that Mr Lester (and Mr Peel) thought that Perfection enjoyed a position of strength, in its dealings with Dairy Farmers, and that threatening to take Perfection's processing capacity away from Dairy Farmers was an effective (although crude) bargaining tool. 68 Mr Gordon discussed Mr Lester's concerns and proposed a "workshop" to be conducted on 18 May 2006. That workshop did not take place. 69 Mr Lester spoke to Mr Langdon to discuss some grievances on 4 May 2006. Mr Langdon said that when he met Mr Lester on that day, Mr Lester said (in between "expletives") words to the effect that he was not sure that he wished to do business with Dairy Farmers any longer. Mr Lester denies saying words to the effect of those alleged. I accept Mr Langdon's evidence that words to that effect were said. 70 On 5 May 2006, Mr Gordon called Mr Lester to follow up the discussion of 2 May 2006. Mr Gordon says that during that telephone discussion, Mr Lester made another threat to "walk away from Dairy Farmers" and stated that "[a]s far as we are concerned we don't have an agreement with Dairy Farmers … as things stand I have had enough and want out." Mr Gordon made a handwritten note of that conversation, which substantially confirms his account. Bearing in mind both that note (the authenticity of which was not challenged in cross-examination) and, more importantly, what I regard as the probabilities taking into account Mr Lester's view of Perfection's position of strength vis-a-vis Dairy Farmers, I conclude that Mr Lester did say words to the effect attributed to him. 71 These events, and other matters, created in Mr Gordon's mind the understandable suspicion that Perfection was indeed proposing to go its own way. 72 On 24 May 2006, Mr Maritz telephoned Mr Lester. Mr Maritz says that, in the course of their discussions, Mr Maritz said words to the effect that he had had enough of Dairy Farmers, and that the partnership was not working. Mr Maritz suggested a meeting; he says that Mr Lester replied "[n]o. There is no point. The relationship is over." Mr Maritz says further that Mr Lester said that he was "planning ways to move on" and that "Dairy Farmers will be shocked who I am working with". 73 Mr Lester denies using words to the effect of those attributed to him (not all of which I have summarised in the preceding paragraph). For the reasons that I have given above, in dealing with the question of credibility, I accept Mr Maritz's evidence that words to the effect of those alleged, and others to similar effect, were said on this occasion. "Moove" packaging 74 Mr Maritz also says that during this conversation, Mr Lester discussed with him a proposal to change the packaging of Dairy Farmers' "Moove" product. Mr Maritz says that he counselled Mr Lester against this, saying words to the effect that Mr Lester needed to meet the relevant personnel of Dairy Farmers and discuss it with them before acting. 75 Mr Lester accepts that he did have a discussion with Mr Maritz concerning the packaging of Moove, to the effect of that alleged. However, he says, that discussion occurred earlier, in March 2006. 76 Again for the reasons that I have given above in discussing the question of credibility, I accept Mr Maritz's evidence that the "Moove" discussion did occur in the course of the telephone conversation on 24 May 2006. 77 That is confirmed by what followed. Mr Maritz passed the "Moove" information on to others in Dairy Farmers. Mr Gordon became aware of it. He gave instructions that a letter be sent to Perfection on the topic. That was done on 26 June 2006. Omitting formal parts, that letter reads as follows: " Launch of Moove products in alternative pack sizes You have recently expressed interest in launching Moove flavoured milk in a package that is outside the existing Dairy Farmers [sic] range of Moove products. The initial response from Dairy Farmers' Marketing is that the proposed package does not appear to be in line with the brand image and the existing Dairy Farmers [sic] range of Moove products and is therefore unsuitable. As you are aware, all advertising, packaging and promotional materials (which have not been supplied by Dairy Farmers) must receive Dairy Farmers [sic] prior approval before use." 78 The letter was signed by Ms Lisa Miles, Dairy Farmers' General Manager, Marketing and Innovation. Mr Lester appeared to take offence at having been sent a letter from someone whom he did not know. 79 In my view, it is plain from the letter of 26 June 2006 that the reference to "all advertising, packaging and promotional materials" means precisely what it says, and is not limited to advertising, packaging or promotional materials relating to the Moove range of products. The proper reading of the letter is that Ms Miles intended to justify the particular decision in relation to a proposed change to the Moove products by reference to what she understood to be (or was told was) the general rule for all products. In my view, she achieved that purpose. 80 Mr Lester denied that he so read the letter. I do not accept that denial. Mr Lester was well aware of the vital importance, to a supplier of branded milk products, of the quality and integrity of its packaging (T31.20-.40). That understanding is consistent with the broad, rather than the narrow, interpretation of the last paragraph of the letter of 26 June 2006. In my view, Mr Lester was at all times well aware that Dairy Farmers would want an opportunity to consider and approve any change in packaging before that change was put in place. In my view, Mr Lester would have read the last paragraph of the letter of 26 June 2006 on this basis. Perfection considers terminating the relationship 81 I have referred in para [10(3)] above to the meeting of Perfection's board of directors on 25 July 2006, and to the business of that meeting (insofar as it is relevant for present purposes). 82 Likewise, I have referred in para [10(2)] above to the meeting of those directors on 28 August 2006, and to the relevant business of that meeting. 83 It is plain that Perfection was giving very close attention to the severance of its relationship with Dairy Farmers. 84 There is no evidence that Dairy Farmers was aware of those meetings or of the relevant business transacted at them. The meeting of 16 October 2006 85 On 6 September 2006, Mr Gordon wrote to Mr Lester. He raised again the prospect of a meeting to work through difficulties in the relationship. Thereafter, Mr Langdon spoke to his counterpart at Perfection, Mr Peel. A meeting was arranged to be held at Dairy Farmers' premises on 16 October 2006. Messrs Peel, Langdon, Lester and Gordon attended. The evidence of Messrs Langdon and Gordon is that, towards the end of that meeting, Mr Peel said words to the effect that the board of Perfection would consider at its meeting to be held on 31 October 2006 whether it would continue the relationship with Dairy Farmers, and that he would communicate the outcome of that meeting to Messrs Langdon and Gordon. 86 Messrs Peel and Lester would not accept that such words were said. I find that they were. Indeed, in a letter drafted by Mr Lester but signed by Mr Peel and sent to Mr Langdon a week later, almost precisely those words appeared in the final paragraph: "As I said to you I will report to our next Directors [sic] meeting on the 31st October 2006 and contact you shortly after on whether we should try to salvage our relationship or go our separate ways." 87 The directors of Perfection discussed the topic of the relationship with Dairy Farmers at their meeting held on 31 October 2006. The meeting was called to consider, and I have no doubt did consider, the subject matter flagged by the last paragraph of Mr Peel's letter to Mr Langdon of 23 October 2006. The telephone conversation of 8 November 2006 88 In the first week of November 2006, Mr Buxton became aware that Dairy Farmers' milk was being sold in bottles that had not been manufactured by Pippak or Full-View. He reported this to Mr Gordon. He and Mr Gordon, using a speaker phone, telephoned Mr Lester on 8 November 2006. In general, I think that the most reliable account of that conversation is to be found in Mr Buxton's contemporaneous notes of it. 89 Based on that note, the conversation included the following elements: · Mr Gordon said that he had become aware "yesterday" that Perfection was putting up Dairy Farmers' milk in different bottles. · Mr Lester said that the source of the bottles was not fundamental to the agreement between Perfection and Dairy Farmers. · Mr Gordon said that the bottles used must be approved by Dairy Farmers, and that there was no "current" agreement to the use of different bottles. · Mr Lester said that Dairy Farmers had known for 18 months that Perfection was putting in place its own blow moulding operation. · Mr Buxton said that he was aware of this, but not that it was to be used for making bottles to package Dairy Farmers' milk. · Mr Gordon said that the packaging could not be changed without agreement, and that Dairy Farmers' milk must be put into bottles approved by Dairy Farmers. · Mr Lester said "This will finish our agreement. We can't put back to where it was." · Mr Lester said further "We are not in a financial position to change what we've done … we can't do that … we cannot change back and will not (change back) … lines not set up to do this." · After further discussion to the same effect, Mr Gordon said that he needed to find a resolution. · Mr Lester replied "Never sat down and compared the bottles before the designed blow moulding … whole project put in to save us both money … we are stuffed." · Mr Lester also said "I made a mistake by not telling you … the decision will cripple us … I would have to turn the whole blow moulding off … can't just run on own bottles for our own brands. … We can't do it". He added "Not saying no, saying can't" (reverse decision). "If you … demand your bottle you'll break us." · Mr Lester said that he had been instructed by Mr Peel to resolve the issue with Mr Gordon. 90 There was further discussion, at the end of which Mr Lester and Mr Gordon agree that Mr Gordon said words to the effect "You think about the matter overnight, I will think about it overnight, and you ring me tomorrow". Mr Buxton's note does not reveal that such words were said, and Mr Buxton denied in cross-examination that they were. Nonetheless, given that Messrs Gordon and Lester agree, I find that Mr Gordon did say words to the effect of those quoted, and that the conversation then finished. Perfection's board discusses the ultimatum 91 Mr Lester informed Perfection's directors of the conversation, and a board meeting was convened for the following day. Mr David Peel was unable to attend; the other three directors did; and Mr Lester was in attendance. Mr Lester said in para 32 of his affidavit sworn 18 November 2006 that "The directors decided that we would resume ordering from Full-View Plastics the old form of container as had been requested and that we would modify the moulds in the blow moulding machines in due course to make them the same." 92 It does not appear that any notes were made of the board's discussions on 9 November 2006, nor that minutes (draft or approved) were prepared. 93 Mr Peel did not address the topic in his evidence in chief. Mrs Halfpenny said, in para 29 of her affidavit sworn 22 January 2007, that "[t]he board resolved unanimously to return to [the old] form of bottle." 94 Mr Peel's recollection of the meeting, as exposed in cross-examination, was hazy. He thought it was some days – variously two, three or four – after Mr Lester had told the board of the demand made by Mr Gordon on 8 November 2006 (T157.35). He said also that, when Mr Lester informed him of Mr Gordon's demand, he (Mr Peel) "probably thought" that Dairy Farmers could not do much about the demand because they were dependent on Perfection for processing capacity (T157.20). He confirmed that a similar thought was "probably" in his mind during the meeting on 9 November 2006 (T159.30). 95 Mr Peel gave no direct evidence in cross-examination of the decision made by the directors on 9 November 2006. However, he suggested that by 15 November 2006 a decision had already been made "to change back to the old bottle on their machines" (T159.5). 96 Mrs Halfpenny gave a slightly more detailed account in cross-examination. According to her, the substance of the board's decision was to the effect that Perfection would use the "old bottle" whilst it negotiated with Dairy Farmers to accept the new bottle manufactured by Perfection: on the basis that the new bottle would be made on moulds which ensured a product that was functionally identical to the Full-View or Pippak bottles (T124.20-.55). 97 It is plain that at different times Mrs Halfpenny used the expression "old bottle" to denote two different things: (1) The bottle formerly supplied by Full-View or Pippak; and (2) The bottle manufactured (for a short time) by Perfection itself. That is clear, I think, from the following: "Q. But the board decision was to immediately go back to the old bottles? A. If Dairy - yes, if Dairy Farmers would not agree to us using the old bottle while we had the time of - of getting the new moulds we would definitely go back to the old bottle until such time as we could, you know, get the blow moulding going with the new moulds." 98 In substance, what appears from Mrs Halfpenny's cross-examination is a three stage strategy: (1) First, negotiate to try to obtain Dairy Farmers' consent to the existing situation (ie, using the bottles being manufactured by Perfection) whilst the moulds were changed to enable Perfection to produce bottles that were functionally identical to those supplied by Full-View or Pippak; (2) Secondly, if Dairy Farmers would not agree, go back to using bottles supplied by Full-View or Pippak while changing the moulds; and (3) Once the moulds were changed, negotiate with Dairy Farmers for consent to the use of bottles manufactured by Perfection using the new moulds. 99 Support for this is found in Mr Lester's cross-examination at T33.55-34.10, and T37.10-.20: "Q. To change the shape of the bottle? A. To the shape that Dairy Farmers required. HIS HONOUR Q. Do I take it the conversation was not about going back to the Fullview bottle but to change the Perfection bottle to the old shape? A. The conversation, Your Honour, was I was to ring back Mr Gordon, I was to ask Mr Gordon would he allow Perfection to continue supplying the bottles we were supplying to them till we got our moulds, and if Mr Gordon wouldn't allow us to do that I was to immediately order the Fullview operation to our practices. That was the instruction from the board." … "Q. You don't claim you or the board changed its mind about asking Dairy Farmers whether you could continue using the Perfection bottle until you got the moulds for a new bottle conforming to the shape of the previous bottle? A. No. Q. So up to and including the meeting at 4 o'clock on 15 November 2006 with Dairy Farmers, to the best of your understanding and belief, the board still wanted to make an offer to Dairy Farmers to be allowed to use the Perfection bottle until it got new moulds? A. Yes." 100 Again, the clear inference from this (consistent with that which I think should be drawn from Mrs Halfpenny's evidence) is that there was no unqualified decision but, rather, a decision involving a series of alternatives. It is plain that implementation of such a decision would require face to face negotiation; and that such negotiation would be bound to fail if the ultimate decision – to capitulate to Dairy Farmers' demand – were communicated immediately. 101 I do not think that the directors made a decision in the absolute and unqualified terms suggested by Mr Lester and Mrs Halfpenny in their affidavits. I think the reality is much closer to that appearing from Mrs Halfpenny's and Mr Lester's cross-examinations. There are a number of circumstances that support the view that no unqualified decision was made: (1) Messrs Lester, Peel and Halfpenny and Mrs Halfpenny each thought, immediately before the meeting of 9 November 2006, that it would be "financially disastrous" or not "economically feasible" for Perfection to go back to using the Full-View (or Pippak) bottles. See Mr Lester's evidence at T32.10-.30; Mr Peel's evidence at T156.55-157.15; and Mrs Halfpenny's evidence at T119.40-120.5. Each of them attempted to escape from the consequences of this by suggesting that the cost was not in fact ruinous; but it was plain that this took account only of the interim cost (of ordering bottles from Full-View or Pippak), and no account of the very substantial investment in the bottle manufacturing plant, the cost of which would not be recovered (according to Mr Lester) if it were used only for Perfection's own products. (2) No attempt was made on or after 9 November 2006 to communicate the alleged decision to Dairy Farmers. Mr Lester gave evidence of attempts made to contact Mr Gordon by telephone (and Mr Gordon acknowledged that those attempts were made). However, Mr Lester was unable to explain why, having been unable to make telephone contact, he did not send a letter by e-mail or facsimile transmission, communicating the board's decision to Dairy Farmers. (Mr Lester himself did not "do" e-mail, but his personal assistant, Ms Tracie Sibraa, was accustomed to receive and send messages for him.) Given that the decision was "of critical importance to Perfection" (T35.35), it is inconceivable that Mr Lester would not have used every possible means of communicating the decision to Dairy Farmers if in truth it had been taken. However, his failure to send an unequivocal written (or electronic) communication is readily explained if the strategy decided upon by the board were that which I have said in paras [96] to [100] above may be discerned from the evidence of Mrs Halfpenny and Mr Lester. Mr Lester would not have wished to make an unequivocal communication before he had exhausted the possibilities of negotiation; and if negotiations were to have any prospect of success, he could not disclose at the outset Perfection's ultimate "fallback" position. (3) On 15 November 2006, there was a meeting at which Mr Gordon told Messrs Peel and Lester that Dairy Farmers had decided to terminate the contract because of the alleged breach relating to bottles. Although Messrs Lester and Peel sought to discuss the issue, at no stage did either of them mention that Perfection had resolved in unequivocal terms to go back to Full-View or Pippak bottles. I accept that Mr Gordon announced Dairy Farmers' decision before Messrs Peel and Lester had an opportunity to do much more than say "hello"; but nonetheless, if Perfection's position were as now suggested, it is hard to believe that one or other of them would not have raised this. (4) In correspondence that ensued between the parties' solicitors on 15 and 16 November 2006, Perfection's solicitor, Mr Ball, made no reference whatsoever to the alleged decision, although he offered other reasons as to why Dairy Farmers was not entitled to act as it had done. Mr Lester's evidence was that he gave instructions for Mr Ball's letter to be written, and reviewed it before it was sent, and permitted it to be sent knowing that it made no reference to the alleged decision. (5) There is no evidence, apart from something volunteered by Mr Peel in cross-examination, that Perfection had in fact changed back to Full-View or Pippak bottles after 9 November 2006. If the resolution were in the unequivocal terms suggested, one would have expected it to have been implemented. The fact that it was not implemented provides support for the view that I have expressed above: namely, that Perfection wanted to see if it could negotiate a solution other than capitulation. Mr Peel gave evidence (at T160.5-161.20) of a belief, or understanding, that Perfection had reverted to "the old bottle" at least two days prior to the meeting on 15 November 2006. I do not accept that evidence. The whole of Mr Peel's evidence of the events from 9 to 15 November 2006 was uncertain, and involved what appeared to me to be speculation and reconstruction. The belief is not supported by any other evidence. Further, Mr Peel did not mention the alleged fact at the meeting of 15 November 2006. It is inconceivable that he would have failed to do so had the change in fact been made. (6) Finally, as I have said, I think that Messrs Peel and Lester continued to labour under the delusion (as by then it was) that Dairy Farmers was dependent on Perfection for processing capacity. Thus, I think, neither of them really believed that Dairy Farmers would terminate its relationship with Perfection. If that was their state of mind, and if (as I think was the case) they were intending to negotiate to see if some compromise other than capitulation could be achieved, it is unlikely that they would have communicated to Dairy Farmers the fact that Perfection was prepared to capitulate. 9 and 10 November 2006 102 Mr Lester said that during the meeting on 9 November 2006, at about 3.30 pm, he received a telephone call from Mr Gordon's personal assistant, Ms Bonnie-Rae English. Mr Lester asked if he could ring back once the meeting was finished. Mr Lester said further that, at about 5.30 pm on the same day, he returned the phone call, spoke to Ms English and asked to speak to Mr Gordon. Mr Gordon was not available to take his call. 103 Mr Lester said that he rang Ms English twice the next day (10 November 2006) to speak to Mr Gordon. On the first occasion, Ms English said that Mr Gordon was unavailable but that she would ask him to return the call. He did not. On the second occasion Mr Lester left his name and telephone number on a voicemail message for Mr Gordon, asking Mr Gordon to call him. Mr Gordon did not return that call. 104 Ms English has not been called to contradict any of this evidence. Nor was there any other evidence to contradict it. Nor was Mr Gordon prepared to deny it, or to assert that he had sought to return any of the calls (T280.20-.45, 289.30-.40). I accept Mr Lester's evidence of his attempts to contact Mr Gordon by telephone on 9 and 10 November 2006. 105 At some time on 10 November 2006, Mr Gordon sent a letter to Mr Lester by e-mail. Omitting formal parts, it read: "I am sorry to hear that you continue to be unwell, despite the undertaking that you would contact me, this is no doubt the reason that I have not heard from you today. As discussed on Wednesday 8th November, it has come to our attention that Perfection has started packaging Dairy Farmers [sic] milk in containers manufactured by Perfection. Dairy Farmers' Chairman and I would like to meet with you and Perfection's Chairman to discuss this issue. We are available to meet with you on Wednesday 15th November 2006. In the meantime, Dairy Farmers reserves its rights." 106 The statement "I have not heard from you today" can only be correct either if intended to be read with the utmost literality or if Ms English did not tell Mr Gordon of Mr Lester's telephone calls, and request for Mr Gordon to return them. The latter is inherently implausible. 107 Mr Lester responded to that letter by an e-mail (sent by Ms Sibraa in his name) stating (correctly, as I have found) that "I did keep my undertaking to you and tried to contact you through Bonnie-Rae on Thursday 9th and Friday 10th November." That statement was not denied subsequently: another reason for accepting the substance of Mr Lester's account of his attempts to contact Mr Gordon. 108 The reply also appointed a meeting "on Wednesday 15th November at our place at Baulkham Hills at 4.00 pm." The meeting of 15 November 2006 109 On 15 November 2006, Messrs Langdon and Gordon arrived at Perfection's premises and met Messrs Peel and Lester. There is little substantial dispute as to what took place at that meeting. Mr Lester stated (as was the fact) that he had tried on a number of occasions, through Ms English, to contact Mr Gordon. Mr Gordon did not respond to this. Apparently reading from a prepared script, he said words to the effect that Perfection was packing milk for Dairy Farmers in bottles that had not been approved by Dairy Farmers; that this was a breach of a fundamental term of the agreement between Perfection and Dairy Farmers; and that Dairy Farmers elected to terminate the agreement on the basis of that fundamental breach. 110 As I have noted already, neither Mr Peel nor Mr Lester informed Messrs Langdon and Gordon of what Perfection says was the effect of the decision reached by Perfection's directors on 9 November 2006. Mr Lester stated that Perfection disputed that it was in breach, and that in any event Dairy Farmers needed to give six months' notice of termination. 111 Mr Peel's reaction to the meeting was that it was "a put up job"; and Mr Lester said that he was "gobsmacked". Neither of these reactions is surprising: particularly having regard to the following evidence given by Mr Gordon of the sequence of events from 8 to 15 November 2006: "Q. Can I just get the sequence correct in my mind, please, Mr Gordon. You had the telephone conversation with Mr Lester, Mr Buxton also, on 8 November, a Wednesday? A. That's correct. Q. And you agreed, I think, with Mr Rayment that at the conclusion of that conversation, in substance you and Mr Lester each agreed or accepted to rethink the matter overnight and speak the following day? A. Yes. Q. You were aware on the following two days - Thursday the 9th and Friday the 10th - that Mr Lester was seeking to contact you? A. We agreed to speak on the Friday, and yes, I'm aware that he made contact albeit a bit later in the afternoon. Q. You became aware also that he made attempts to contact you on Thursday, the 9th, didn't you? A. As I've said earlier, I asked my PA to contact Steve and arrange for a meeting on the Friday. Q. Subsequently on the Friday, you sent the letter by email, which called for a meeting on the 15th? A. Yes. Q. And Mr Lester or his PA replied, appointing a time and a place? A. Yes. Q. And that was in effect, as you understood it, to be the meeting that was to be held following the discussions on the 8th at the conclusion of which each of you agreed to rethink it overnight? A. Yes. Q. When that meeting commenced, as I understand your affidavit, you started off by saying that there was a breach and your company elected to terminate it? A. Yes. Q. So that there was no discussion of the problem except in relation to whether or not your company had the right and should terminate, as you had started the meeting by saying it did? A. Yes." 112 Later that day (15 November 2006), Allens Arthur Robinson sent a letter to Perfection confirming that Dairy Farmers believed it was entitled to terminate, and had elected to terminate, the agreement between it and Perfection. So far as is presently relevant, that letter read as follows: "2. It is a fundamental term of this agreement that Perfection only package Dairy Farmers' products in containers that are approved by Dairy Farmers. In relation to 2 Litre and 3 Litre containers of milk, the approved containers have been manufactured and supplied to Perfection by Pippak Pty Ltd (Pippak). 3. On 7 November 2006, Dairy Farmers became aware that Perfection has stopped ordering 2 and 3 Litre containers from Pippak. In breach of the agreement, 2 Litre containers of Dairy Farmers' milk (and possibly also 3 Litre containers) are now being packaged in containers manufactured by Perfection, which containers have not been approved by Dairy Farmers. This conduct amounts to a breach of a fundamental term of the agreement, entitling Dairy Farmers to terminate the agreement. Dairy Farmers, by this letter, elects to terminate the agreement, effective immediately." 113 Mr Ball replied to that letter the following day. Relevantly, he said: "Our client has a current contract with your client for a term of 10 years until October 2014 (with an option exercisable by our client for a further 5 year term). That contract contains no term which would affect the right of our client to package its milk as it pleases. Your client's allegation of breach of the agreement by our client is rejected. Your client has no power of termination of the agreement by reason of anything done by Perfection. We are in the course of obtaining detailed instruction from our client, but can say immediately that your instructions appear to be quite inaccurate, not only about the contractual terms. Our client has never dealt with Pippak Pty Ltd as a provider of milk containers for your client's milk." Intention to contract on the terms of the accepted Perfection offer 114 The parties took absolute (and opposing) stands on the contractual effect of the accepted Perfection offer. Mr B W Rayment QC, who appeared with Mr D T Kell and Ms E Raper of counsel for Perfection, submitted that the parties intended that the entirety of the document should have immediate contractual effect, notwithstanding their obvious intention that there should in due course be executed a detailed formal agreement restating the terms of their bargain. Mr B C Oslington QC, who appeared with Mr B P Jones and Mr J A Watson of counsel for Dairy Farmers, submitted that the parties did not intend the accepted Perfection offer to have any contractual effect. 115 I do not think that it is necessary in principle to take one or other of those absolute views. I see no reason why the parties might not have intended that some of the provisions of the accepted Perfection offer should have immediate effect, whilst at the same time intending that others were no more than non binding markers for what remained to be negotiated. 116 For example, it is clear that the parties intended the increase in annual volume from 30 million litres to 45.4 million litres to have immediate effect. As I have already noted, they acted on this basis; and the toing and froing during 2006 over the adjustment of weekly loads, to ensure that the total annual volume was met but not exceeded, provides confirmation of this. Plainly, that aspect of the accepted Perfection offer can be seen as a further informal variation of clause 2 of the trade mark licence agreement. 117 Equally, the second bullet point, dealing with the contract packing rate (see para [175] below), can be seen as confirmation of a further informal variation, this time of clause 3 of the trade mark licence agreement. Mr Oslington submitted that the parties could not have intended this, because in fact at that time the contract tracking rate was 12.02 cents per litre, not 12 cents; and the parties continued after 27 October 2004 on the basis that 12.02 cents was the correct rate. However, I think, it is likely that the reference to "12 cents" in the accepted Perfection offer was an oversight or typographical error, and that what the parties meant to do was confirm the existing, and slightly higher, rate. The relevant principles 118 Before I turn to the detail of the document and the parties' submissions, I shall set out the relevant principles. 119 In Masters & Anor v Cameron (1954) 91 CLR 353, the High Court of Australia considered the question of intention to contract, in a situation where the parties had agreed on and documented the terms of their bargain but had stated that it was an "agreement … made subject to the preparation of a formal contract of sale …". As their Honours noted at 360, the document contained all the essentials of a binding contract. 120 Their Honours stated the relevant principles as follows at 360-361 (omitting citations): "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 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. Of these two cases the first is the more common. … 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 : … The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document … or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed. … " 121 In Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd & Ors (1986) 40 NSWLR 622, McLelland J at 628, basing himself on what had been said in Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310 at 317, identified a fourth class of case: "One in which 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." 122 His Honour's decision was upheld on appeal: G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631. See in particular McHugh JA (with whom Kirby P and Glass JA agreed), who said at 634 (omitting citations): "However, 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: … 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. Even when a document recording the terms of the parties' agreement specifically refers to the execution of a formal contract, the parties may be immediately bound. Upon the proper construction of the document, it may sufficiently appear that "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" … ". 123 In the present case, Mr Rayment submitted that the accepted Perfection offer fell into the first of the Masters v Cameron categories, or alternatively into the fourth class identified by McLelland J. Mr Oslington submitted that it fell into the third of the Masters v Cameron categories. 124 The question of intention must be answered having regard to all relevant circumstances. Of course, the language used by the parties is significant. But so is (for example) the subject matter of the bargain. Further, the subsequent conduct of the parties may assist in shedding light on what they contemplated at the time they made their bargain, as Gleeson CJ said in Australian Broadcasting Corporation v XIVth Commonwealth Games Limited (1988) 18 NSWLR 540 at 547-550. His Honour dealt with the question of intention, and with the role that subsequent correspondence might play in casting light on intention, as follows (omitting citations): "There is ample authority for the proposition that reference may be made to the correspondence between the parties subsequent to 13 June 1986 for the purpose of showing that "it was not in the contemplation of either party that they were to be bound until all the essential preliminaries had been agreed to, nor until a formal contract had been drawn up embodying all the matters incidental to a transaction of such a nature". …In the present case that correspondence has a particular bearing on the interpretation and understanding of the earlier communications in that it constitutes an important source of information as to what are matters incidental, or for that matter essential, to a transaction of the nature in question. In a case where a court is required to make a judgment concerning the intention of the parties in relation to what might broadly be described as a Masters v Cameron ((1954) 91 CLR 353) dispute, it will normally be of importance that the court have an understanding of the commercial context in which the dispute arises, and a most significant feature of that context will relate to the subject which the parties regard, or would ordinarily be expected to regard, as matters to be covered by their contract. In some cases, such as transactions involving the sale and purchase of land, or leases, courts may properly feel well equipped to form a view on such matters without the need for much evidence. In many cases, however, of which the present is a good example, there is a need for evidence in one form or another as to what subjects would be regarded as requiring agreement between the parties. In this case the best evidence on that subject is to be found in the actual communications between the parties and, in particular, in the issues which they in fact addressed when they set about drafting their detailed account. It is to be noted that the question in a case such as the present is expressed in terms of the intention of the parties to make a concluded bargain … That is not the same as, although in a given case it may be closely related to, the question whether the parties have reached agreement upon such terms as are, in the circumstances, legally necessary to constitute a contract. … Nevertheless, in the ordinary case, as a matter of fact and commonsense, other things being equal, the more numerous and significant the areas in respect of which the parties have failed to reach agreement, the slower a court will be to conclude that they had the requisite contractual intention. Reference has earlier been made to "intention". Cases which typically give rise to problems of the kind presently under consideration are cases in which there is no doubt that the parties had a common intentio that at some stage, and by some means, they would enter into contractual relations. They have entered into negotiations for that specific purpose. The problem which arises is that they have exchanged communications which, on the one hand, use the language of agreement but, on the other hand, disclose an expectation that at some future time a document embodying the terms of their contractual arrangement will be brought into existence. Where, as in the present case, the communications which the parties have exchanged are in writing, the question of their "intention" is, prima face, to be resolved objectively, and as a matter of construction of the relevant documents. … Although there are qualifications to it, this general test of objectivity is of pervasive influence in the law of contract. … This is not a case in which the parties have signed a single document which, because it contains some such expression as "subject to contract", gives rise to the problem in question. In such a case, the outcome of which will ordinarily turn upon the construction of the single document referred to, questions may arise as to the admissibility of extrinsic evidence in aid of the construction of the document … The case involves the objective determination of the intention of the parties from a consideration of a series of communications exchanged by them in the context of their dealings over a period of time. In those circumstances it is both appropriate and necessary to have regard to the commercial circumstances surrounding the exchange of communications and, in particular to the subject matter of those communications … Furthermore, as was noted earlier, it is proper to have regard to communications between the parties subsequent to the date of the alleged contract to the extent to which those communications throw light upon the meaning of the language which is being considered for the purpose of determining whether it expresses an intention one way or the other upon the critical matter. At the least, such subsequent communications will often form part of the context in which the particular exchanges in question are to be evaluated." The factual matrix 125 The relevant factual matrix includes the following matters: (1) The fixed term of the trade mark licence agreement had expired, and either party could terminate it without cause by giving six months' written notice to the other. (2) The parties from time to time had varied the terms of the trade mark licence agreement, including as to important matters: · the "fee" payable by Dairy Farmers to Perfection pursuant to cl 3; and · the change to the pricing of bulk milk following deregulation of the milk market from 1 July 2000. (3) There were aspects of the relationship between Perfection and Dairy Farmers that Mr Lester (and, by inference, the board of Perfection) considered to be unsatisfactory; and Dairy Farmers was aware of this. (4) In August 2004, Perfection asserted that it was considering giving six months' notice pursuant to clause 11 of the trade mark licence agreement. (5) At the time, Dairy Farmers had insufficient processing capacity for its needs at its Lidcombe plant and was dependent on the continued availability of Perfection's processing capacity. (6) There were rumours that Perfection was considering entering into an alliance with a competitor of Dairy Farmers; if this occurred, it would be likely to set off a price war, with an immediate and obvious adverse impact on Dairy Farmers' profits. 126 The situation, as perceived by Dairy Farmers, was explained in a board paper that was provided to the directors of Dairy Farmers to enable them to consider the accepted Perfection offer. That document confirms that a number of the matters to which I have just referred were at the forefront of the minds of those (including Messrs Robinson and Aroney) who negotiated what became the accepted Perfection offer on behalf of Dairy Farmers; and since neither of those gentlemen was called to give evidence, the document must speak for them. 127 The board paper makes the following points: (1) Its stated purpose is "to summarise the recent presentations made to the board and the agreement reached with Perfection". (2) It gives some details about Perfection's business, including the following points: " · (a)bout to install plastic blow moulding capacity … · Perfection has been fiercely independent and all enquiries regarding them selling or entering into some form of joint venture has [sic] been rejected". (3) The document deals with the "Market Environment", noting that Perfection had supplemented Dairy Farmers' lack of "distribution capability in the western regions of Sydney and the Blue Mountains", and that the trade mark licence agreement enabled Dairy Farmers "to compete strongly with National Foods in these regions thus expanding Dairy Farmers' brand presence". This section of the document concluded with the observations: "Since early 2003, National Foods have been attempting to form a closer relationship with Perfection but without success." (4) Under the heading "Recent Events", the document noted the following: " · In August 2004, Perfection informally advised Dairy Farmers that it wished to give six months [sic] notice to terminate the existing agreement. · Perfection advised they were considering three options: (1) form an alliance with National Foods and Murray Goulburn similar to the Dairy Farmers' arrangement … ." The remaining options have no present relevance, but the document noted that the first option "was a very attractive offer" that would give Perfection the ability to compete strongly against Dairy Farmers. (5) The document then considered the impact on Dairy Farmers if such competition were to eventuate; the potential consequences included a loss of margin on Coles' business and targeting of "route" business, with potential costs up to $14.4 or $16.4 million to Dairy Farmers from these attacks. (6) The document then referred to the negotiations and "[a]ttached … a summary of the Perfection offer which formed the basis of the "heads of agreement" which Perfection have signed." (Clearly, the "heads of agreement" referred to is what I have called the accepted Perfection offer.) (7) The benefits of the "heads of agreement" were explained as including facilitation of earlier closure of a Dairy Farmers' processing plant and access to excess capacity (presumably, this explains the reference to 70 million litres that appears from time to time in the accepted Perfection offer) if there were a "disaster" during the time that it would take Dairy Farmers to complete the relevant capital works. (8) Under the heading "Trade Practices", the document noted legal advice from Dairy Farmers' solicitor. (It is plain that both parties, throughout the history of their relationship, were troubled by the possible application of provisions of the Trade Practices Act to their arrangements. The trade mark licence agreement itself contained a provision (clause 13) requiring the parties to lodge a notification with the Australian Competition and Consumer Commission (ACCC) and conferring a right of termination in the event that the ACCC sought "unacceptable" amendments or gave "a notice ... pursuant to section 93" (presumably, referring specifically to sub section (3) of the Trade Practices Act 1974.) 128 Perhaps instructively, the document ended with the following: "Attached is a copy of the previous agreement, and the new agreement will largely be the same amended for those points set out on the summary of offer 22 October 2004." 129 Clearly, "the previous agreement" is the trade mark licence agreement; equally clearly, "the summary of offer" is the document that was accepted on 27 October 2004. 130 It does not appear, nor is there any reason to think, that the board paper to which I have referred found its way into the hands of Perfection. Nonetheless, it is clear that the facts stated in it, and thereby shown to have been known to or within the contemplation of Dairy Farmers, must equally have been known to or within the contemplation of Perfection. 131 From Perfection's perspective, relevant considerations included the following: (1) The substantial bulk of its revenues derived from its dealings with Dairy Farmers. (2) The arrangement with Dairy Farmers enabled Perfection to utilise processing capacity that would otherwise lie idle – no doubt, with a significant opportunity cost. (3) Guaranteed continuity of business with Dairy Farmers was important to Perfection; on a number of occasions, Mr Lester's evidence emphasised the significant capital and operational costs of the dairy plant and the consequences to Perfection (including to a number of employees) if that plant should be thrown idle by the loss of Dairy Farmers' business. (4) Thus, notwithstanding Mr Lester's discontent and his threats from time to time to sever the relationship with Dairy Farmers (which, in my view, were made as part of the bargaining process in the belief that Dairy Farmers needed Perfection at least as much as Perfection needed Dairy Farmers), the continued prosperity of Perfection depended, at least in the short term, on a continuation of its business relationship with Dairy Farmers. (This is not to deny that, with some planning and notice, Perfection in all probability could have formed an alliance with another major processor to replace Dairy Farmers; but in the short term, loss of Dairy Farmers' business would be very costly indeed to Perfection.) 132 I have no doubt that the matters to which I have referred in the preceding paragraph were known to Dairy Farmers. Mr Gordon gave evidence that he was aware of the significance to Perfection of the business that it derived from Dairy Farmers under the trade mark licence agreement as varied (including by the accepted Perfection offer). I have no doubt that this was equally well known to Messrs Robinson and Aroney; and indeed, if confirmation were needed, it may be found in the terms of the board paper itself where it describes, among other things, Perfection's processing capacity and financial performance. Anyone who knew the extent (in litres and dollars) of the business that Dairy Farmers did with Perfection would have been aware of the great importance of that business to Perfection, and of the impact on Perfection of its loss. 133 Leaving aside for a moment the question of whether the parties intended to be bound immediately by the accepted Perfection offer, it is plain that they contemplated the preparation and execution of some formal instrument of agreement. However, they did not hasten to prepare that document. The first draft was not provided to Mr Lester until late in February 2005 – four months after the accepted Perfection offer was signed. Thereafter, negotiations and revisions of the terms of the draft proceeded slowly. It was submitted for Perfection that this "glacial" rate of progress (in a context that included the great importance to each party of certainty in its dealings with the other) could only be explained on the basis that each party regarded itself as immediately bound on the terms of the accepted Perfection offer (and, no doubt, so much of the trade mark licence agreement as remained in force, or unamended). I think that there is much force in that submission. 134 The factual matrix to which I have referred suggests strongly that, whether considered objectively or subjectively, the parties intended that the bargain recorded in the accepted Perfection offer, or at least the fundamental terms of that bargain, should have immediate contractual effect. Each party needed the commercial security that the terms of the accepted offer were intended to provide; but neither would obtain the desired security unless and until those terms acquired contractual effect. I refer to the point made in para [133] above. It is difficult to understand why parties who needed the certainty that the terms of the accepted Perfection offer would bring would approach in such a dilatory way the negotiation of their formal instrument of agreement if they did not believe that they were in the meantime bound by the document that they had signed. 135 There are a number of indications that, after 27 October 2004, the parties regarded themselves as bound by the terms of the accepted Perfection offer. The quantities of milk supplied were referable to the terms of the accepted offer, as was Dairy Farmers' action selling Perfection branded milk (in Dairy Farmers' territory, not in the Perfection territory) as its "price fighter" brand. In this context, Mr Morrison regarded questions as to the volumes of milk to be supplied as governed by the terms of the accepted Perfection offer, and communicated that view to Mr Gordon (T362.34-363.20). 136 A number of Dairy Farmers' internal documents suggest that employees of Dairy Farmers considered that, after 27 October 2004, questions of volume were governed by the terms of the accepted Perfection offer. See for example an e-mail from Mr Gordon to Mr Morrison of 15 August 2006, where Mr Gordon said he thought "that it would be in the spirit of the contract with Perfection if you were to plan ahead of time to have a make up order with them to catch up their contractual shortfall say every quarter." See also Mr Morrison's e-mails to Mr Robinson and others within Dairy Farmers of 15 and 27 June 2006, in which Mr Morrison refers to "the current heads of agreement that is [sic] in place" and the "contract/heads of agreement". 137 The same view was expressed in presentations to the board. On 27 July 2006, a board paper referred to the accepted Perfection offer in the following terms: "Since the signing of the "heads of agreement" a contract had been written but never signed. Hence the agreement became the base line for managing the relationship." 138 An update on Project Fortress dated 4 September 2006 stated, of the accepted Perfection offer: "Agreement is binding however a court will imply a term that entitles either party to terminate on reasonable notice. Reasonable notice is considered to be six months." 139 Mr Oslington drew attention to the formality with which the parties had recorded their bargain in 1997, and contrasted that with the informality of the accepted Perfection offer. The point is a good one. But there are countervailing considerations. Firstly, the trade mark licence agreement (more accurately, each of the agreements negotiated and executed in 1997) marked the start of the parties' commercial and contractual relationship. By October 2004, they had worked with each other for about seven years. They had a history of negotiating and implementing significant changes to the trade mark licence agreement in an informal way. They did not see the need to record those variations in a formal manner. 140 Further, the parties were entitled to regard the trade mark licence agreement as the template, or legal framework, for any continuing legal relationship established by the accepted Perfection offer. That this was Dairy Farmers' understanding is made plain by the concluding sentence of the board paper to which I have referred in para [128] above in which, having referred to the trade mark licence agreement, it was stated that "the new agreement will largely be the same amended for those points set out on the summary of offer 22 October 2004." There is no reason to think that Perfection saw the matter in any different way. 141 Dairy Farmers referred in submissions to the alleged incomplete and uncertain nature of the accepted Perfection offer. To some extent, those submissions address a different question: whether, assuming that there were an intention to create immediately binding legal relations on the terms of the accepted Perfection offer, the parties failed to do so because their agreement lacked the requisite certainty. But the two matters may overlap, as Gleeson CJ pointed out in Australian Broadcasting Corporation at 548. Where large parts of the putative agreement are incomplete or uncertain, it would be difficult to impute to the parties an intent to contract on the terms of that agreement. But where (as here – see paras [161] to [183] below) the substance of the agreement is spelled out, and the only incomplete or uncertain matters are subsidiary, this consideration is of lesser weight. 142 Dairy Farmers relied extensively on the conduct of the parties after 27 October 2004 to show that they did not regard themselves as contractually bound on the terms of the accepted Perfection offer. It pointed in substance to three matters (or classes of matter): (1) The protracted delay in negotiating the binding instrument of agreement, which included continuing disagreement with what Dairy Farmers in submissions described as fundamental issues: exclusivity and reduction in volume. (2) The repeated assertions by Mr Lester to the effect that Perfection was not bound by, or would walk away from, any agreement with Dairy Farmers. (3) The detailed consideration given by Perfection to severing its ties with Dairy Farmers and operating independently (the board meeting of 25 July 2006, referred to in para [10(3)] above), and the "three options" discussion concluding with an instruction to Mr Lester to pursue option 3 (the board meeting of 28 August 2006, referred to in para [10(2)] above). 143 The delay in the drafting of the intended binding instrument of agreement is, at best from Dairy Farmers' perspective, ambiguous. For the reasons given in para [133] above, it is at least as much indicative of an understanding that the parties were already bound as it is of an understanding that they were not; indeed, were it necessary to weigh the matter and express a concluded view, I would favour the former explanation. 144 The question of exclusivity focussed on Dairy Farmers' insistence that where it and Perfection had competing products, the relevant licence given by the one to the other should be non exclusive rather than exclusive. Dairy Farmers considered this to be critical – a "deal breaker" – because it was concerned at the Trade Practices Act implications of an exclusive licence for competing products. Its position on this was fortified by advice from its external solicitor. Mr Lester did not agree with the view taken by that solicitor, and expressed his disagreement in uncomplimentary terms, suggesting that the solicitor in question was unable to distinguish one portion of his anatomy from another, fundamentally different, portion. 145 The parties were keenly aware of difficulties that relevant provisions of the Trade Practices Act might impose. The negotiators of the accepted Perfection offer, at least in the written document which they signed, did not turn their minds to those difficulties. Perhaps they felt that the difficulties would be dealt with by the mechanism of notification pursuant to s 93 of the Trade Practices Act (a process for which clause 13 of the trade mark licence agreement provided). Perhaps they simply thought that it was something to be left to the lawyers. But, regardless, they did not in terms deal with it. 146 The question of volume reduction arose from Dairy Farmers' wish to have the right to reduce the volumes that it was required to take from Perfection if it lost important high volume contracts. Perfection was not prepared to accept this. It was not something that in terms was dealt with in the accepted Perfection offer. I do not regard this as evidence of failure to agree, or as indicative in any strong way of an intention not immediately to be bound. On the contrary, it seems to me to be an attempt by Dairy Farmers to renegotiate the bargain that was recorded in the accepted Perfection offer. 147 The second and third matters (or classes of matter) are more problematic. Dairy Farmers referred to the Perfection board meetings of July, August and October 2006 (see paras [10(3)], [10(2)] and [87] above). It referred also to Mr Lester's various threats to terminate the relationship between Perfection and Dairy Farmers, and laid particular stress on what had been said (and not said) at the meeting of 15 November 2006. 148 Both Mr Lester's threats and the relevant resolutions of Perfection's board are consistent with the proposition that Perfection did not consider itself to be bound by the accepted Perfection offer. Clearly, if there were in place an agreement for a minimum term of five years (running until October 2009), it would not have been open to Perfection to break with Dairy Farmers within a time frame of 18 months to 2 years. There is no evidence that anyone at Perfection considered whether such a course of action was open to them having regard to the terms of the accepted Perfection offer. 149 There are however at least two other explanations for Mr Lester's, and Perfection's, conduct. One is that Perfection (like Dairy Farmers) was seeking to renegotiate or to improve the terms of the bargain that it had struck on 27 October 2004. There is no doubt that Perfection considered that it was in a strong position to do so, by reason of what it thought was the leverage that it had based on what it thought was Dairy Farmers' continuing need for access to its processing capacity. In particular, I think, this explanation may underlie Mr Lester's comments: particularly bearing in mind the context of his evident dissatisfaction with the way that the relationship with Dairy Farmers was operating, and the way that (as he saw it) Dairy Farmers was treating Perfection. But it is also a possible explanation for Perfection's apparent desire to break from Dairy Farmers. 150 Another explanation may be that Perfection was prepared to contemplate breaching whatever was the contract it had with Dairy Farmers if, having pursued option 3, it concluded that it was in its interests to do so. 151 I do not regard Perfection's conduct as conclusive, particularly when it is a long way removed in time from the date when the accepted Perfection offer was signed, and where it is susceptible of other explanations (even though the explanations themselves may not reflect in a positive way on Perfection's commercial morality). 152 Nor do I think that such uncertainty as there is in the terms of the accepted Perfection offer is such as to indicate that the parties did not intend immediately to be bound by it to the extent that it can be given meaning. 153 Such uncertainty as there may be does not infect any fundamental term of the bargain that was concluded on 27 October 2004. The subject matter is plain: 45.4 million litres of milk annually, with the possibility of increase up to 70 million litres annually. The price is plain, when the reference to 12 cents per litre for packaging is understood as a mistake (typographical or otherwise) for 12.02 cents per litre (after 27 October 2004, the parties used 12.02 cents per litre, not 12 cents, as the relevant price), and read in conjunction with clause 3 of the trade mark licence agreement. The duration of the agreement is plain: five years, with Perfection having an option to extend it for a further five years. 154 Although there is, undeniably, imprecision in some of the other provisions of the accepted Perfection offer, it does not follow that they are all insufficiently certain to be given effect. Nor does it follow that the bargain as a whole is so uncertain that the parties cannot be taken to have intended to contract on the basis of the document. 155 No one suggested that any uncertainty in any of the provisions of the accepted Perfection offer was such as to make it unworkable from day to day. Plainly, there was a substantial amount of work to be undertaken to convert the accepted Perfection offer into a formal binding instrument of agreement. But it does not follow from this that the parties did not understand, sufficiently to perform them, what were their fundamental obligations under the accepted Perfection offer. 156 Finally, in this context, Dairy Farmers relied on Mr Lester's actions and words at the meeting of 15 November 2006. I have dealt with this meeting in paras [109] to [111] above. Mr Lester had reviewed the trade mark licence agreement before the meeting, and he brought a copy of it to the meeting (affidavit sworn 22 January 2007, paragraph 99). When Mr Gordon asserted that the contract between Dairy Farmers and Perfection was terminated, Mr Gordon replied by saying that the termination was ineffective because Dairy Farmers was required to give six months' notice (ibid: see also T38.50). 157 It is plain that the focus of Perfection's (and Mr Lester's) attention between 8 and 15 November was directed to what might be called the bottle issue. Mr Lester's explanation, that he had been reviewing the trade mark licence agreement to see what, if anything, it said about bottle specifications or sources, does not strike me as unreasonable, far less as incredible. It explains why his attention was concentrated on the trade mark licence agreement and not on the accepted Perfection offer, given that the latter plainly had nothing to do with bottle specifications or sources. 158 When the events of 15 November 2006 are considered in context, I do not think that they support the inference that Perfection did not then consider that there was any binding agreement on the terms of the accepted Perfection offer. 159 To my mind, the subsequent conduct is equivocal. Some of the conduct indicates that the parties did regard themselves as bound to the terms of the accepted Perfection offer. Other conduct, including that on which Dairy Farmers placed particular reliance in its submissions, suggests to the contrary. Overall, in my view, such inferences as may be drawn from the subsequent conduct of the parties are insufficient to displace the very strong inference, that the parties intended the accepted Perfection offer to have immediate binding contractual effect, arising from the factual matrix. 160 Accordingly, I conclude that: (1) The circumstances surrounding the negotiation and execution of the accepted Perfection offer – the factual matrix – give rise to the inference that the parties intended immediately to be bound by it; and (2) That inference is not displaced, or negatived, by inferences arising from the delay in negotiating and executing the formal instrument of agreement, from subsequent events, conduct and documents, or from the alleged uncertainty of some of the terms of the bargain; nor from all of those matters considered together. Uncertainty 161 I have referred to one aspect of this already. Before I return to the detail of the parties' submissions on the point, I will set out the relevant principles. The relevant principles 162 The guiding rule is that expressed by Barwick CJ in The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1967) 118 CLR 429 at 436 (437). His Honour said that a contract was not uncertain simply because its words carry more than one possible meaning, or its application might lead to more than one result, as long as the meaning or application of the contract could be determined by a process of construction. His Honour said (omitting citations): "But a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it. … In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved." 163 Lord Tomlin said 75 years ago that the courts should seek to uphold rather than destroy agreements, so as to avoid the reproach of being the destroyer of bargains (Hillas & Co Limited v Arcos Limited (1932) 147 LT 503, 512). That approach remains valid today; and in my view it has particular relevance to bargains struck in the course of trade or commerce. A court should be slow to substitute its own judgment, as to what is or is not sufficiently "certain", for that of experienced businessmen familiar with the subject matter of their bargain. Analysis 164 Dairy Farmers' submissions on the question of uncertainty focussed on the question of price. It submitted that: (1) The accepted Perfection offer did not specify all prices for all products and services. (2) It did not specify a mechanism for the variation of prices, or the party (if any) by whom prices might be varied. (3) In contrast to the facts in Upper Hunter, there was no arbitration clause by which differences of opinion as to price could be resolved. 165 In addition, Dairy Farmers directed attention to individual provisions of the accepted Perfection offer, with a view to demonstrating that they lacked some essential feature. 166 There is a fundamental difficulty in this aspect of Dairy Farmers' submissions. Those submissions consider the accepted Perfection offer in isolation, and do not place it in the context either of the parties' course of dealings or, more importantly, of the trade mark licence agreement. The parties are agreed that the trade mark licence agreement had some contractual force at least up until October-November 2006. The question of the certainty of the language used in the accepted Perfection offer cannot be divorced from the intended relationship of the bargain thereby recorded to the trade mark licence agreement: particularly in circumstances where the parties had earlier, from time to time, informally varied that agreement. 167 Clause 3 of the trade mark licence agreement specified a pricing mechanism. Of course, that was referable to the days of partial regulation, because it assumed a price payable by Perfection to the NSW Dairy Corporation, and that that price would be passed on at "cost" to Dairy Farmers. But the parties managed to apply the mechanism of clause 3 to the deregulated environment which came into effect on 1 July 2000. I see no reason why they could not apply its mechanism to the continuation of their relationship as they had sought to document it in the accepted Perfection offer. 168 The submissions as to a variation mechanism are, I think, misplaced. What is important is that the agreement specify a price, or the means for determination of a price. It does not need to specify a means for the variation of that price unless the agreement clearly contemplates that the price should be varied from time to time. The bargain reflected in the accepted Perfection offer does not contemplate that. If it is (from the perspective of one party or the other) less than advantageous, because there is no price variation mechanism built into it, that may be unfortunate; but it does not point to uncertainty. 169 That being so, it is unnecessary to dwell upon the suggested distinction, based upon the absence of any arbitration clause. 170 Nor do I think that detailed examination of the individual provisions compels the conclusion that they are all too uncertain to be given meaning. At most, what would be required is a process of construction. That should be undertaken in a specific factual context, and not in the partial vacuum of an argument as to uncertainty. 171 I do not propose to go through each criticism raised by Dairy Farmers of particular provisions, but will take a selection. 172 The first bullet point of the accepted Perfection offer reads as follows: "Volume transfer of 15.4ML to 70ML." 173 Dairy Farmers submitted that this was uncertain because "[t]here is no stipulation of the volume of the packs into which this additional volume will be placed." Perfection submitted that this would be done "in accordance with [Dairy Farmers'] specified requirements" and that there was neither uncertainty nor need for further agreement. 174 Clearly enough, in the years since 1997, Dairy Farmers had informed Perfection from time to time in advance (as I understand it, on a weekly basis) of the likely quantities of milk required, specifying both the total quantity and the packaging (two litre containers, three litre containers, or whatever). It is completely unclear why this regime would not have been intended by the parties to apply under the accepted Perfection offer (it seems that they did apply it after 27 October 2004); and equally unclear why it should be regarded as so uncertain as to be devoid of meaning or incapable of giving effect. 175 The second bullet point read: "Contract packing rate same as 30ML at 12 cpl." 176 I have already observed that I regard the reference to 12 cents per litre as a mistake (for whatever reason) that should be read as a reference to the then current packing rate of 12.02 cents per litre. 177 Dairy Farmers submitted that "there is no provision governing the rate to apply should processing and/or packaging requirements change." That may be so. But, no doubt, if the parties sought to vary the terms of the agreement (because that would be entailed in a change in "processing and/or packaging requirements") they would negotiate the cost consequences. 178 The fifth bullet point read as follows: "Ranging for agreed key customers for Perfection territory: - All offers to include a core range of Perfection brands - Perfection to review all offers prior to presentation to customer." 179 Dairy Farmers submitted that this was defective for a number of reasons: "The constitution of "agreed key customers" and "core range" was not agreed. Perfection's rights, if not satisfied with a particular offer upon reviewing it, were not agreed. The "territory" is uncertain … ". 180 Presumably, the parties knew what Perfection's various brands were, and which of those brands could be regarded as "core". But whether or not a particular brand fell within the "core range" is a question of construction to be decided not in the abstract but in the context of specific facts. The same reasoning applies to the reference to "agreed key customers". The reference to "territory" is, or at least is capable of being determined by a process of construction to be, a reference to that territory as defined in the trade mark licence agreement. 181 The tenth bullet point read as follows: "Perfection to be part of Dairy Farmers' facility planning: - Facility closures - Disaster recovery". 182 Dairy Farmers submitted that its obligations were not specified by this clause. However, the clause is not cast in terms of obligation. It appears to me to contemplate (at least in part) something such as the "emergency" provisions set out in clause 18 of the trade mark licence agreement. Once again, no witness has suggested that the term is too vague to be capable of comprehension or performance; and once again, the Court should be slow to substitute its own judgment on that topic for that of parties who, one would hope, know what it is of which they are talking. 183 As I have said, I am not persuaded that the difficulties to which Dairy Farmers point (and it cannot be said that its submissions lacked zeal in finding difficulties) are not such as are susceptible of resolution by a process of construction in an appropriate factual context. But even if there are real difficulties in giving meaning to some of those terms, it does not follow that the contract as a whole is void for uncertainty. I do not think that relevant uncertainty infects any essential term. It is clear that, in some circumstances, a term to which no meaning can be given may be severed if it is not perceived to be essential: Fitzgerald & Anor v Masters (1956) 95 CLR 420; Update Constructions Pty Ltd v Rozelle Child Care Centre Limited (1990) 20 NSWLR 251. Although it may be thought to be a somewhat difficult exercise to determine whether something to which no meaning can be given is nonetheless essential (or inessential), that is a task that is undertaken from time to time. Whether or not a particular term falls into this category depends, once again, on a process of construction and analysis that should be undertaken on the basis of proven facts, and not in the abstract. In circumstances where the fundamental terms of the bargain have been spelled out (as in my view is the case) it is, to say the least, unclear why such residual uncertainty as may afflict other terms cannot be dealt with by their severance. Implied terms 184 The implied terms for which Dairy Farmers contended in its Commercial List Response were articulated thus: "4. At all times during which the Plaintiff packaged milk for the Defendant, it was an implied term of the agreement that the Plaintiff would only package the Defendant's milk in bottles manufactured by "Pippak" unless it first obtained the Defendant's approval to use different bottles. 5. In the alternative, or in addition to paragraph 4, it was an implied term of the agreement pursuant to which the Plaintiff packaged the Defendant's branded milk that it would not change the bottles into which such milk was packaged without first obtaining the Defendant's approval to a change." 185 In the course of the hearing, Dairy Farmers abandoned reliance on the first of those alleged implied terms. The debate proceeded only on the basis of the second. Dairy Farmers relied both on implication in fact and implication in law. Before I turn to the parties' submissions, I shall set out the relevant principles. The relevant principles Implication in fact 186 The parties agreed that the test for implication in fact was that set out in the advice of the majority of the Privy Council (delivered by Lord Simon of Glaisdale) in B P Refinery (Westernport) Pty Limited v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266 at 283: " … for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract." 187 That statement of principle has been approved and applied in cases too numerous to mention; and I shall not mention them. Implication in law 188 Dairy Farmers' outline of opening submissions cited Cheshire & Fifoot's Law of Contract (8th ed, 2002) at para 10.52. This appeared to refer to the authors' discussion of terms implied by law into contracts of a particular class. However, Dairy Farmers did not refer to any decision (reported or otherwise) in which it had been said that a term was to be implied by law into any class of contract into which the trade mark licence agreement (whether or not varied by the accepted Perfection offer) might fall. 189 In final submissions, Dairy Farmers relied on the more general form of implied term explained by Griffith CJ in Butt v M'Donald (1896) 7 QLJ 68 at 70-71: "It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract." 190 Again, that statement of principle has been approved and applied in cases too numerous to mention; and I shall not mention them. Analysis 191 The parties devoted lengthy and detailed submissions to this point. I do not propose to refer to all of those submissions, because in my view there is a simple reason why the term for which Dairy Farmers contends should not be implied into the contract; and this is so regardless of the precise basis of implication. 192 It may be accepted that a supplier of packaged milk such as Dairy Farmers has a vital interest in ensuring that the containers into which its milk is packaged are fit for purpose and are of merchantable quality. Specifically, such a supplier has a vital interest in ensuring that the containers are of adequate strength and free from contamination. It would also have a substantial interest in ensuring that the containers were of such size and shape as to be consistent with other products of the same kind put by it into the market, so as to preserve some uniformity of branding. 193 Thus, I can understand that a supplier of milk and milk products such as Dairy Farmers would not wish to have the containers into which its products were packaged changed without its first having an opportunity to consider both the detail of the proposed new containers and the process by which they were proposed to be made. 194 However, the term for which Dairy Farmers contends does not provide any qualification or restriction on Dairy Farmers' right to approve (and, by necessary implication, to disapprove) any proposed change. 195 Mr Rayment submitted that the term for which Dairy Farmers contended was in truth a right of veto. Mr Oslington did not accept that this was so. He submitted that the right of approval (and, as I have said, disapproval) might be qualified by some implied obligation to act reasonably. But he did not concede that this was so; nor did he seek to amend the Commercial List Response to make it plain that this was so. 196 Thus, the question of implication is to be considered upon the basis that the pleaded term may well (as on its face it does) amount to a right of veto: that is to say, that there is no express qualification on or limitation of the basis of approval; which therefore might be withheld even on arbitrary or capricious grounds. 197 The evidence did not suggest that the interests of a milk supplier such as Dairy Farmers could only be protected if it were given an unqualified right of veto over any change in packaging, so that approval might be granted or withheld at its sole and uncontrolled discretion, and not by reference to specific relevant criteria, or even to the more general standard of "reasonableness". Nor is there any reason why a power of such width meets the first, second or third of the conditions for implication of a term. 198 As to the first condition: it could not be reasonable or equitable to give one party an uncontrolled and arbitrary right of veto. As to the second: such a power could not be necessary when, at most, a lesser power, conditioned either by reference to specific criteria or by some phrase such as "such approval not be unreasonably withheld", would meet the needs of business efficacy. As to the third: whilst a conditioned power of approval might be one that "goes without saying", there is no reason why an uncontrolled and arbitrary one should be so categorised. 199 Thus, I conclude, the term for which Dairy Farmers contends does not satisfy the requirements of implication in fact. 200 I turn to implication in law, on the basis of what Griffith CJ said in Butt. For essentially the same reasons as I have just given, I do not think that an implied term of the width for which Dairy Farmers contends is "necessary … to enable [Dairy Farmers] to have the benefit of the contract." That is because a lesser term, providing that Dairy Farmers' approval to any change must be exercised according to specific criteria, or should not unreasonably be withheld, would protect its legitimate interests and be sufficient to enable it to have the benefit of the relevant part of the contract. On that basis, a wider or more extensive power could not be said to be "necessary". Breach 201 It is not necessary that I should consider the question of breach. However, I will indicate briefly the conclusions to which I would have come had I concluded that the term for which Dairy Farmers contended should be implied into whatever was the contract between it and Perfection. 202 Dairy Farmers submitted that the term for which it contended should be regarded as essential – a condition. Perfection did not accept this. It is not necessary to resolve the debate (even on the hypothetical basis underlying this section of my reasons). If the term were not to be categorised as fundamental, or a condition, it must at least be regarded as an important or significant term of the parties' agreement. 203 There can be no doubt that Perfection would be found to have breached the term. It supplied milk to Dairy Farmers, packaged in bottles for which (or for the use of which) Dairy Farmers' approval had not even been sought, let alone obtained. It did so without express notice to Dairy Farmers. Accepting (as I think is the case) that Dairy Farmers knew that Perfection was proposing to set up its own bottle line, and either knew or must have appreciated that Perfection intended to use bottles manufactured on this line for the supply of milk to Dairy Farmers under the trade mark licence agreement and the accepted Perfection offer, it does not follow that Dairy Farmers should have expected that this would have been done without notice. Indeed, if a term of the kind for which Dairy Farmers contends is to be implied into the contract, Dairy Farmers was entitled to expect that any new bottle would first be submitted to it for its approval. 204 Thus, if the term were a condition, the breach entitled Dairy Farmers to repudiate; and if the term were not a condition, but nonetheless an important feature of the bargain, the breach, being deliberate and serious, should be regarded as repudiatory. 205 On either basis, if, contrary to my conclusion, the term for which Dairy Farmers contends should be implied into the relevant contract, Perfection's breach of that term, in the circumstances in which that breach occurred, would have entitled Dairy Farmers to terminate. Opportunity to remedy breach and other issues: waiver, estoppel, substituted performance 206 Again, these issues do not arise because of my conclusion that the term for which Dairy Farmers contends does not arise; but in case that conclusion should be wrong, I will set out briefly my views on this group of issues. Opportunity to remedy 207 I have noted in para [4(1)] above that Dairy Farmers does not concede that the issues relating to opportunity to remedy (identified as issues P6 and P7) arise on the pleadings. I think that this is so. But even if the relevant issues did arise (ie, either on the pleadings or as questions of fact on the basis of evidence admitted without objection), the first issue should be resolved against Perfection; and on that basis the second issue does not require consideration. 208 As to the first issue: it is plain from what I have found was the substance of the telephone conversation on 8 November 2006 that Mr Gordon was demanding that Perfection should forthwith stop packaging milk for Dairy Farmers in bottles manufactured by Perfection, and should revert to using bottles manufactured by Full-View or Pippak (it does not matter which). Although the conversation concluded with the statement that each party should think about its position overnight, and communicate with the other the following day, there was nothing in this to indicate that Mr Gordon, or Dairy Farmers, was holding out any hope of a change in attitude. On the contrary, as Mr Lester well understood, Dairy Farmers' position was that the use of unapproved bottles must stop forthwith. I say that Mr Lester well understood this because, on the evidence of Mr Peel and Mrs Halfpenny, that is precisely what he told them was the attitude of Dairy Farmers. 209 The nature of the "opportunity to remedy" to which these issues refer is unclear. If it is intended to mean an opportunity to remedy the breach relating to approval, by submitting specimens of the bottles, together with details of their manufacture, to Dairy Farmers and permitting Dairy Farmers to undertake such inspections or other tests as it might require with a view to deciding whether or not to grant approval, the evidence does not give a hint that Dairy Farmers offered any such opportunity to Perfection. If it is intended to mean that the "opportunity" (or, more appropriately, the "remedy") offered was to revert to Full-View or Pippak bottles, then plainly that is what Dairy Farmers required. But to describe it as an "opportunity" rather than a "requirement" or "ultimatum" is a somewhat loose use of language. 210 Thus, as I have said, I find that Dairy Farmers did not offer Perfection any opportunity to remedy, as opposed to stop committing, the alleged breach. 211 Nor, on the basis that the conduct was repudiatory, was Dairy Farmers required to offer any such opportunity. Any breach of a condition properly so called, or any repudiatory breach of a term, entitles the innocent party forthwith to terminate the contract. A requirement to offer an opportunity to remedy could arise either from the terms of the contract itself (and, by hypothesis, there is no such requirement) or because, contrary to my earlier conclusion, the conduct relied upon was not repudiatory. But if the conduct were not repudiatory then there could be no immediate right to terminate. Waiver, estoppel and substituted performance 212 The basis on which Perfection raised these issues was pleaded as follows in paras 2 to 11 of its amended reply: "2. In further reply to paragraph C of the Response, including to paragraph 9 thereof, if there was an implied term in the agreement between the plaintiff and the defendant in the form alleged in either paragraphs 4 or 5 of the Response (which is denied), the plaintiff pleads the matters set out in the following paragraphs. 3. In 2005 and 2006 the plaintiff established and put into operation a blow moulding facility adjacent to its Baulkham Hills plant. 4. In or about late October 2006 the plaintiff commenced using its new 2 and 3 litre bottles, manufactured from its blow moulding facility, to supplying packaged milk for the defendant under the agreement between the parties. 5. From about September 2004 (or alternatively from at least about December 2005 or May 2006) the defendant knew or believed, including by reason of communications from the plaintiff, that the plaintiff proposed to or had established its own blow moulding facility and intended to manufacture milk bottles from such facility. 6. Further, at all such material times the defendant knew or believed that the plaintiff intended to use bottles from such facility for the purpose of supplying packaged milk for the defendant under the agreement between the parties. 7. At all such material times up until November 2006, the defendant to the knowledge of the plaintiff: (a) took no steps to request or require the plaintiff to consult with the defendant regarding the plaintiff's proposed new bottle and its required specifications; (b) took no steps to request or require the plaintiff to submit to the defendant for its approval the plaintiff's proposed new milk bottle or specifications (2 litre and 3 litre); (c) further or alternatively, made no enquiries of the plaintiff regarding the plaintiff's proposed new bottle and its required specifications. 8. Further, at all such material times up until November 2006, the defendant to the knowledge of the plaintiff was aware that the plaintiff had not submitted the plaintiff's proposed new milk bottle (2 litre and 3 litre) or specifications to the defendant for its approval. 9. Further, or in the alternative, had the defendant informed the plaintiff that the defendant: (a) required the plaintiff to consult with the defendant regarding the plaintiff's proposed new bottle and its required specifications; and/or (b) required the plaintiff to submit to the defendant for its approval the plaintiff's proposed new milk bottle or specifications the plaintiff would have done so and would have taken steps to ensure that any bottle that it intended to use for the purpose of supplying packaged milk for the defendant under the agreement between the parties was of a type or a specification approved by the defendant. 10. In the premises, the defendant should be taken to have waived any right to terminate the agreement for breach of the implied term alleged in paragraphs 4 or 5 of the Response and, further or alternatively, should be taken to have agreed to or accepted substituted performance by the plaintiff under the agreement. 11. Further or in the alternative, by its conduct referred to above the defendant played such a role in the conduct of the plaintiff said to amount to a breach of the said alleged implied terms that the defendant is estopped from relying upon the said conduct by the plaintiff as a breach of the agreement giving rise to any right to terminate the agreement." 213 The reference to "paragraph C of the Response" is clearly a reference to Part C, in which Dairy Farmers set out its response to the summary of Perfection's contentions. Paragraph 9 of that response, to which specific reference was made, is in the following terms: "9. On or about 7 November 2006, the Plaintiff, without the approval of the Defendant, changed the bottles into which it packaged the Defendant's "Dairy Farmers"- branded milk, and thereafter continued to package the Defendant's "Dairy Farmers" -branded milk in different bottles without the approval of the Defendant." 214 It is to be noted that the relevant circumstances on which Perfection relies are those existing "[a]t all … material times up until November 2006". Perfection does not rely on the events of 8 November 2006 and following in this aspect of its Reply. Thus, for example, it does not allege that it took from the concluding words of the telephone conversation of 8 November 2006 an understanding that Dairy Farmers would take no further action until it had heard again from Perfection; let alone that it relied on any such understanding in any material way. 215 There is thus a fundamental flaw in this aspect of Perfection's reply. The implied term for which Dairy Farmers contends is one to the effect that it should have the opportunity to approve (or reject) any change to the packaging of its products before that change occurred. Thus, as I have already said, even if Dairy Farmers knew both of Perfection's intention to make its own bottles and of Perfection's intention to use those bottles to package milk destined for Dairy Farmers, Dairy Farmers was entitled to assume that its approval would be sought before that change was implemented. Since the implied term is, among other things, so obvious that it goes without saying, Perfection should be held to the same understanding. 216 On this basis, Dairy Farmers was not obliged to act until its approval was sought; nor (approval not having been sought) can any adverse conclusion be drawn from its inaction. Dairy Farmers was not obliged to inquire from Perfection when any change might come into effect, or to seek specifications or samples for the proposed bottles, or an opportunity to inspect the production line. Equally, Perfection should have understood (and in my view did understand) that it should put any changes to Dairy Farmers for approval before those changes were implemented. 217 It follows that there is no basis for alleging that Dairy Farmers has waived its right to insist on performance of the alleged implied term, let alone that it is estopped by its conduct from insisting on performance of that alleged term. Further, and in my view a fortiori, the evidence falls a long way short of demonstrating that Dairy Farmers agreed to accept substituted performance, in the form proffered by Perfection. Miscellaneous issues: P2 and P13 218 These issues do not arise for consideration and I see no utility in dealing with them. In any event: (1) As to issue P2, I have made findings as to the extent of Dairy Farmers' knowledge of Perfection's plans; and (2) As to issue P13, I do not think that a conclusion on it is in any way relevant to the pleaded case. Six months' notice 219 Dairy Farmers submitted, in the alternative, that the notice provisions of clause 11 of the trade mark licence agreement applied to, or formed part of, any binding agreement concluded on the terms of the accepted Perfection offer. 220 I do not accept that submission. The whole commercial point of the accepted Perfection offer was to "lock in" the parties to a continuing relationship. That commercial point would not have been achieved if the relationship put in place by the accepted Perfection offer were, as before, one terminable on six months' notice. Dairy Farmers would have continued to be at risk of loss of Perfection's processing capacity. Perfection would have continued to be at risk of losing the bulk of its business on six months' notice. I do not accept that this is what the parties intended; nor does the language of the relevant bullet point compel that, regardless of subjective intention, this is what they achieved. 221 The sixth bullet point in the accepted Perfection offer read as follows: "10 year term for the licensing of the Dairy Farmers' brands plus processing arrangements with Perfection having an option after 5 years." 222 The fixed or defined term of the trade mark licence agreement was a little under four years, continuing thereafter terminable on six months' notice by one party to the other. 223 If it is appropriate to regard the accepted Perfection offer as supplementing, or further varying, the trade mark licence agreement, then I think it is appropriate to regard it as replacing the fixed duration of the agreement for which clause 11 provides. In effect the further varied agreement should be regarded as one for five years from 27 October 2004, with an option for Perfection to extend for a further five years, on the basis that once the fixed term (including any renewal) expired, either party could terminate by giving six months' notice to the other. Alternatively, if the accepted Perfection offer constitutes a separate agreement which incorporates by reference or implication such of the terms of the trade mark licence agreement as are not inconsistent or expressly varied, a similar result would follow. 224 In any event, I do not think that the notice given by Dairy Farmers should be read as one invoking clause 11 of the trade mark licence agreement. It purported to be a notice terminating the contract because of repudiatory conduct by Perfection. Since in my view there was no repudiatory conduct, the notice itself was a repudiation of the contract. It should not be construed as the exercise, in the alternative, of a right under the contract. Relief 225 Perfection claimed a declaration in the terms of prayer 1 of the further amended summons, and an injunction in terms of prayer 2A. It abandoned "presently" its claim for specific performance. 226 Dairy Farmers opposed the making of such a declaration. It submitted (as I understood it; the submission was by no means clear) that the relevant controversy would be settled by my reasons. 227 I do not accept that submission. There is a controversy between the parties as to the effect of Dairy Farmers' purported termination of the contract between it and Perfection. Controversies are quelled by the granting of appropriate relief – declarations, orders or judgments, appropriate to the nature of the case – not by reasons for decision. In my view, Perfection having succeeded in its argument that the purported termination was invalid, it is appropriate to grant a declaration in terms of prayer 1. Such a declaration will not give expression to all the controversies that I have sought to decide in these reasons, because it does not deal with the status or contents of the contract that was not terminated. However, Perfection did not seek a declaration as to what was the contract, what were its terms, or in what documents or other conduct it is to be found. It is not the Court's role to venture down a path that neither party invites it to traverse. 228 The real question is whether, in addition, there should be an injunction in terms of prayer 2A or, indeed, in other terms. 229 Dairy Farmers submitted that an injunction in such terms might have the effect of an order for specific performance. I do not agree. An order for specific performance would compel Dairy Farmers (and Perfection) to observe and perform each and every one of the provisions of whatever is the contract between them according to its terms. An injunction in terms of prayer 2A would reinforce the declaration, by preventing Dairy Farmers from acting in such a way as might be seen to give effect to its purported termination notwithstanding the Court's conclusion that the termination is invalid; but would not otherwise require Dairy Farmers to perform the contract. 230 That having been said, I have some difficulty in understanding the utility of the injunction sought. There is no evidence of any threat that Dairy Farmers would disregard (except in a lawful way – eg, by appealing) the declaration that I propose to make, and continue to act upon its purported termination as though it were effective. In any event, if such a situation were to arise, it could be dealt with. 231 On the other hand, if an injunction is granted, there is a risk that Perfection would seek to characterise any conduct of Dairy Farmers, that could be seen to be inconsistent with the continued existence of the contract between them, as demonstrating a breach of the injunction, and to seek further relief accordingly. Having regard to what can best be described as the poisoned state of relations between the two companies, I do not think that this risk is unreal, far fetched or fanciful. Nor is it unreal, far fetched or fanciful to think that Dairy Farmers may in the future look for any opportunity that it can find to bring to an end the relationship between it and Perfection. Indeed, Dairy Farmers might decide consciously and deliberately to breach, by refusing to perform, its contract with Perfection. In my view, any such actions on the part of Dairy Farmers should be examined on their merits; and the examination should not be cluttered by considerations relating to contempt of court. 232 Further, to the extent that Perfection seeks the injunction in effect as a means of dissuading Dairy Farmers from acting in either of the ways that I have just described, that does not seem to me to be legitimate. On the contrary, it seems to me to lend force to Mr Oslington's submission that Perfection is claiming through the "back door", by the remedy of injunction, that which it has disavowed seeking through the "front door" of specific performance. 233 I do not think that it is appropriate to grant injunctive relief. 234 That leaves the claim for damages. The parties agreed that the appropriate course was to publish these reasons, and to give Perfection an opportunity to consider whether it pressed its claim for damages and, if it did, to articulate the basis on which it was pressed so that the Court could make further orders for the hearing and disposition of that claim. Conclusions and orders 235 I conclude that: (1) The parties objectively intended that the accepted Perfection offer should be, and it was, immediately binding upon them, notwithstanding that there was to be prepared and executed a further and formal instrument of agreement. (2) The terms (at least the fundamental terms) of the accepted Perfection offer are sufficiently certain for it to be enforceable as a contract between the parties. (3) Since 27 October 2004, the parties have been bound by the accepted Perfection offer together with so much of the trade mark licence agreement as is not expressly or necessarily inconsistent with the terms of the accepted Perfection offer. (4) The term for which Dairy Farmers contends in paragraph 5 of its Commercial List Response is not implied into the agreement between it and Perfection. (5) Alternatively, if such a term be implied into the agreement: (i) It would be a condition, and Perfection would have breached that condition so as to entitle Dairy Farmers to terminate the agreement; or (ii) It would be an important term of the agreement, and Perfection would have repudiated that agreement and its obligations (including under the implied term) thereunder, so as to give Dairy Farmers the right to terminate that agreement; and (iii) On either basis, Dairy Farmers should be taken to have exercised that entitlement or right. (iv) Dairy Farmers would not have been required to, and did not in fact, offer Perfection an opportunity to remedy that hypothetical breach. (v) Dairy Farmers should not be taken to have waived its rights arising from the hypothetical breach, nor to have been estopped from relying on those rights. (vi) Dairy Farmers should not be taken to have agreed to accept substituted performance. (6) Dairy Farmers was not entitled to terminate the agreement between it and Perfection by giving six months' notice pursuant to clause 11 of the trade mark licence agreement; and in any event the notices given by Dairy Farmers on 15 November 2006 were not valid exercises of any such right that it may have had. (7) It is appropriate to grant declaratory relief, but not, in addition, injunctive relief. 236 I make the following orders: (1) Declare that the purported termination by the defendant on or about 15 November 2006 of the agreement between it and the plaintiff for the processing, packaging and distribution of milk is void and of no effect. (2) Reserve liberty to the plaintiff to apply on seven days' notice to the defendant and the Court in respect of its claim for damages. (3) Subject to order (4), order the defendant to pay the plaintiff's costs of the proceedings. (4) Grant the defendant leave to move by application made within seven days of today's date to vary or discharge order (3). (5) Reserve general liberty to apply on seven days' notice. (6) Order that the exhibits be retained for 28 days from today's date and that thereafter they be dealt with in accordance with the Rules. ****** 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.