Nationwide Produce (Holdings) Pty Ltd (In Liquidation) v Linknarf Limited (In Liquidation) [2005] FCAFC 129 (14 July 2005)

Last Updated: 18 July 2005

FEDERAL COURT OF AUSTRALIA

Nationwide Produce (Holdings) Pty Ltd (In Liquidation) v Linknarf Limited (In Liquidation) [2005] FCAFC 129

CONTRACT – respondent purchased fruit and vegetables from the appellant and its predecessor business on a regular basis from 1994 to the end of 1998 – repeated refusals by respondent to enter into formal supply arrangement – offer of weekly contract with a right to terminate if the produce did not meet respondent’s quality standards was made to the appellant on 6 October 1998 – offer accepted by appellant – appellant subsequently complained that the contact would put him out of business and requested an ongoing contract – produce supplied by the appellant was rejected by respondent – respondent terminated contract on 31 December 1998 – whether a supply contract existed between the parties prior to October 1998 – whether the course of dealing between the parties indicated a mutual intention to enter into a legally binding arrangement – whether the contract conferred a right of first refusal on appellant to supply respondent with fruit and vegetables of certain classes – whether sufficient notice of termination of the contract was given by respondent – whether October 1998 contract should be set aside on the grounds of economic duress and unconscionable conduct by respondent

TRADE PRACTICES – misleading and deceptive conduct

Trade Practices Act 1974 (Cth) ss 51AA, 51AC, 52

Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 applied
Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 applied
Brambles Nationwide Holdings Limited v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 applied
Vroom DV v Foster’s Brewing Group Ltd [1994] 2 VR 32 cited
Mackay v Wilson (1947) 47 SR(NSW) 315 referred to
Woodroffe v Box [1954] HCA 22; (1954) 92 CLR 245 referred to
White Property Developments Ltd v Richmond Growth Pty Ltd (unreported, Federal Court of Australia, Madgwick J, 28 January 1998) referred to
Crawford Fitting Co v Sydney Valve and Fittings Pty Limited (1988) 14 NSWLR 438 applied
Australian Blue Metal Limited v Hughes [1982] UKHL 5; [1963] AC 74 referred to

US Second Restatement on Contracts para. 22(2)

NATIONWIDE PRODUCE (HOLDINGS) PTY LIMITED (IN LIQUIDATION)
ACN 073 577 520 v LINKNARF LIMITED (IN LIQUIDATION) (FORMERLY FRANKLINS LIMITED) ACN 000 929 902

NSD 152 of 2005

TAMBERLIN, CONTI AND JACOBSON JJ
SYDNEY
14 JULY 2005

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 152 OF 2005

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	NATIONWIDE PRODUCE (HOLDINGS) PTY LIMITED (IN LIQUIDATION) ACN 073 577 520 APPELLANT
AND:	LINKNARF LIMITED (IN LIQUIDATION) (FORMERLY FRANKLINS LIMITED) ACN 000 929 902 RESPONDENT
JUDGES:	TAMBERLIN, CONTI AND JACOBSON JJ
DATE OF ORDER:	14 JULY 2005
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.	The appeal is dismissed.
2.	The appellant is to pay the costs of the respondent.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 152 OF 2005

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	NATIONWIDE PRODUCE (HOLDINGS) PTY LIMITED (IN LIQUIDATION) ACN 073 577 520 APPELLANT
AND:	LINKNARF LIMITED (IN LIQUIDATION) (FORMERLY FRANKLINS LIMITED) ACN 000 929 902 RESPONDENT

JUDGES:	TAMBERLIN, CONTI AND JACOBSON JJ
DATE:	14 JULY 2005
PLACE:	SYDNEY

REASONS FOR JUDGMENT

TAMBERLIN J:

1 This is an appeal by Nationwide Produce (Holdings) Pty Limited ("Nationwide Holdings") from a judgment of Whitlam J, dismissing an application by Nationwide Holdings against Linknarf Limited, formerly Franklins Limited ("Franklins"), for damages on the grounds of breach of contract, economic duress and contraventions of ss 51AA, 51AC and 52 of the Trade Practices Act 1974 (Cth) ("the TPA").

2 The action was brought by the liquidator of Nationwide Holdings, who was appointed on 1 June 2000. The action arises from a course of dealing between Franklins, a well-known chain of retailers selling groceries and also fresh fruit and vegetables, and Nationwide Holdings and its predecessor business, Nationwide Produce (Australia) Pty Ltd ("Nationwide Australia"), whereby Franklins purchased fresh fruit and vegetables from Nationwide Holdings and Nationwide Australia on a regular basis from 1994 through to December 1998.

THE ISSUES

3 There are a number of broad issues in this case. First, whether there was a supply contract between Nationwide Holdings and Franklins prior to October 1998 which conferred a right of first refusal on Nationwide Holdings to supply all or a large proportion of the needs of Franklins for fresh fruit and vegetables of certain classes. Secondly, whether that agreement was lawfully terminated and sufficient notice of termination given by Franklins. Thirdly, whether Franklins engaged in misleading or deceptive conduct during the course of its dealings with Nationwide Holdings. Finally, whether any damages have been proven in this case and, if so, the amount of such damages flowing from Franklins’ breach of contract and/or contraventions of the TPA.

BACKGROUND

4 Nationwide Australia was incorporated on 10 September 1993 and began dealing with Franklins in early 1994. Mr Prestia was a director of Nationwide Australia from 17 January 1994 to 24 June 1996.

5 Nationwide Holdings was incorporated on 10 April 1996 and Mr Prestia was appointed as its sole director. Mr Prestia was made bankrupt on 18 June 1996 and resigned as a director on 24 June 1996. He was not re-appointed as a director of Nationwide Holdings until 6 October 1998 and, in the meantime, his son Roy was the sole director of Nationwide Holdings. Mr Prestia says that in about April 1996, Nationwide Holdings took over the business previously carried on by Nationwide Australia.

6 The supply of produce to Franklins by Nationwide Australia was initially limited to bags of oranges. However, in or about January 1994, Nationwide Australia began selling rockmelons and mangoes to Franklins packed in bins and boxes. Nationwide Australia subsequently expanded its supply of produce to include broccoli, lettuce and cauliflower.

7 The quantities of fruit and vegetables supplied by Nationwide Australia grew substantially. On 7 April 1994, Nationwide Australia entered into a lease of a warehouse at Lidcombe in order to store and pack produce to meet the growing volume of sales from Nationwide Australia to Franklins. The lease was due to expire on 31 January 1999.

8 During 1994, Mr Prestia had various meetings with Franklins representatives. Mr Prestia has alleged that during the course of these meetings, Franklins made a number of representations. These representations were to the effect that Franklins was expanding its stores and that it required its suppliers to accommodate lines of fruit and vegetables requiring specific packaging, temperature control and quality, including perishable products such as capsicums, spinach, cabbages, broccoli, beetroot and turnips. Nationwide Holdings claims that Franklins represented that this supply arrangement was on a long-term basis.

9 In the pleadings, Nationwide Holdings also alleges, and this is a central issue in the case, that there was a contract whereby Nationwide Holdings, as a "preferred supplier" of Franklins, had a right to compel Franklins to procure its supply from it. In par 10(f) of the Further Amended Statement of Claim filed in Court on 10 March 2004, it is alleged that Franklins represented:

"That any order placed by Franklins for goods from Nationwide Holdings would be upon the basis that Nationwide Holdings would be the ‘Preferred Supplier’ for certain lines of fruit and vegetables ... By this it was intended that whenever Franklins wished to purchase fruit or vegetables within the identified lines, they would first contact Nationwide Holdings and offer to purchase from them, and only if Nationwide Holdings was not able to comply with that request, would another supplier be approached."

10 In late 1994 and early 1995, Mr Prestia, on behalf of Nationwide Australia, purchased special planter tubs to meet Franklins’ requirements and commissioned the construction of cool rooms and an ice plant at the Lidcombe warehouse at a total cost of about $224,157.00. In early to mid January 1995, there were discussions between Mr Buono, the New South Wales Produce Buyer for Franklins, and Mr Prestia as to Franklins’ pricing policy with respect to the purchase of fruit and vegetables from Nationwide Australia. Nationwide Australia received its first order for broccoli and capsicums from Franklins in February 1995 and the next month Nationwide Australia bought packaging equipment at a cost of about $30,000.00 in order to package Franklins’ broccoli and capsicum supplies.

11 On 31 March 1995, Mr Cassone, the National Category Manager for Fresh Produce for Franklins, wrote a letter to the State Bank at the request of Mr Prestia stating:

"Nationwide Produce has been dealing with Franklins Group Produce Supplies since the conception of their business.

We have worked very close [sic] with Joseph Prestia on major edges in our business as we seek to build long-term benefits and relationships for both companies."

12 Mr Cassone accepted that in July 1995 he may have said words to the following effect to Mr Prestia:

"We want you with us for the long-term."

13 On 6 July 1995, Mr Cassone wrote a letter to Nationwide Australia in the following terms:

"TO WHOM IT MAY CONCERN

The Franklins Supermarket Group have been involved with Nationwide Produce since the conception of our push into Fresh Fruit and Vegetable.

We have worked very close [sic] with Joseph Prestia and have built a strong strategic alliance with his company.

We have a large expansion programme through till the end of 1995 with 10 new Supermarkets in N.S.W.

Nationwide Produce will be large supplier to our business and will see there [sic] turnover more than double with us over this period.

We have no reason to change our strategic alliance with Nationwide Produce and look forward to a continued long-term working relationship."

14 A further letter dated 24 October 1995 was sent by Mr Cassone to Nationwide Australia, in which Mr Cassone stated that he was writing "to you as a potential long-term supplier".

15 Mr Prestia was keen to get a formal four-month supply contract from Franklins and wrote to Mr Cassone on 2 November 1995 in the following terms:

"Dear Tony,

As you know over the last 18 months my company has become a significant supplier of fresh produce to Franklins Fresh and Big Fresh Stores in NSW. As you have opened new centres we have been pleased to work with you and your senior staff in planning the supply of an increasing range of high quality produce and in particular to arrange from growers a regular bulk supply to grade and pack to your specifications in our facilities at Lidcombe.

We have had significant discussions with you on the projection of your business for the next 3 years. In particular we have been briefed on the number of shops to be opened in NSW and the best estimates of volume and range of produce we might supply, and your special requirements in regard to packing and delivery within your Cold Chain and Q.A. programs.

The supply of this produce to specified quality standards year round requires substantial planning and contractual undertaking well in advance with top quality growers in most recognised horticultural centres of Australia. Clearly other food groups are identifying these same people and growing areas and forward commitments will be essential to guarantee top quality and consistent supply to Franklins.
We have established a research division that is preparing a program that defines the specifications, varieties and growing conditions required for year round supply of each item of produce, the growing areas, superior experienced growers with established farms and business stability, to become contracted suppliers. We have advanced this to the point of now proposing to you to enter a formal agreement to become your preferred supplier for NSW for a defined range of fresh produce.
We would want as soon as possible to firm up arrangements and enter supply arrangements for the years ahead. We believe this is vital to secure your supply." (Emphasis added)

16 After referring to supply considerations and the capital investment by Nationwide Australia, the letter continues:

"All this, together with the very large increase in payments to growers will mean a substantial increase in demand for our working capital. We are ourselves able and willing to fully finance this project. However we seek the security of a formal supply agreement with your company to cover (say) three years and a further three year option. We wish to make a commitment to the growth of your fresh food business and so now ask for your commitment to us as a preferred/exclusive contracted supplier.

This letter is to ask for your agreement in principle for us to proceed with you to draw up an agreement. Clearly this would include a definition of the responsibilities we would undertake and all terms of trade such as mechanism for establishing forecasts, specifications of quality and payment. We would also seek to define criteria for monitoring our performance to ensure that at all times we provided the quality of produce and responsive service your company requires." (Emphasis added)

17 Mr Cassone did not take any steps to commit to any formal supply agreement and the relationship continued as before. By January 1996, Nationwide Australia was experiencing severe financial difficulties. In that month, Mr Prestia was notified by the State Bank of its intention to appoint a receiver to Nationwide Australia.

18 On 17 December 1996, Mr Cassone wrote to Mr Dwyer at St George Bank in the following terms:

"I am writing to give your bank an update of Nationwide Produce and Franklins Supermarkets’ current situation and relationship.
In 1993, we started a strategic alliance in business with the following three products, broccoli, capsicums (red and green) and mangoes. Since then we have progressed even further with more products: cabbage, silverbeet, lettuce and cauliflowers.
It is important to know that Nationwide Produce now supplies 80% of all these products in a growing business that will increase in 1997 at a rapid rate.
I have now asked Nationwide Produce if they would be in a position to supply our full requirements of Asian Vegetables and Bunched Herbs (approximately 50 products). These products would need to be processed in the following manner: washed in chilled water, bunched, refrigerated in temperature controlled coolrooms and delivered to our produce warehouse maintaining the right temperature.
If Nationwide Produce is able to fund this project then I would be in a position to give Nationwide Produce a written contract for a period of time for 100% supply.
I hope this gives you an insight to what we are working on as a strategic alliance. If you need more information please do not hesitate to contact me (02: 9325 6800 or 018274699)." (Emphasis added)

19 No written agreement was drawn up. For the year 1 July 1996 to 30 June 1997, Nationwide Australia’s net operating profit was recorded as $165,657.15.

20 In July 1997, Mr Prestia says that Mr Cassone forwarded him a document indicating Franklins’ anticipated expansion for the lines that Nationwide Holdings was then supplying to Franklins and for other Asian lines that Mr Cassone wanted it to supply. These projections were to the year 2001. In August 1997, Mr Prestia received a further document from Mr Cassone in which he set out what he perceived as the capital needs of Nationwide Holdings to service Franklins’ requirements for the future.

21 Some time in July or August 1997, Mr Prestia says that he and Mr Cassone had several conversations in which Mr Cassone said words to the following effect:

"Joe, I think you’ll need to look to investing in more plant even if you stay at Lidcombe. I am preparing another analysis for your needs with our future growth."

22 In August 1997, Franklins published a document entitled "Franklins 2000: A Fresh Perspective. The Why. The How. And When. Fresh Food: Category Management Franklins Style". The Category Management System was implemented by Franklins in late 1997 and the section of Franklins known as "Franklins Big Fresh" opened up the supply chain for fruit and vegetables to a wider variety of suppliers.

23 By January 1998, Nationwide Australia had ceased to trade. It was understood by St George Bank that Mr Prestia had commenced operations through a different trading entity.

24 In early 1998, Nationwide Holdings began to acquire assets. The report of Mr Gwynne, an accountant called by Nationwide Holdings, shows office furniture, plant and equipment as having been acquired by Nationwide Holdings on 8 December 1997. On 27 February 1998, Nationwide Holdings arranged the hire-purchase, for a price of $150,000.00, of the cool-rooms and related equipment installed at the Lidcombe warehouse in 1995. On 13 March 1998, Nationwide Holdings borrowed $150,000.00 to pay off this debt. The cool-rooms and related equipment were shown in the assets register as having been acquired by Nationwide Holdings on 22 May 1998.

25 On 16 June 1998, an order was made by the Commissioner of Taxation for the winding up of Nationwide Australia. The report submitted to Nationwide Australia’s liquidator on 17 July 1998 showed an amount of $3.6 million as owing to St George Bank. For the year ended 30 June 1998, Nationwide Australia had a net operating loss of $11,910.52.

26 After June 1998, Mr Cassone had fewer dealings with Mr Prestia. Mr Cassone was assigned to a different position within Franklins as National Business Manager for Produce. Mr Griffin and Mr Russo were the new National Category Managers for Fresh Produce and took over Mr Cassone’s former responsibilities of dealing with Franklins’ suppliers on a day-to-day basis.

27 In July 1998, Mr Cassone says that he was approached by a number of growers who complained that they had not been paid by Mr Prestia for produce he had supplied to Franklins. Mr Cassone reported these complaints to Mr Vogel, the Fresh Food Director of Franklins, and Mr Hallam, the Director of Legal Services for Franklins. Mr Hallam was concerned about the position shown in a letter dated 13 August 1998 from Nationwide Holding’s liquidator to the unsecured creditors of Nationwide Holdings. Mr Hallam sought advice from external solicitors and arranged for Mr Cassone to inform Mr Prestia that Franklins would forthwith reduce the percentage of its requirements purchased from Nationwide Holdings, with a view to terminating all supplies at the end of the year.

28 On 14 August 1998, there was a meeting between Messrs Cassone, Prestia and Palazzaro, one of Franklins’ buyers. Mr Cassone alleged that at this meeting he informed Mr Prestia of Franklin’s decision to terminate supplies from his company at the end of the year. However, Whitlam J, at first instance, was not prepared to find that Mr Cassone had informed Mr Prestia in no uncertain terms that all purchase orders from Franklins would cease at the end of the year.

29 The concerns of Mr Hallam regarding the relationship between Franklins, Nationwide Holdings and the growers increased between July and early October 1998. In about early September 1998, Mr Hallam drafted a letter to Mr Prestia, which was signed by Mr Cassone, setting out a draft agreement for signature by Mr Prestia. The letter was dated 6 October 1998 and was cast in the following terms:

"Dear Joe
CONTRACT WITH FRANKLINS TO SUPPLY FRESH PRODUCE
I refer to our various meetings to discuss Nationwide’s terms of supply to Franklins. I confirm that Franklins will continue its relationship with Nationwide Produce on the following terms and conditions.

1. The contract is weekly, commencing immediately and expiring on 31 December 1998, unless terminated in accordance with this agreement.
2. During the term of this agreement, Nationwide will supply the following produce to Franklins:

(a) 50% of Franklins’ broccoli requirements for NSW;
(b) 30% of Franklins’ pre packed oranges for NSW;
(c) 50% of Franklins’ lettuce for NSW;
(d) 50% of Franklins’ cauliflower for NSW;
(e) 50% of Franklins’ capsicum for NSW;
(f) Franklins’ leaf products for NSW, as required.

3. Franklins may terminate the agreement on 2 days written Notice if:

(a) the supply of any of the produce listed in clause 2 fails to meet Franklins’ (attached) specifications;
(b) if in the reasonable opinion of Franklins, any of the produce in clause 2 does not meet Franklins’ quality standards;
(c) if Nationwide commits any act of bankruptcy, or enters into any scheme of arrangement with its creditors or is subject to any external administration (as defined in the Corporations Law);
(d) Franklins receives any formal complaint from any of Nationwide’s growers that Nationwide has not paid its debts as they fall due.

4. At the end of each week Nationwide will submit an invoice to Franklins sorting out:

(a) the Produce provided to Franklins including an itemised description of their nature, quantity, volume and unit price;
(b) the period during which the produce was supplied;
(c) the address to which the produce was delivered and the date of delivery;
(d) the total amount due and payable for the produce; and
(e) such other information as Franklins may require from time to time.

5. Within 14 days of receipt of the Invoice, Franklins will review the Invoice, and if approved, pay to Nationwide the approved amount set out in the Invoice.
6. Notwithstanding clause 3, Franklins may at any time reject any of the produce in clause 2 without payment if in its absolute discretion it considers the quality of that produce is unacceptable.
7. The parties agree they have not signed this contract in reliance or as a result of any representation, promise, statement, conduct or inducement on or behalf of anything otherwise than that which has been set out in this contract.
8. The parties agree this is a binding contract which takes effect on execution and is subject to and construed in accordance with the laws of New South Wales.
9. If for any reason this agreement is not signed by 12 October 1998, the parties agree the offer contained in this agreement lapses and Franklins may terminate supply from Nationwide without liability from 13 October 1998.
10. Each party warrants and represents to the other party that:

(a) the execution and delivery of this agreement has been properly authorised by all necessary corporate action taken by it; and
(b) it has full power and lawful authority to execute and deliver this agreement and perform its obligations under this agreement."

30 It is clear that this document confirmed that there was a limited formal agreement between the parties from early October 1998. This letter was handed to Mr Prestia on 9 October 1998. He signed the letter on behalf of Nationwide Holdings and delivered it to Franklins’ office at Flemington Markets on 12 October 1998. Shortly afterwards, Mr Prestia telephoned Mr Hallam to complain that the contract would put him out of business by the end of the year. Mr Hallam suggested that Mr Prestia write to Mr Foran, the Marketing Director of Franklins, if he wished to take the matter any further. The contractual terms of this letter are in marked contrast to the loose arrangement that had previously applied to the relations between the parties.

31 On 15 November 1998, Mr Prestia wrote a letter to Mr Foran setting out the history of the relationship, as he saw it, between Nationwide and Franklins. In the final section of the letter, Mr Prestia states:

"All of my futuristic plans for Nationwide have been formulated with the established growth policy of Franklins in mind, and the role I was led to believe that I would fill by my supplying a range of fresh produce to them. My willing participation in the development of their quality standard programmes has been at a considerable cost to me. Whilst I have had many difficulties to overcome, I believed Franklins’ objectives warranted such a personal and financial outlay by me. I believe my actions and commitment have earned your consideration of Nationwide as a preferred supplier of a defined range of fresh produce. I would therefore seek some form of agreement for an ongoing arrangement that would justify what I believe to be a considerable contribution towards Franklin’s [sic] growth." (Emphasis added)

32 On 26 November 1998, there was a further meeting between Messrs Prestia, Hallam, and Griffin and Ms Hamilton-Bate to discuss the rejection of produce that had been supplied by Nationwide Holdings. On the following day, a further meeting took place at Franklins’ office involving Messrs Hallam, Foran, Vogel and Prestia.

33 On 23 December 1998, Mr Hallam sent a fax to Mr Prestia in these terms:

"I refer to the various meetings you have had with Franklins during the last few weeks and confirm the following:

1. On 26 November 1998 you met with Marcus Griffin, Clare Hamilton-Bate and myself at the Flemington Warehouse. Franklins advised you that in accordance with clause 3 of Franklins letter to you of 6 October 1998, a copy of which you signed and returned, (the "Agreement") Franklins was terminating the Agreement, effective as at 5.00 pm 29 November 1998. The grounds for termination were explained and were that the supply of the produce had failed to meet Franklins written specifications and quality standards on numerous occasions, all of which had previously been advised and explained to you.

2. On 27 November 1998 you met with Greg Foran, Robert Vogel and myself. During this meeting the overall relationship between Franklins and Nationwide was discussed. Franklins has continually experienced problems in the relationship and in mid September 1998 you had a discussion with Tony Cassone where it was agreed that the current lines you supplied to Franklins would be immediately reduced by 50% and that this arrangement would in any event cease as at 31 December 1998. The terms of the agreement were set out in the Agreement.

3. Although Franklins had given notice of its intention to terminate the Agreement on 26 November 1998 Franklins allowed the Agreement to continue until the previously agreed expiry date of 31 December 1998. Naturally, Franklins reserves all other rights arising from Nationwide’s continual breaches of the Agreement.

4. It was agreed at the 27 November 1998 meeting that Franklins would consider a submission by Nationwide in relation to allowing a further period of time beyond 31 December 1998. In the absence of any express new agreement to extend the relationship, it was made clear that 31 December 1998 would mark the end of Nationwide’s relationship with Franklins. Any submission was to be made to Franklins by 15 December 1998. Franklins has received no such submission and accordingly any possibility of an extension of Franklins’ relationship with Nationwide beyond 31 December 1998 is now extinguished.

I re-affirm Franklins’ position that the Agreement will expire on 31 December 1998 and that there will be no extension of any period of time."

34 Finally, on 29 December 1998, Mr Russo sent a fax to Mr Prestia informing him that Franklins would cease all trading with Nationwide Holdings as of 31 December 1998. No further orders were placed with Nationwide Holdings.

CREDIT OF WITNESSES

35 The primary Judge made an adverse finding of credit in relation to Mr Prestia. His Honour said that he preferred the evidence of Mr Cassone wherever it conflicted with that of Mr Prestia and gave reasons for making this finding, which, in my view, were well founded. There was only one minor qualification to this finding, which related to the discussion between Messrs Prestia and Cassone of 14 August 1998. His Honour said that a later note by Mr Cassone to Mr Hallam about this conversation was expressed in strangely convoluted language and did not clearly confirm Mr Cassone’s statement as to termination, such that his Honour could not conclude that Mr Prestia was definitely and clearly told on that occasion that all purchase orders would cease at the end of the 1998 calendar year. This qualification does not materially impact on his Honour’s general finding. The finding, of course, does not mean that every piece of evidence given by Mr Cassone must be ignored.

36 It was not argued on the appeal that his Honour’s finding on credit should be set aside, nor, having regard to the strong adverse evidence as to the credit of Mr Prestia which was pointed to by Franklins, could such an argument have been made. On the appeal, the Court was taken to a number of instances of unreliable and conflicting statements by Mr Prestia. Recognising this difficulty, counsel for Nationwide Holdings sought to base its submissions primarily on the evidence of Franklins and the documentation, particularly in relation to the meaning and importance of the expression "preferred supplier" and the benefits of that status.

THE ALLEGED CONTRACT

37 In its written submissions before the primary Judge, Nationwide Holdings submitted that the essential terms of the contract that it alleged to have been formed by 1997, at the latest, were as follows:

"12. In this case, it is clear that the common intention or ‘mutual assent’ of the parties by, the latest 1997, was:

(i) that the Applicant would supply the Respondent with fruit and vegetables (specifically oranges, broccoli, capsicum, lettuce, cauliflower, as well as other leaf products as required);

(ii) that the produce would be supplied at a price to be agreed by the Applicant and the Respondent at the beginning of each week, such price then to be fixed for the following week;

(iii) that the produce would be supplied by the Applicant to the specifications of the Respondent and packed according to the Respondent’s requirements;

(iv) that the Applicant would be treated by the Respondent as its ‘preferred supplier’, in that the Applicant would receive a first right of refusal to supply the produce to the Respondent in the quantities required by the Respondent; and

(v) that the arrangement was terminable at will by either party upon reasonable notice."

38 There are three important threshold questions to be determined in relation to the alleged contract. First, whether any contract arose. Secondly, what is meant by the expression "preferred supplier". Thirdly, whether there was a binding agreement as to the requirement of "reasonable notice" prior to termination of the contract and the meaning of "reasonable notice".

THE EXISTENCE OF A CONTRACT PRIOR TO THE OCTOBER 1998 LETTER

39 There is no doubt that both Messrs Prestia and Cassone are experienced and commercially astute businessmen in the fresh fruit and vegetable produce industry. The evidence is that Mr Prestia did not hesitate to promptly act on and assert his perceived legal rights throughout the relevant period and there is no suggestion by him that he was entitled, as a matter of right, to a formal written contract setting out the arrangements of the parties as alleged in this proceeding.

40 It is settled law that where parties have engaged in a commercial relationship over a period of years a question may arise as to whether the dealings have resulted in the formation of a binding contractual agreement. In such a case, the issue is whether it can be said that after a certain point in time the parties have formed a common intention, by way of a mutually binding contract, that they will be bound to act in a particular manner, as opposed to simply continuing with their ongoing commercial arrangement with the consequent insecurity inherent in the absence of any enforceable promise: see Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548-9 per Gleeson CJ. In the present case, there are persuasive indications, particularly the repeated refusal of Franklins to enter into a contract with Nationwide Australia and Nationwide Holdings, that there was never a mutual intention to enter into a binding legal arrangement.

41 In the case of an ongoing commercial relationship where the court has to consider whether a binding contract exists, the law has developed to a stage where it is not necessary to identify with precision the specific point in time at which an offer is made which has crystallised into a contract. The law is more flexible and pragmatic in its approach to day-to-day commercial dealings. In Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117-11,118 (Integrated Computer Services), McHugh JA (with whom Hope and Mahoney JJA concurred) recognised the unreality of an insistence on undue specific definition in relation to offer and acceptance and observed:

"It is an error ‘to suppose that merely because something has been done then there is therefore some contract in existence which has thereby been executed’ ... Nevertheless, a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words ... The question in this class of case is whether the conduct of the parties viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract." (Emphasis added)

42 The failure of the Franklins, Nationwide Australia and Nationwide Holdings to provide for matters that one might expect to have been specified by the parties to a binding contact provides some support for the conclusion that there was no intention by the parties in this case to enter into a legally binding relationship.

43 In Integrated Computer Services at 11,117-11,188, McHugh JA continued:

"It is often difficult to fit a commercial arrangement into the common lawyers’ analysis of a contractual arrangement. Commercial discussions are often too unrefined to fit easily into the slots of ‘offer’, ‘acceptance’, ‘consideration’ and ‘intention to create a legal relationship’ which are the benchmarks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance together with an intention to create a binding legal relationship." (Emphasis added)

44 Heydon JA, in the Court of Appeal, cited the above passage in Brambles Nationwide Holdings Limited v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 at 177 and then stated:

"Moreover, in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties’ subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed." (Emphasis added)

These passages were cited with approval by Ormiston J in Vroom DV v Foster’s Brewing Group Ltd [1994] 2 VR 32 at 82-3. This approach is also encapsulated in paragraph 22(2) of the US Second Restatement on Contracts, which states as follows:

"A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined."

45 In my view, the communications between the parties in the present case fall far short of demonstrating that any binding legal arrangement was entered into whereby Nationwide was entitled to a right of first refusal of the supply of fresh produce to Franklins together with a right to be given reasonable notice of termination.

46 A most important consideration in deciding this question are the repeated refusals by Mr Cassone, on Franklin’s behalf, to accede to Mr Prestia’s request for a formal arrangement. This pattern of conduct is a strong indication that the parties had not formed a mutual intention to enter into legally binding obligations of any kind.

47 Counsel for Nationwide Holdings contends that the refusals by Mr Cassone to enter into a contract were only directed to a refusal to enter into a written contract for a lengthy fixed term. Nationwide Holdings does not contend that it had a fixed term contract with Franklins for any particular period but rather that there was a contract in place that was terminable at will by either party on reasonable notice. The case for Nationwide Holdings is that Franklins had not given reasonable notice and therefore Nationwide Holdings was entitled to damages for breach of contract.

48 I can see no evidentiary basis for the submission of Nationwide Holdings that Mr Cassone’s refusal related only to a refusal to enter into a written contract for a lengthy fixed term. In addition to the language used by Franklins in its communications with third parties about its relationship with Nationwide Holdings, there is a strong indication that the parties merely had a commercial relationship rather than a legally binding agreement as to the continuance of that relationship. The pervasive references are to working very closely with Nationwide Holdings and seeking to build long-term benefits and relationships for both parties, to Nationwide Holdings being with Franklins for the "long-term", to having built a strong strategic alliance between Nationwide Holdings and Franklins and to an expectation of a continued long-term relationship.

49 The letter of 17 December 1996 to Mr Dwyer at St George Bank, after referring to the supply of Asian vegetables, states:

"If Nationwide Produce is able to fund this project then I would be in a position to give Nationwide Produce a written contract for a period of time for 100% supply."

The language of this letter, particularly in its contingent reference to the possibility of "a written contract", is in marked contrast to the language used elsewhere by Mr Cassone and Franklins, which is, as I have indicated, of a commercial nature. It is significant that no contract of the type referred to in the letter of 17 December 1996 ever eventuated or was insisted upon rather than merely being the subject of a request.

50 Of more importance in understanding Franklins’ position, is the letter of 6 October 1998, drafted by Mr Hallam, which is cast in clear contractual terms and sets out in some detail the terms and conditions of the proposed arrangement between Franklins and Nationwide, including the classes of produce, the percentages and quantities to be supplied and the provisions as to termination, invoicing and quality. The expression "contract" is used on several occasions and use is also made of the expression "agreement". The letter employs standard contractual terminology and refers to terms, conditions and warranties. There is an express spelling-out of the rights and obligations of each of the parties. The commitment by Franklins is, in promissory terms, to continue its relationship with Nationwide Holdings and the letter spells out details of this commitment. There is no dispute that this document is contractual in nature, however, Nationwide Holdings says that it should be set aside on the grounds of undue economic duress and unconscionable conduct on the part of Franklins. The important point to note is that it is not disputed by either party that this document is contractual in nature and uses the language of contract.

51 A further important letter, in my view, in relation to the question of whether a contract was intended or there was a mutual intent to enter legal relations, is the letter of 15 November 1998, in which Mr Prestia confirms that he believes his actions and commitment over the years have earned him the status of "preferred supplier" to Franklins for a defined range of fresh produce. In this letter, Mr Prestia does not assert that he has any existing agreement, either general or specific, with Franklins, but merely says that he seeks some form of agreement for an ongoing arrangement that would justify what he believed to be a considerable contribution by Nationwide Holdings. The terms of this letter, in my view, are not consistent with an understanding or an intention that there was another existing agreement in force and effect.

52 Nationwide Holdings’ contention that a contact existed prior to the letter of 6 October 1998 is not supported by the evidence. At no stage in the course of dealings between Franklins and Nationwide Holdings, even as late as 15 November 1998, was it ever asserted that there was any such contract, oral or written, as that contended for by Nationwide Holdings in this proceeding. Mr Prestia did not protest in the letter of 15 November 1998 that he understood that the contract could not be terminated without reasonable notice and that no notice had been given by Franklins.

53 The submission for Nationwide Holdings contemplates that a general contract, apparently unwritten, as to preferred supplier and reasonable notice, had been in effect since about 1996. Within the terms of this framework, Mr Prestia was pressing for a more formal comprehensive written long-term contract.

54 Apart from the fact that the concept of preferred supplier was never satisfactorily defined or described in such a way as to clearly delineate the rights or obligations of the parties, there is an inherent tension between the continued rejection by Franklins of Mr Prestia’s request for a formal contract and the parallel existence of a more generalised binding agreement in full force and effect between the parties. In my view, the proposed contract, together with the communications from Franklins that it would not enter into contractual relations, are totally inconsistent with the suggestion by Nationwide Holdings of an existing and more generalised oral or implied supply agreement which governed, in broad and unspecified terms, the commercial relationship of the parties. No such document is in existence. Nor is there any indication of any fact that would give rise to such an agreement.

55 For these reasons, Nationwide Holdings has failed to make good its submission as to the existence of any contract as alleged.

THE EXPRESSION "PREFERRED SUPPLIER"

56 The expression "preferred supplier" has been used extensively in the course of dealings between the Nationwide entities and Franklins during the period from 1994 to 1998. The contention of Nationwide Holdings is that the use of the expression is inconsistent with the notion that there was a series of one-off contracts for a supply of specific quantities of commodities at specific prices as agreed by the parties on a weekly basis. The expression "preferred supplier" is said to have been used in the sense of conferring not merely a de facto status of preferred supplier, that is, being a supplier who is preferred in practice, but rather as giving rise to the conferral or grant of a legally enforceable contractual right of first refusal.

57 The expression "preferred supplier" denotes, in normal usage, a commercial course of conduct. In contrast, the expression "right of first refusal" or "first right of refusal" is framed to the law and usually confers a legally enforceable right. However, as is evident from the authorities discussed below, the latter expression does not have a fixed and definite meaning.

58 In Mackay v Wilson (1947) 47 SR(NSW) 315 at 325, Street J said in relation to a right of first refusal:

"But an agreement to give ‘the first refusal’ or ‘a right of pre-emption’ confers no immediate right upon the prospective purchaser. It imposes a negative obligation on the possible vendor requiring him to refrain from selling the land to any other person without giving to the holder of the right of first refusal the opportunity of purchasing in preference to any other buyer. It is not an offer and in itself it imposes no obligation on the owner of the land to sell the same. He may do so or not as he wishes. But if he does decide to sell, then the holder of the right of first refusal has the right to receive the first offer, which he also may accept or not as he wishes. The right is merely contractual and no equitable interest in the land is created by the agreement."

59 The High Court considered the expression in Woodroffe v Box [1954] HCA 22; (1954) 92 CLR 245 at 257, where Fullagar and Kitto JJ said:

"The term ‘first refusal’ is not a technical term. It is a colloquial term, and indeed a somewhat inept term, because what the potential offeree wants is an opportunity of accepting an offer rather than an opportunity of refusing an offer. It may, and does, occur in various phrases, such as ‘give the first refusal’, ‘have the first refusal’, ‘give the right of first refusal’, ‘have the right of first refusal’, etc.

...

It seems clear that a mere promise to give the first refusal should be taken prima facie as conferring no more than a pre-emptive right. If I promise to give you the first refusal of my property, I am making prima facie only a negative promise: I am saying; ‘I will not sell my property unless and until I have offered it to you and you have refused it.’" (Emphasis added)

60 The meaning of the expression "first right of refusal" was considered by Madgwick J in White Property Developments Ltd v Richmond Growth Pty Ltd (unreported, Federal Court of Australia, Madgwick J, 28 January 1998), where his Honour said:

"The obligation not to sell the land "unless and until" (to adopt the language of Woodroffe v Box) it had been offered to White Property, could not be satisfied unless White Property had been given the chance, and had failed, to accept an offer on the terms (or on terms more favourable to White Property than those) upon which the property would actually be sold by Richmond Growth. That is, if an offer rejected by White Property was not accepted by anyone else, and Richmond Growth was forced to lessen its demands, White Property was entitled to have the opportunity to accept the lesser offer before any one else did. If White Property rejected an offer but Richmond Growth was then able to obtain better terms elsewhere, White Property was not entitled to be re-offered the property on the more onerous terms."

61 It is evident that the content of a "right of first refusal" is by no means fixed, specific or certain and in order to ascertain its meaning in any particular case one needs to pay careful regard to the surrounding facts and circumstances and the conduct of the parties. But we are not here dealing with a right of first refusal. The expression used in the present case is that of the status of "preferred supplier", which is more in the nature of describing a de facto trading relationship. The expression "status of preferred supplier" connotes a sense of commercial practice rather than contractual commitment. It is a long way from providing a platform on which to construct any type of "right of first refusal".

62 There are a number of alternative formulations of the concepts of "preferred supplier" and "right of first refusal". Two of these formulations are discussed below.

63 According to the first formulation, the supplier has the right of first refusal to supply the needs of the retailer. If the parties cannot agree on quality, volume, price and terms, the retailer can then buy from other persons at the same price and on the same terms as it wanted from the supplier. If the retailer varies the terms favourably to the third party, i.e. other potential suppliers, the retailer must give the supplier the opportunity to sell on such equally favourable terms as its offer to the third party. It is only if the supplier still refuses, that the retailer can purchase from the third party on those terms. The retailer is otherwise bound not to purchase from anyone else.

64 According to the second formulation, if the retailer decides to buy any fresh fruit and vegetable produce, it must give the supplier the first chance of supplying it as a matter of commercial practice. If the supplier refuses, the retailer may then go to the market at large even if it is on more favourable terms. There is no obligation on the retailer to offer the more favourable terms to the supplier before purchasing from the third party supplier.

65 These two formulations clearly illustrate the very significant differences that can exist as to the meaning of the concept of "right of first refusal" and even more so as to the concept of "preferred supplier". The vague and indeterminate nature of the expression "preferred supplier" makes it unlikely that there was any point reached in communications between Nationwide Holdings and Franklins, or evidenced by their subsequent conduct, whereby there arose any binding obligation or right in either party

66 In this case, Nationwide Holdings submits that it was entitled to compel Franklins to make an offer to it to supply all or any part of its needs for fruit and vegetables before approaching anyone else. The evidence makes reference to the concept of having "earned" the status of a preferred supplier, which is really indicative of satisfactory commercial performance. There is no reference in the evidence, however, to a contract preventing Franklins from approaching any other supplier without providing a prior opportunity for Nationwide Holdings to supply it with produce, such that Nationwide Holdings could enforce a restriction on Franklins from approaching any other supplier.

67 The tentative evidence relied on by Franklins in relation to the meaning of the expression "preferred supplier" is set out in the affidavit of Mr Cassone at [34], which reads as follows:

"In addition, I may have said words to Mr Prestia the effect of which were ‘[w]e want you with us for the long-term. Keep supplying the quality.’ At that time, Nationwide Australia was a ‘preferred supplier’ in respect of certain varieties of fruit and vegetables for the Big Fresh stores. The term ‘preferred supplier’ in the fruit and vegetable industry refers to an informal way of designating a particular category of suppliers that retailers intend to use on a regular basis. The ‘preferred supplier’ is generally the first supplier the buyer approaches when purchasing produce. Provided that the quality of the produce supplied is of a standard acceptable to the buyer, that the quantity required by the buyer can be provided by the supplier, that the price of the produce is competitive, and that the services provided by the supplier are reliable, the buyer will purchase produce from the ‘preferred supplier’. I was pleased with the quality of Nationwide Australia’s produce and service at this stage. I was also of the view that, so long as Nationwide Australia continued to supply quality produce, Franklins would probably continue to place its business with the company. However, Franklins did not bind itself to Nationwide Australia for the long-term by agreeing to a formal arrangement." (Emphasis added)

68 It should be noted that Mr Cassone’s statements fall far short of suggesting a "right of first refusal". Instead, Mr Cassone’s statements refer to an informal industry practice of designating a particular category of suppliers who have demonstrated satisfactory performance.

DURESS, UNCONSCIONABLE CONDUCT AND MISLEADING AND DECEPTIVE CONDUCT

69 Nationwide Holdings contends that if there was a binding obligation on Franklins to give reasonable notice, then the October 1998 contract should be set aside on the grounds of undue economic duress and unconscionable conduct on the part of Franklins.

70 In view of the conclusion reached above, namely, that there was no contract conferring a right of first refusal on Nationwide Holdings or an obligation on Franklins to give reasonable notice, these questions do not arise. Nor do I consider that the notice given by the letter dated 6 October 1998 that the arrangement would terminate at the end of the 1998 calendar year was an unreasonable period of notice, particularly having regard to the fact that the fruit and vegetable produce in question is perishable.

71 No question of general unconscionable conduct is alleged under the TPA or otherwise. The principles relating to "unconscionable conduct" were invoked and relied on by the appellant only in relation to the signing of the October 1998 agreement. On the conclusion that I have reached, namely, that there was no binding contract, this issue does not arise.

72 In view of the consistent refusals by Franklins to enter into contractual arrangements with the Nationwide entities and the guarded language used throughout the course of dealings in relation to the nature of the arrangement between Franklins and Nationwide, it cannot be said that there was any misleading or deceptive conduct that could provide any basis for statutory relief for Nationwide Holdings. The position is that the refusal of Franklins to enter into a binding agreement was clearly conveyed to Nationwide at all relevant times.

73 Finally, I do not consider that any statements or conduct on the part of Franklins after the October 1998 agreement can be construed as, or could amount to, a waiver, estoppel, or contractual variation of any kind that would ground a submission that the relationships between the parties were not terminated on 31 December 1998. In my view, the notice period was reasonable as from October 1998.

74 For these reasons, the appeal is dismissed with costs.

I certify that the preceding seventy four (74) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin.

Associate:

Dated: 14 July 2005

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 152 OF 2005

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	NATIONWIDE PRODUCE (HOLDINGS) PTY LIMITED (IN LIQUIDATION) ACN 073 577520 APPELLANT
AND:	LINKNARF LIMITED (IN LIQUIDATION) (FORMERLY FRANKLINS LIMITED) ACN 000 929 902 RESPONDENT

JUDGES:	TAMBERLIN, CONTI AND JACOBSON JJ
DATE:	14 JULY 2005
PLACE:	SYDNEY

REASONS FOR JUDGMENT

CONTI J:

75 I am indebted to Tamberlin J for his narrative and analysis of the circumstances leading to the commencement of these proceedings at first instance. Understandably his Honour has considered it to be unnecessary, for the purposes of reasoning appropriate to the appeal, to repeat reference to all of the events and circumstances recorded in detail by the primary judge. A reading of the entirety of those events and circumstances already in no way detracts from the present reasoning and conclusions of Tamberlin J, but nevertheless for completeness, I would briefly record certain additional circumstances established by the primary judge, also in chronological sequence, and in so doing, will adopt his Honour’s abbreviations.

76 As Tamberlin J has recorded, Nationwide Australia had been experiencing severe financial difficulties by January 1996, and in that month, Franklins was notified by the State Bank of its intention to appoint a receiver to Nationwide Australia. Although later on 28 October 1996, an order to wind up Nationwide Australia on the ground of insolvency was made on the application of its worker’s compensation insurer, that winding up was however terminated on 30 October 1996, in the context of St George Bank providing funding for that purpose. Yet by 20 November 1996, Arthur Andersen furnished to Franklins a draft report which recorded that although Nationwide Holdings was still dormant in operation, Nationwide Australia had been always trading at a loss since its inception of business operations, and would be heavily reliant on Franklins for ongoing patronage. However as the primary judge further recorded, no formal agreements had ever been entered into between Nationwide Australia with Franklins, and there existed moreover at the time of the draft report an unfortunate threat to Nationwide’s business posed by ‘an increased tendency for large retailers to obtain their fruit and vegetables by negotiating directly with growers’. Not surprisingly, in its completed report made to St George Bank on 27 November 1996, Arthur Andersen concluded that the appointment of a liquidator in the short term was ‘a likely event’.

77 It was in that further context of financial uncertainty that Franklins’ Mr Cassone wrote to St George Bank on 17 December 1996 the letter which has been extracted by Tamberlin J in his reasons, whereby Franklins signified conditionally its willingness to commit itself in writing for acceptance ‘for a [unspecified] period of time [of] 100% supply’ by Nationwide Produce, and acquired on 8 December 1997 from Nationwide Australia the latter’s remaining assets of value comprising furniture, plant and equipment. That occurred of course before Nationwide Australia ceased to trade by January 1998.

78 That history of apparent insolvency added a measure of credibility to Franklins’ asserted communication of unwillingness to commit itself beyond what Tamberlin J has described as the limited formality of the Franklins’ letter of 6 October 1996. As Tamberlin J has further rightly observed, ‘the contractual terms of that letter were in "marked contrast" to the loose arrangement that had previously applied to the relations between the parties’, and represented a significant aspect of the context of circumstances leading to Franklins’ unilateral termination of the relatively brief trading relationship between Franklins and Nationwide Holdings, such as it was, by the end of 1998.

79 I would entirely agree with Tamberlin J, for the reasons his Honour has given, that the Full Court must reject the contention of Nationwide Holdings that a contractual relationship of the nature and extent asserted by it was brought into existence at any material time as alleged by Nationwide Holdings, and in particular upon any basis in the evidence distilled by the liquidator of Nationwide Holdings as appellant. As Tamberlin J has rightly pointed out moreover, there is an inherent tension between the continued rejection by Franklins of the requests of the Nationwide companies for a formal contractual arrangement, and any parallel existence of a more generalised binding agreement in full force and effect between the parties as alleged by Nationwide Holdings.

80 I would therefore agree with the orders made by his Honour.

I certify that the preceding six (6) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.

Associate:

Dated: 14 July 2005

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 152 of 2005

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	NATIONWIDE PRODUCE (HOLDINGS) PTY LIMITED (IN LIQUIDATION) ACN 073 577520 APPELLANT
AND:	LINKNARF LIMITED (IN LIQUIDATION) (FORMERLY FRANKLINS LIMITED) ACN 000 929 902 RESPONDENT

JUDGES:	TAMBERLIN, CONTI AND JACOBSON JJ
DATE:	14 JULY 2005
PLACE:	SYDNEY

REASONS FOR JUDGMENT

JACOBSON J:

81 I have had the benefit of reading in draft the reasons for judgment of Tamberlin J. I agree that the appeal must be dismissed for the reasons given by his Honour.

82 Although the question of the reasonableness of the period of notice does not fall for consideration, I would add that I agree with his Honour’s view that the period of notice which was given would not have been unreasonable if in fact there were a contract in existence between the parties in the terms alleged by the appellant.

83 Senior counsel for the appellant accepted that if Franklins was bound to give reasonable notice of termination of the contract, the letter of 6 October 1998 constituted notice. However, he submitted that the period of notice given by the letter, namely three months, was not a reasonable period.

84 Whether a contract is terminable on reasonable notice instead of at will is to be determined by the circumstances existing at the date of the contract but the reasonableness of the period of notice depends upon the circumstances existing when the notice was given; see Crawford Fitting Co v Sydney Valve and Fittings Pty Limited (1988) 14 NSWLR 438 ("Crawford") at 444 (McHugh JA with whom Priestley JA agreed), 454 (Clarke JA).

85 As McHugh JA said in Crawford at 448, the chief purpose of notice for a reasonable period is to bring to an end in an orderly way a relationship which has existed for a reasonable period. Here, I do not consider that the evidence to which the appellant pointed of expenditure and efforts in setting up and carrying on the business was sufficient to demonstrate that three months notice was unreasonable; see Crawford at 448. The onus was on the appellant to establish that the period of notice was unreasonable; Crawford at 449.

86 Moreover, it is clear from the analysis of the authorities undertaken by McHugh JA and Clarke JA in Crawford that the subject matter of the agreement is a factor to be taken into account in determining the reasonableness of the notice. This is because the implication of reasonable notice is intended to serve the common purpose of the parties; Australian Blue Metal Limited v Hughes [1982] UKHL 5; [1963] AC 74 at 99.

87 The authorities to which Tamberlin J referred make it plain that the contract alleged by the appellant was not one which imposed upon it any obligation to supply produce to Franklins. The subject matter of the alleged contract was merely a right of first refusal which would have conferred no more than a pre-emptive right on the appellant.

88 Notwithstanding the effective advocacy of senior counsel for the appellant, I cannot accept that even if there was a contract between the parties, the appellant was entitled to hold Franklins to a period of more than three months notice of termination of a right of first refusal.

I certify that the preceding eight (8) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.

Associate:

Date: 14 July 2005

Counsel for the Applicant:	C R C Newlinds SC
Solicitor for the Applicant:	Kemp Strang
Counsel for the Respondent:	R J H Darke SC and J Stoljar
Solicitor for the Respondent:	Gilbert + Tobin
Date of Hearing:	2 and 3 May 2005
Date of Judgment:	14 July 2005