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

These proceedings centrally concern the contractual rights of the parties in relation to agreements entered into for the provision of food procurement and associated services by Sagacious Procurement Pty Ltd to Mayne Group Ltd. [Sagacious was originally called National Network Support Systems Pty Ltd, then SNG Procurement Pty Ltd] [Mayne was originally called Mayne Nickless Limited, then Mayne Group Limited and is now called Symbion Health Limited] The businesses of the respective parties

Mayne was at material times a listed public company which owned or operated many private hospitals whose principal business divisions included 'Mayne Health'. That division included sections including: i. a section also known as 'Mayne Health'; ii. a section known as 'Mayne Hospitals'.

At the time of the Strategic Alliance Agreement referred to below, there were approximately 47 such hospitals. A further group of about 10 private hospitals were acquired by Mayne Health in about February 2001.

Mayne sold the hospitals business, including the Mayne Hospitals, to Affinity Health Limited on 1 December 2003.

Sagacious was a small ‘start up’ company in the business of providing procurement services using a combination of computer software (made up of various interfacing modules & components) and hardware systems together with advanced processing processes, practices and systems carried out by personnel who have the requisite know how, expertise and knowledge in the various areas of supply chain management.

A service of this kind, which involves using software and electronic management systems as one part of the overall service, is often referred to as an eProcurement service.

The combination of all of the abovementioned elements (that is, software systems and human resource services being provided in accordance with practices and systems in one co-ordinated service, and the link between the customer’s systems and those of the procurement service provider) gives rise to what is commonly termed as a ‘fully integrated eProcurement system’ [the fully integrated eProcurement system used by Sagacious being called the “Sagacious Model”]. The subject agreements

It is common ground that two legally binding agreements were entered into between the parties: i. Heads of Agreement entered into on or about 24 January 2000 ["the heads of agreement"]; ii. The Strategic Alliance Agreement entered into in July 2000 ["the SAA" or “the strategic alliance”].

A principal issue in the proceedings concerns the status of a letter from Sagacious to Mayne of 16 April 2002 ["the 16 April letter" or “the letter agreement”].

The 16 April letter: i. in the second paragraph stated: "This proposal merges all of the terms and conditions which have been negotiated and agreed to by Mayne and Sagacious … Accordingly, this letter supersedes all previous correspondence in relation to our contract renegotiation discussions to date and the presentation to Mayne Executives of 28 March 2002." ii. concluded: "We trust that the proposal outlined above is consistent with all of the relevant terms and conditions which have been recently negotiated and finalised and to this end, we would ask that you acknowledge your acceptance of same by signing in the space below and providing us with a copy of same." iii. was on 16 April 2002 signed as follows: "I hereby acknowledge and accept the terms and conditions as outlined above in relation to Sagacious Procurement Services to Mayne. Kevin Dalton Operations Manager-Services" The causes of action

Sagacious claims approximately $100 million as: a. damages for breaches of: i. the heads of agreement; ii. the SAA ; iii. the letter Agreement. b. loss and damage said to arise by reason of breaches by Mayne of misleading and deceptive representations in contravention of s 52 of the Trade Practices Act . The contractual issues

There is a complex of interrelated issues of fact and law concerning the contractual issues. Alleged breaches of the heads of agreement and the SAA

The issues concerning the alleged breaches of the heads of agreement and the SAA principally centre around issues of fact.

The recitals [A and B] to the heads of agreement recited that there was an intention of the parties to enter into a strategic alliance for the purpose of centralising the management of the food procurement and catering systems at Mayne's hospitals and health care facilities. The heads of agreement provided for the implementation of the procurement model into hospitals [that is, commence undertaking procurement for them] within eight months of the entry into of the heads of agreement, subject to Mayne complying with its obligations under the heads of agreement and the form of the proposed strategic alliance agreement which was to succeed it [clauses A1 and A5].

It was an express term of the SAA that subject to various obligations contained in the heads of agreement, Mayne would complete the implementation phase on or before 24 September 2000 [Clause 4.2 (c)].

Sagacious contends that: i. by its letter of 22 September 2002, Mayne unilaterally postponed the implementation phase; [this is in issue] ii. by its letter of 29 March 2001, Mayne lifted the postponement of the implementation phase. [this is not in issue]

Sagacious claims damages alleged to have been suffered by the plaintiff as a consequence of the postponement of the “ roll out ” of Sagacious’ services under the SAA.

Without being exhaustive the substance of the defence is that: i. the delay in the roll out was as a consequence of practical problems inherent in Sagacious' procurement system and the structure of Mayne's hospital interests; ii. Sagacious was a start up company, and was not ready, willing and able to implement the system as required by the SAA; and iii. the arrangements between the parties, particularly those reflected in the 18 January 2002 variation and Sagacious' other conduct, are inconsistent with the maintenance by Sagacious of any pre-existing claim arising out of the delay in the roll out and constitute a compromise, accord in satisfaction, waiver or acquiescence. iv. as to damages, the terms of the agreement were at all times unprofitable to Sagacious and the alleged acts complained of would have represented further losses and not gains to Sagacious. The so-called opportunities which Sagacious says it lost are not realistic and were not lost as a consequence of anything done by Mayne. The letter agreement

The central issue concerning the letter agreement raises a question of fact as to whether or not the context in which the document was signed was such that: a. the parties entered into legally binding relations in relation to the document [as Sagacious contends], or b. following what Mayne contends was a representation by Sagacious [by Mr O’Shanassy to Mr Dalton] to the effect that the document would have no binding effect, there was a common subjective intention on the part of both parties that the document not create legally binding relations [as Mayne contends].

There are number of other issues for determination in relation to the letter agreement including: i. whether Mr Dalton (insofar as it is relevant, to the knowledge of O’Shanassy) had no authority to bind the defendant to any such agreement: [cf Hadid v Australis Media Limited (unreported, NSWSC, 30 June 1997, Sperling J)]; [It is to be noted in this regard that the 16 April letter was the second document signed by Mr Dalton on behalf of Mayne purporting to vary the anterior contractual arrangements: the first being an acknowledgement of an acceptance of the terms of a letter from Sagacious to Mayne of 18 January 2002 altering billing options and treating with certain other matters. Sagacious pleads a case of actual or ostensible authority to bind Mayne in Mr Dalton] ii. whether in its terms, the letter agreement is not and is not capable of constituting a binding agreement in that as Mayne contends: a) it required further agreement between the parties, b) it envisaged a further written agreement, c) it was not intended to nor could govern a two and a half year period, d) it was in any event uncertain as to its terms and operation; e) the conduct of the parties subsequent to 16 April 2002 is consistent only with there being no agreement, that is, no intention that they by it entered into a legally binding relationship; f) whatever effect the letter or proposed arrangements in it may have had, such effect ceased at the end of the trial period given no further agreement was concluded; g) if it is an agreement, it was terminable on 3 months written notice which Mayne gave; h) by incorporation the agreement contained a provision in the nature of code limiting any relief available to Sagacious on termination to a fixed sum or nil depending on when the notice was given.

Further Mayne denies the terms pleaded by Sagacious;

Important questions of construction of the letter agreement arise.

There is a denial that Sagacious suffered any damage arising out of the alleged breach of the letter agreement. The sale in early December 2003 by Mayne of the hospital business [including the Mayne hospitals] has a relevance to any claim for damages that Sagacious may have beyond that time, having regard to the inclusion of paragraph 2(b) of the letter dated 16 April 2002. The issues raised by the Trade Practices Act representational cases

Sagacious pleads 3 alternative or cumulative representations which have as their foundation an assertion that Mayne held out that it spent about $23 million per annum on goods which Mayne would procure for it under the proposed arrangements between them.

Mayne's case includes that: i. the representations as pleaded were not made; ii. the representations are too imprecise and uncertain so as to have any forensic significance; iii. in any event, Sagacious did not rely and could not reasonably have relied on any such alleged representations. Amongst other factors, Mayne points out that Sagacious entered into the SAA being the last memorial and codification of what Sagacious rights would be, yet making no provision for any minimum spend; iv. further, Sagacious suffered and will establish no damage connected with any such alleged representations; and v. any representations which were made by Mayne during the course of the negotiations which lead to the SAA were accurate and, insofar as they related to future matters, were made on reasonable grounds. The amended Cross claim

Mayne, as cross claimant: i. alleges that it is entitled to the return of payments made to Sagacious in or about 2 August 2002 for $1,781,205.26 [this is not disputed, Sagacious position being one of set off]; ii. pursues a claim for relief which only arises if the Court finds a binding agreement on 16 April 2002, in which event Trade Practices Act and equitable relief is claimed based on the alleged conduct of Mr O’Shanassy.

In very general overview terms it may be observed that: i. Mayne claims that Sagacious agreed to provide goods and services to Mayne following the purported termination of the 16 April 2002 Agreement, for a 3 month period. ii. Mayne alleges that Sagacious agreed to do so at a meeting of, amongst others, Mr Wise and Mr O’Shanassy on 31 July 2002. iii. Sagacious denies that it entered into an agreement with Mayne on 31 July 2002 as alleged. iv. Mr O’Shanassy says that the meeting was held on a ‘’without prejudice basis’’ and no agreement was struck to the effect alleged by Mayne. Mr O’Shanassy contends that he said only at the meeting, that Sagacious would continue to comply with its obligations under the 16 April 2002 Agreement. v. Mayne further alleges that in breach of that agreement, Sagacious refused and failed to provide the goods and services, and as such demands the return of the above amount. The principles

Before turning to the facts it is convenient to set out an overview of the essential principles which inform the proper approach to a number of the issues which fall for determination. Masters v Cameron - the principles

In Masters v Cameron (1954) 91 CLR 353 Dixon CJ, McTiernan and Kitto JJ set out the following three classes: Class 1 · Where the parties have reached finality in regard to all aspects of their agreement, but propose to have the terms restated in a formal document; Class 2 · Where the parties have reached finality in regard to all aspects of their agreement and intend no departure from this agreement, however have agreed that the performance of one or more of the terms is conditional upon the execution of a formal document; Class 3 · Where the parties intend that they will not legally bind themselves to an agreement unless a formal document is executed.

The joint judgment in Masters v Cameron made the point [at 360] that in each of the first and second classes 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; · 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. The fourth class

McLelland J, in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 decided that “there is in reality a fourth class additional to the three mentioned in Masters v Cameron ”. This fourth class was where the parties have reached agreement to be bound immediately and exclusively by certain terms, however they envisage the making of a further contract which will replace the first, this latter contract containing, by consent, additional terms. This decision was recently affirmed by Young CJ in Eq in Helmos at [69] but has been approved on many earlier occasions. The proper approach to determination of a Masters v Cameron issue

Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 [Mason P, Heydon JA and Ipp AJA] was a case in which the “difficulties” of pressing too far the classical theory of contract formation based upon offer and acceptance was commented upon (see also Pobije Agencies Pty Ltd v Vinidex Tubemakers Pty Ltd [2000] NSWCA 105 per Mason P at paragraph 1). Heydon JA said in that case, whilst considering the principles of the law of contract that: “Offer and acceptance analysis does not work well in various circumstances.” [at paragraph 71]

In that case, Heydon JA set out succinctly the conventional and accepted principles of the law of contract: “The first relevant principle of law is that pre-contractual conduct is only admissible on questions of construction if the contract is ambiguous and if the pre-contractual conduct casts light on the genesis of the contract, its objective aim, or the meaning of any descriptive term: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347-352. The second relevant principle is that post-contractual conduct is admissible on the question of whether a contract was formed: Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 at 77; Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 668, 669 and 672; B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147 at 9149 and 9154-9156; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 at 9255. The third relevant principle is that post-contractual conduct is not admissible on the question of what a contract means as distinct from the question of whether it was formed. As explained by Priestley JA (Meagher JA agreeing) in Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 326-330, the status of the relevant High Court authorities is unclear: hence unless it is demonstrated that the later decisions of the Victorian Full Court and Court of Appeal against admissibility, Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235 and FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343, are clearly wrong or they are overruled, they should be followed in New South Wales. No attempt was made to demonstrate that they are clearly wrong. The fourth relevant principle is that the construction of a contract is an objective question for the court, and the subjective beliefs of the parties are generally irrelevant in the absence of any argument that a decree of rectification should be ordered or an estoppel by convention found.”

Hence in determining the circumstances surrounding the formation of the agreement, the matrix of facts, it is the objective intent that is paramount. Whether any relevant individual representative thought that an agreement existed or that it did not exist, is irrelevant to the exercise unless there exists an argument concerning estoppel. As Lord Wilberforce has said: “When one speaks of the intention of the parties to the contract one speaks objectively - the parties cannot themselves give direct evidence of what their intention was - and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties.” [ Reardon -Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989]

Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1907) 5 CLR 647; Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548-549; Geebung Investments (supra); Anaconda Nickel (supra) are also authorities supporting the proposition that in ascertaining the relevant intention, that is the intention to contract, relevant circumstances may include prior negotiation and subsequent conduct.

Presently a fundamental question falling for consideration is whether the conduct of the parties viewed in the light of surrounding circumstances shows or is indicative of a new agreement having come into existence by dint of the 16 April letter.

The similar issue [often arising when there is no anterior contract being replaced] has been the subject of the following observations: “In an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at any particular time in the relationship may by reason of the parties’ subsequent conduct become sufficiently specific to give rise to legal; rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed.” [Per McHugh JA in Integrated Computer Services Pty Limited v Digital Equipment Corporation (Australia) Pty Limited (unreported, NSWCA, McHugh, Mahoney and Hope JJA, 23 December 1988); see also Raguz v Sullivan (2000) 50 NSWLR 236 at 251] Evidentiary considerations

Questions of the relevance and probative value of evidence in circumstances in which the issue concerned whether or not an enforceable contract had been entered into were also before the court in Film Bars Pty Ltd v Pacific Film Laboratories (1979) BPR 9251. As McClelland J. put it, such questions cannot properly be considered independently of a consideration of the relevant issue namely what it is in point of fact that constitutes the making of a contract in circumstances such as here obtained. As his Honour points out, such a contract is made " by the mutual communication between the parties of their respective assents to being bound by identifiable terms otherwise capable of having contractual force, the mutual communication typically taking the form of offer and acceptance ". As his Honour (citing Williston on Contract, 3rd ed, Vol 1 paragraph 21) points out, one is not concerned with the subjective thing known as meeting of the minds, but the objective thing, the manifestation of mutual assents which is essential to the making of a contract. [At page 9254]

Film Bars [at page 9255] is also authority for the proposition that: “In determining whether the communications between the parties constitute a contract the court is not confined to a consideration of the terms or manner in which the communications were made: they must be interpreted by reference to the subject matter and the surrounding circumstances including, inter alia, the nature of, and the relationship between, the parties, and previous communications between them, as well as to standards of reasonable conduct in the known circumstances."

In short subsequent communications may have probative value depending upon the light they throw on the proper interpretation of earlier communications alleged to constitute the contract. Post contractual conduct is not admissible on the question of what a contract means as distinct from the question of whether it was formed [cf Brambles Holdings supra].

Subsequent communications can also legitimately be used against a party as an admission by conduct of the existence or non-existence, as the case may be, of a subsisting contract.

The matter was put in the following terms by the Chief Justice (at 550 and following) with whose reasons for judgment Hope and Mahoney JJA agreed: "…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 : Allen v Carbone (1975) 132 CLR 528 at 531-532. 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 position is by no means so clear, however, in connection with internal memoranda… or statements as to subjective intention made by individuals in the course of giving evidence. As it happens, although the learned judge had a good deal of material of this kind put before him at the hearing, it was not particularly helpful even if admissible. In the first place, a great deal of it was equivocal and individual pieces of evidence were contradictory in effect. Some of the persons who participated in the negotiations in question were called to the witness box and vigorously examined as to what was going on inside their minds at particular times. This process in the end principally served to demonstrate what might have been expected to be the case, that is to say, that the witnesses, not being lawyers themselves, were in a state of considerable confusion about the issue that ultimately emerged as determinative of the rights of the parties …….. In so far as acts or statements of the kind referred to, not involving communications between the parties, are claimed to be relevant in a case such as the present upon the ground that they constitute an admission, it seems to me that it will often be necessary to identify with some care the fact which is said to have been admitted. As was noted, there may be cases in which the issue is such that the fact of the subjective state of mind of one or other of the parties is relevant. Normally, however, what is in issue is not their subjective state of mind but their “intention as expressed” (cf Inland Revenue Commissioners v Raphael [1935] AC 96 at 142 per Lord Wright) and caution may need to be exercised in relating the fact which is said to be admitted to the fact which is legally relevant.” [emphasis added] Commercial contract/certainty/construction

The court is dealing with a commercial document. In endeavouring to discern the parties intent and in construing the meaning of the words used, the Court will strive to give the document a commercial, reasonable and rational operation: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; Hide & Skin Trading v Oceanic Meat (1990) 20 NSWLR 310.

There is abundant authority that "the court should be astute to adopt a construction which will preserve the validity of the contract": per Mason J, Meehan v Jones (1982) 149 CLR 571 at 529; Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 at 132, per Kirby P. Further the court will strive in dealing with a commercial contract to discern the objective intent of the business relationship or other parameters of a contract in order to give effect to that which the parties may be seen to have bargained for. But always it is to the words of the document [here suggested as amounting to a binding contract] that the court must attend looking in that regard to the whole of the document to discern the parties’ intent.

In Biotechnology Kirby P observed at 135: “But the court will not [uphold the validity of an agreement] , where, in effect, it is asked to spell out, to an unacceptable extent, that to which the parties have themselves failed to agree. Nor will the court clarify that which is irremediably obscure. Most particularly, the court will not accept for itself a discretion which the parties have, by their agreement, reserved to one or other of them. To do so would not be to effect the contract but to change it: Kofi-Sunkersette Obu v A Strauss & Co Ltd [1951] AC 243 at 250 (PC).”

Hely J in Australia China Business Bureau Pty Ltd v MCP Australia Pty Ltd [2003] FCA 934 put the matter as follows at [208]: “In commercial transactions the Court should strive to give effect to the expressed arrangements and expectations of those engaged in business, notwithstanding that there are areas of uncertainty and notwithstanding that particular terms have been omitted or not fully worked out. But there are limits: Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32, 67 (Ormiston J). If the parties intended to be bound, the Court will strive to find a means of giving effect to that intention by filling any gaps. But if the parties did not intend to be bound unless they themselves filled the gap (rather than leaving the task to the Court or a third party) then the agreement will not be binding if there are unagreed matters which the parties themselves regard as a prerequisite to any agreement: Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR 433, [52] to [67].”

Where mechanical provisions intended to operate over an extended period of time are concerned, the court endeavours to follow the mechanics and provisions expressed in the contract in the endeavour to follow, always by looking at the manner in which the matter is expressed, how the parties saw the contract as a working guide to the way forward .

Generally the proper approach is summarised in Halsbury’s Laws of Australia volume 6 as follows: "Faced with a conflict between, on the one hand, the desire to avoid making such efforts to enforce an uncertain or incomplete agreement that what is enforced is something that the parties did not in fact agree to and, on the other hand, upholding the reasonable expectations of parties who believed they had a contract and to avoid the reproach of being the destroyer of bargains, the courts give primacy to the need to uphold agreements, particularly executed agreements and commercial arrangements, wherever possible. However, account must always be taken of the nature of the agreement contemplated and a court will be less inclined to ignore elements of uncertainty and incompleteness where the transaction is one of magnitude, particularly where terms which are usually found in an agreement of the type before the court are absent" [110-460]

An agreement may be uncertain where the language used by the parties is such that the court is unable to attribute to it a sufficiently precise and clear meaning in order to identify the scope of the rights and obligations agreed to. An agreement may be incomplete; although the language used in the agreement is perfectly clear in its meaning, part of the transaction may still remain to be agreed upon so that there is no completed agreement and the alleged agreement will fail.

The High Court observed in Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 at 292-293 that: “In Codelfa , Mason J (with whose judgment Stephen J and Wilson J agreed) referred to authorities which indicated that, even in respect of agreements under seal, it is appropriate to have regard to more than internal linguistic considerations and to consider the circumstances with reference to which the words in question were used and, from those circumstances, to discern the objective which the parties had in view. In particular, an appreciation of the commercial purpose of a contract: "presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating". Such statements exemplify the point made by Brennan J in his judgment in Codelfa .

To similar effect is the observation of Gleeson CJ, Gummow and Hayne JJ in Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 76 ALJR 246 at 248 (para 11), quoting with approval Lord Hoffmann in Investors Compensation Scheme [1998] 1 WLR 896 at 912-913 to the effect that interpretation of a written contract involves the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of contracting.

In Investors Compensation Scheme at 912 – 913, it was said that: “The background knowledge which a reasonable person in the position of the parties will be regarded as having, for the purposes of the construction of contracts, includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man with the proviso that it should have been reasonably available to the parties”. “There is of course no doubt but that the court is entitled to inquire beyond the language and to "see what the circumstances were with reference to which the words were used, and the object appearing from those circumstances, which the person using them had in view": Prenn v Simmonds [1971] WLR 1381 at 1384 per Lord Wilberforce : Lakatoi Universal & Walker [2000] NSWSC 113 at par [1039].”

Clearly primacy must be given to the actual words used in a written contract. McColl JA in her judgement in Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114 at [66] enunciated the following principles: “[69] If the words used [in a written contract] are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, ‘even though the construction adopted is not the most obvious, or the most grammatically accurate’: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109–110 per Gibbs J (as he then was). However, in construing written contracts it should be presumed that the parties did not intend their terms to operate unreasonably. The more unreasonable the result a party’s construction would produce, the more unlikely it is that the parties would have intended it. If the parties did intend an unreasonable result, it is essential that that intention be made “abundantly clear”: L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 251 per Lord Reid. [70] Dealing with the circumstances where there are internal inconsistencies in a contract, Gibbs J said “it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument.”: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109. [71] Gibbs J’s statement in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109 that “the court should construe commercial contracts "fairly and broadly, without being too astute or subtle in finding defects", finds reflection in the statement in International Fina Services AG v Katrina Shipping Ltd (“The Fina Samco”) [1995] 2 Lloyd’s Rep 344 at 350 per Neill LJ (with whom Roch and Auld LL.J agreed) that the primary focus is the agreement itself which “must speak for itself, but … must do so in situ and not be transported to a laboratory for microscopic analysis”. [72] Consistently with this approach, it has been held that if detailed semantic and syntactical analysis of a written contract lead to a conclusion that flouts business commonsense the contract must be made to yield to business commonsense: Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201 per Lord Diplock; applied by Gleeson CJ, Gummow and Hayne JJ in Maggbury Pty Ltd v Hafele Australia Pty Ltd , above, at 198 [43]. In Maggbury, after referring to Lord Diplock’s observations, Gleeson CJ, Gummow and Hayne JJ added: “what in respect of a particular contract comprises ‘business commonsense’, as an apparently objectively ascertained matter, may itself be a topic upon which minds may differ and in respect of which an imputed consensus is impossible”.”

In Optus Vision Pty Ltd v Australian Rugby Football League Ltd [2004] NSWCA 61 Santow JA at [22] [with whom Meagher JA and Stein AJA agreed], after referring to the above extract from Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 at 292–3 continued: “To this I would add the observation of Lord Steyn, writing extra-judicially on “The Intractable Problem of the Interpretation of Legal Texts” (2003) SLR 1 at 7. After pointing to the shift from literal to purposive interpretation, he adds the caveat that it would be an oversimplification to say that there has been a homogenous shift towards a purposive interpretation of all legal texts. Nonetheless he says: “ In a network of contracts governing a construction project, parties ought generally to be able to rely on the obvious meaning of the interlocking texts”.

Hence I take it as axiomatic that: · the Court endeavours to give primacy to unambiguous words used in a written contract, this matter generally being approached in the manner outlined by McColl JA in Peppers Hotel Management supra; · the proper approach seeks the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably been available to the parties in the situation in which they were at the time of the contract” ( Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 citing Lord Hoffmann, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912; [1998] 1 All ER 98 at 114; Peppers Hotel Management Pty Ltd supra at [66 et seq]; · commercial contracts should be construed so as to be given a sensible commercial operation: Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 437; Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; Hide and Skin Trading v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313-4; Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 per Giles JA at [64]. The unusual parameter requiring to be treated with

As will appear from the narration of material events to be found in the judgment, Sagacious being a small start-up company, was very conscious at all times of the huge significance of the Mayne connection to its prospects. Sagacious had no desire to raise the litigation gun against Mayne. Its approach to contractual/logistic problems was ‘softly softly’.

The case put by Sagacious is that following the acknowledgement and acceptance of what is said to have been a set of binding terms and conditions to be found in the 16 April 2002 letter, Sagacious continued to treat with Mayne, which without any reference to that letter as having binding content, had proceeded to prepare a detailed contract for consideration/negotiation. Sagacious contends that depending upon the precise terms which could be so negotiated, it was prepared to endeavour to be reasonable and to move into another and substitute form of contract, which if entered into, would replace the binding 16 April 2002 letter for which Sagacious contends.

In many cases the focus of post-contractual conduct in the determination of the question as to whether or not a contract had been earlier formed, centres upon inconsistencies between: i. on the one hand, the type of post contractual conduct which the parties may be expected to have engaged in had the anterior contract in fact been a binding upon them; and ii. on the other hand, the actual post-contractual conduct seen to have been engaged in.

However in this case Sagacious contends that i. its own conduct following the 16 April 2002 letter is totally explicable by reference to its position in being entirely prepared to 'test the water' of what was being proposed, as opposed to even mentioning that by the 16 April letter, it had already procured a binding agreement; ii. the post 16 April 2002 conduct of Mayne is also consistent with the April letter binding the parties pending negotiations to replace the 16 April agreement with a more detailed agreement.

Mayne on the other hand contends that not only was the signature of Mr Dalton to the 16 April 2002 letter procured on a one off basis by a representation that it was only needed to be shown to potential investors, but in any event, a very close analysis of the inter partes communications, shows that this letter was only a part of a train of letters/agreements all of which were draft agreements recognised as such by both parties. The approach taken in the judgment

An enormous amount of evidence was adduced by both sides of the bar table in terms: i. of what particular persons thought ‘was’ or ‘was not’ or ‘might’ or ‘might not’ constitute the then state of contractual relations or possibilities at material times; ii. internal conversations and/or communications [often by e-mail] or facsimile between officers or employees of the respective parties concerning the state of the negotiations, whether or not particular terms had been agreed upon and what ‘may’ or ‘may not’ have represented the interests of the respective parties.

Whilst on the principles earlier set out, it plain enough that the Court: i. must search for the genesis of the transaction, the background, the context and the market in which the parties were operating; ii. must pay close attention to the post contractual conduct, the fact is that, save where admissions are concerned, the search is for communications inter se, for which reason a very great deal of the evidence as to subjective states of mind of particular individuals and by internal communications, is of no or little real relevance or assistance in determination of the issue. Indeed it is fair to observe that huge slabs of that evidence went only to the credit of particular witnesses. The evidence

Eleven witnesses gave lay evidence of the events which generally took place between late 1999 [around the time when the negotiation of the heads of agreement commenced] and late July 2002 [the occasion when the relationship between the parties ended]. There were 25 folders comprising the agreed bundle, packed with the usual miscellany of letters, e-mails, handwritten notes, minutes of meetings as well as assorted other materials such as slide/power-point presentations.

It is simply impracticable to do otherwise in the judgment, than to set out what is regarded as the particularly structurally significant evidence and where necessary, making findings of fact as to what actually happened.

It seems efficient to next: (i) to refer in some detail to the 18 January 2002 variation to the strategic alliance agreement; (ii) set out the 16 April 2002 letter Agreement in full. The 18 January 2002 letter

This letter gave various billing options to Mayne. It further dealt with parameters of ‘menu design’, ‘control’ and ‘operational requirements’. The letter commenced: "This letter supersedes all previous correspondence in relation to our 15 January 2002 proposal. To assist in Mayne's reconciliation and review of our proposal, we have "merged" the relevant conditions and other matters set out in the 15 January 2002 power point presentation and those amendments which have been agreed to between Sagacious and yourselves over the last few days…." Condition 4 dealing with "Operational Requirements" concluded with the following: "12 In the event of dispute between Sagacious Procurement and Mayne Health concerning the operation of the initiatives outlined herein which is unable to be resolved by mutual agreement, the parties hereby agree that they will be bound by the terms and conditions of the Strategic Alliance Agreement entered into between the parties in July 2000 and the terms and conditions contained within the Strategic Alliance Agreement will prevail." Following the recitation of the 4 conditions [described as such], the following appears: "Kevin, we trust this covers the nature of our discussions over the past days, and we look forward to speaking with you to finalise this initiative. On the assumption the above outline proposal meets with your approval, we would appreciate if you would acknowledge your agreement by signing in the space provided below. We look forward to receiving a copy of this letter with your acknowledgement in the near future." The letter was signed by Mr Kyne [of Sagacious] described as "Business Development Manager". Following that signature Mr Dalton [of Mayne] signed below the following paragraph which had been included in the letter: "We agree to the proposal outlined above and we elect to take up billing option 1 (b) and furthermore, we will work with Sagacious Procurement to implement and achieve the various terms and conditions set out in the proposal." The 16 April letter

The letter bearing the date 16 April 2002 [but in fact sent in final form on 17 April 2002] addressed to Mayne [to the attention of Mr Dalton] was in the following terms: Dear Sir Procurement Services We would like to initially take this opportunity to thank you for your time to date, and feel that we have met a targeted proposal that meets the financial objectives of Mayne Health (“ Mayne ”) and conversely delivers optimal service delivery in the procurement of catering materials. Our far reaching objective of securing and strengthening our long term relationship with Mayne is also achieved under this agreement. This proposal merges all of the terms and conditions which have been negotiated and agreed to by Mayne and Sagacious Procurement Pty Limited ( “Sagacious” ). Accordingly, this letter supersedes all previous correspondence in relation to our contract renegotiation discussions to date and the presentation to Mayne Executives of 28 March 2002. The Sagacious proposal to Mayne is as follows: 1 PRE CONDITIONS: Following are the Terms and conditions as outlined in the proposal of 28 March 2002, and also including those terms and conditions applicable from the agreement dated 18 January 2002. 1.1 Condition 1 – Menu Design (a) For the term of this agreement, Sagacious will present new annual menus recommending all specifications and brands to satisfy price requirements whilst maintaining current quality and standards. Mayne are to agree to these annual menu recommendations prior to implementation. (b) Sagacious agree to provide menu support for design, printing and distribution nationally of all menus for the terms of this agreement. 1.2 Condition 2 - Control (a) Sagacious and Mayne are to agree on the following mechanism to alert “abuse” on expenditure and to provide means to rectify and remedy any such abuse of this initiative: (i) site category percentages are to be agreed on a three (3) month rolling average basis; (ii) any adjustments in price are to be adjusted in the consecutive months breakdown in category percentage spend make up; (iii) the only variable left to affect this make up is volume of purchases. Subsequent to the adjustments on price, should the percentage make up on categories be exceeded by greater than 5%, it triggers the following actions; (iv) Mayne hospitals have 48 hours to provide written submission on justification of excessive expenditure; (v) Sagacious and Mayne to jointly analyse justification and to reconcile expenditure; and (vi) remedial action to be implemented within 24 hours of identification of analysis results. Mayne are to provide a detailed breakdown of all expenditure under express SAP codes. 1.3 Condition 3 – Operational Requirements (a) This agreement does not incorporate expenditure on items outside the express SAP expense codes Sagacious currently purchase and those items are for catering use only; (b) Sagacious and Mayne will adhere to the current catering materials database, subsequent additions will only be implemented with the joint agreement of Mayne and Sagacious; (c) Sagacious and Mayne to jointly manage the stock take process at each hospital on a recurring monthly basis; (d) Mayne agree that all catering external ordering facilities, i.e. commercial cards, petty cash etc, are to remain removed from each site/hospital; (e) Sagacious agree that the monies obtained through pre-billing will be utilised for the supply of catering materials to Mayne; (f) Sagacious are responsible for the supply of catering materials to all Mayne hospitals to ensure a 24 x 7 seamless hospital operation. Sagacious will do all things reasonable to guarantee supply; (g) Sagacious will raise a monthly GST invoice on the 10th working day of each month. Payment of the GST invoices is to be made within 48 hours of receipt; and (h) Sagacious and Mayne acknowledge this agreement (and the final Service Level Agreement) will include provisions, or similar in intent, to the July 2000 Strategic Alliance Agreement. Such provision will include: Subcontracting Dealings with 3rd parties Conflicts of Interest Intellectual Property Volume Rebates Communication Costs Fees are inclusive Taxes generally GST Termination Obligation to act in good faith Confidentiality Permanent Disclosure Audit Rights Dispute Resolution 1.4 Condition 4 – Proposed New Terms (a) Sagacious agree to (and will invoice Mayne accordingly for) the application of the CPI going forward on a quarterly or annualised basis (Mayne to determine preference), using the previous quarters/annual CPI result for food only to apply to the coming quarter/year. The following example illustrates the concept. The CPI movements are as follows: Category %Change Sept. 2001Qtr to Dec 2001 Qtr(3 months) %Change Dec Qtr2000 to Dec Qtr 2001(Previous Year) Food 7.5 2.6 All groups 0.9 3.1 Therefore, the relevant figure to apply for the following year in the abovementioned example would be 2.6%. 2 TERM OF CONTRACT: (a) Sagacious will provide its services (as described in this proposal) to Mayne for a period commending 1 May 2002 through to December 2004 (or any further period as agreed) (“ the Term ”); and (b) During the Term, Mayne will use Sagacious’ services for all of Mayne hospital sites. However, Mayne can elect, with six (6) months notice to Sagacious, to remove certain groups of hospitals in regions or States from the Sagacious proposal if Mayne decides to substantially change or alter its food service operations which result in making the Sagacious service redundant. 3 BILLING STRUCTURE : We refer to Attachment 1 for Schedule of Billing and provide the following explanation as to the billing process: Step 1 Current invoicing closes off as at 30 April 2002 at $11.50 PPD. Sagacious to raise invoice for two (2) months (1 May 2002 – 30 June 2002) based on forecast patient numbers for months of May/June at $11.50 per patient per day for core Mayne sites. Sagacious to raise invoice for two (2) months (1 May 2002 – 30 June 2002) based on forecast patient numbers for months of May to June 2002 at $10.02 per patient per day for the remaining Mayne sites (Shepparton, Wangaratta, Port Macquarie, Orange) ( “the Regional Sites” ). Step 2 Sagacious to raise invoice for one (1) month in advance for each month (1 July 2002 – 31 December 2002) based on forecast patient numbers for months of July to December 2002 at $11.40 per patient per day for core Mayne sites. Sagacious to raise invoice for one (1) month (1 July 2002 – 31 December 2002) based on forecast patient numbers for months of July to December 2002 at $10.52 per patient per day for the Regional Sites. Step 3 Sagacious to raise invoice for one (1) month in advance for each month (1 January 2003 –30 June 2003) based on forecast patient numbers for months of January to June 2003 at $11.30 per patient per day for core Mayne sites. Sagacious to raise invoice for one (1) month (1 January 2003 – 30 June 2003) based on forecast patient numbers for months of January – June 2003 at $9.93 per patient per day for the Regional Sites. Step 4 Sagacious to raise invoice for one (1) month in advance for each month (1 July 2003 – 31 December 2003) based on forecast patient numbers for months of July to December 2003 at $11.10 per patient per day for core Mayne sites. Sagacious to raise invoice for one (1) month (1 July 2003 – 31 December 2003) based on forecast patient numbers for months of July to 31 December 2003 at $9.75 per patient per day for the Regional Sites. Step 5 Sagacious to raise invoice one (1) in advance for each month (1 January 2004 – 31 December 2004) based on forecast patient numbers for months of January to December 2004 at $11.00 per patient per day for core Mayne sites. Sagacious to raise invoice for one (1) month (1 January 2004 – 31 December 2004) based on forecast patient numbers for months of January to December 2004 at $9.66 per patient per day for the Regional Sites. In relation to the abovementioned conditions, Sagacious and Mayne will continue to abide by the following guidelines to implement the guaranteed reduction in PPD Food: (a) Mayne are to provide Sagacious with forecast patient numbers for 2003 and 2004 as soon as practically possible and to provide forecast hospital invoice totals in accordance with the stepped guaranteed reduction in PPD food costs as outlined above; (b) Sagacious to continue to issue “statements of expenditure” to all sites less applicable % discount to achieve overall monthly patient per day food costs in accordance with stepped guaranteed reduction in PPD food costs as outlined above; and (c) Mayne to provide actual patient numbers for the preceding month on or about the 10th day of each month. 4. RETAIL PRODUCT PURCHASING: In relation to the extraction of the kiosk cafeterias and non-specific per patient day food expenditure items (“ Retail Product Purchasing” ), Sagacious confirm that we will be extracting these expenditure/amounts from per patient day expenditures. Our preliminary analysis indicates that the removal of these non-specific expenditure/amounts will reduce the per patient day costs by more than $0.50. (a) We confirm our preliminary position as follows: (i) upon agreement between Sagacious and Mayne, these non-specific expenditures will be extracted effective 1 July 2002; (ii) this expenditure will be dealt with separately from the guaranteed per patient day arrangement; (iii) Sagacious will propose a specific methodology in reporting and billing for these expenditures on 1 May 2002; (iv) it is anticipated that additional software and hardware will be supplied to these individual sites (kiosks & cafeterias) to manage this segment of your procurement operations. 5 SYSTEMS UPGRADE: Sagacious agree to upgrade the current e-commerce system to a fully web-enabled system during 2002. Included in this upgrade is the introduction and implementation of “Bedside Ordering” palm devices to integrate with the procurement and inventory management solutions. (Note: excludes all hardware Capital Expenditure costs) The implementation of the new system is contingent upon Mayne’s agreement to the system and its implementation. Sagacious envisage the following necessary steps and estimated timeframes before a final date of transition can be reached. (i) Key Stakeholders (Mayne to view system in Sydney Corporate Office; (ii) Mayne to agree to trial implementation; (iii) Sagacious/Mayne to Business Process Map a trial site; (iv) Sagacious to agree existing process and proposed process using new system; (v) Sagacious to implement trial site for a period of not less than three (3) months; and (vi) Sagacious and Mayne to agree upon results of trail and begin subsequent national rollout. 6 ANCILLARY PROCUREMENT SERVICES: (a) Over the term of this agreement, Sagacious will develop a “Whole of Business” Catering Policy and Procedure manual to encompass the entire Mayne Health Catering Operation and associated procurement and supply of catering materials. (b) Sagacious offer to Mayne its Procurement Services and retains the right to propose opportunity areas to Mayne where it believes it can offer costs reductions through the implementation of the Sagacious Procurement Business Model. Mayne agree to assist Sagacious in the collation of data to put forward proposed areas of cost reductions in those areas currently not serviced by Sagacious. These may include (i) medical centre(s), Mayne Logistics and other business units food expenditure on such products as identified; and (ii) any other non-food items. 7 MISCELLANEOUS (a) Sagacious maintain “first right of offer” on its services to any and all hospitals Mayne may acquire/develop and /or any commercial production facilities in the area of providing catering services over the term of this contract outside of those hospitals Sagacious currently services. (b) The individual components of the proposal, as outlined above (sections 1, 2, 3, 4, 5, 6 and 7) are interdependent in terms of the rights and obligations imposed upon Mayne and Sagacious. For the avoidance of doubt, it is understood that neither Sagacious nor Mayne can arbitrarily remove any term or condition in the sections outlined above. (c) Sagacious and Mayne acknowledge and confirm that they are bound by these terms and conditions and will act in good faith to expedite the finalisation of the Service Level Agreement which will be provided to Sagacious by Mayne. Notwithstanding the provisions outlined above, the parties hereby expressly agree as follows: 1. Sagacious will provide its services between 15 January 2002 and 30 June 2002 on a trial basis; 2. The guarantee per patient day rate of $11.50 will be reviewed on 15 July 2002 (or at any earlier date as agreed) and the necessary adjustments will be made so as to accurately reflect the guaranteed per patient day rate against the actual per patient day rate observed during the trial period. An adjustment will only be made from 1 August 2002, if it is found that a patient day rate of $12 is exceeded; and 3. Any adjustments necessary (as described above) will be incorporated into the contract for services provided by Sagacious to Mayne during a contract period of not less than two and a half years. In other words, the subsequent contractual terms will be adjusted so that Sagacious receives revenue sufficient to meet the Costs of Goods (COGS) purchased for Mayne and a reasonable Sagacious overhead & profit component. We trust that the proposal outlined above is consistent with all of the relevant terms and conditions which have been recently negotiated and finalised and to this end, we would ask that you acknowledge your acceptance of same by signing in the space below and providing us with a copy of same. Yours faithfully Sagacious Procurement Pty Limited [Mr O’Shanassy had appended his signature] Paul O’Shanassy Chief Executive Officer Enclosures (1) – Patient Per Day Reduction I hereby acknowledge and accept the terms and conditions as outlined above in relation to Sagacious Procurement Services to Mayne. ____________________________ _____________________ Kevin Dalton Date Operations Manager – Services The approach taken to witnesses

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

From beginning to end there is a difficulty with: i. the many changes in personnel of Mayne involved at one time or another in the material events; ii. the many occasions when the evidence of Mayne which was adduced leaves important gaps as to who was in control, and of what, in terms of the negotiations with Sagacious [to the extent that there appears to have been either a dramatic failure of communication between the relevant Mayne employees and/or a simple failure on their behalf to attend to the necessary detail. [For all the many e-mails passing between those employees there are many occasions when there does not appear to have been a cohesive team dealing with Sagacious].

Furthermore, of the witnesses called by Mayne, there were only a limited number of Mayne employees who had played a part in the relevant meetings or who may well have been in a position to cast light on questions such as the authority issue. Time and time again Mr Cotman SC, leading counsel for the plaintiff, was forced to ask questions of those witnesses who were called by Mayne, as to how it could have come about that invoices [for the two monthly payment for May and June 2002] in the sum of 2.6 million sent to Mayne by Sagacious, could have been processed and with whose authority. The Court is left to infer what was the answer. An evidentiary onus clearly passed from the plaintiff’s side of the Bar table to the defendant’s side of the Bar table obliging the defendant to dispel the suggestion that the proper inference was that those invoices were paid with authority. That evidentiary onus was not discharged. That does not however answer the question as to the basis upon which the authority to pay the invoices, was given. Mr O'Shanassy

Mr O'Shanassy plainly had an interest in Sagacious' success in these proceedings. His reliability as a witness is dealt with through the judgment as occasion demands. In a number of areas he is regarded as giving reliable evidence. He may not always have had an accurate recollection but the nuts and bolts of the respective positions taken by the parties are fairly reflected in his evidence.

In other areas his evidence can only be accepted when consistent with contemporaneous written materials or with the evidence given by others who are accepted as reliable. Because of his interest in the proceedings all parts of the evidence which he has given are examined against contemporaneous documents and in light of the Court’s findings as to the reliability of the witnesses who were cross-examined. Mr Dalton

Mr Dalton had made a statutory declaration on 23 August 2002. In his affidavit evidence read by Mayne in these proceedings he is seen to have substantially departed from much of what had been said in that statutory declaration.

Mr Dalton has sought to explain the inconsistencies between the statutory declaration and his affidavit evidence as due to the fact that the statutory declaration had been prepared after a conference which he had with a solicitor for Sagacious which took place over a few hours, [Mr Dalton not being able to recall whether or not he was actually shown any documents during that meeting]. His affidavit evidence is that he briefly reviewed the statutory declaration when it was forwarded to him but did not closely review the content of the document. He contends in his affidavit evidence, that having had an opportunity to carefully review the relevant documents and consider the entire background of the matter, he later came to appreciate that there were a number of inaccuracies and oversimplifications within the statutory declaration. He seeks to explain those in his affidavit evidence.

The matter of a witness having sworn to the truth of a statutory declaration and then later moving away from the declaration in many places, causes considerable difficulty in terms of an acceptance of the reliability of the witness. In truth there are very often no less than three versions of what Mr Dalton appears to have sworn to: i. the version in the statutory declaration; ii. the version in his sundry affidavits; iii. the version which he gave during cross-examination.

The Court cannot simply be blindfolded when dealing with a witness who, so very close to the events which occurred, solemnly swore a statutory declaration which is later disowned in large measure. This is the principal reason why the Court has such difficulty with Mr Dalton's reliability across many areas.

In all of the circumstances his evidence cannot be regarded as reliable where departing from contemporaneous documents or the evidence corroborated by other witnesses whose evidence in turn is accepted as reliable.

However since the statutory declaration was made on 23 August 2002, so very close to the events at hand, it cannot at every step be discounted as unreliable. The statutory declaration includes the following: 17. The 28 March 2002 meeting resulted in a letter dated 16 April 2002, which was an agreement to secure Sagacious’ procurement services for the next 2½ years. When I signed this letter and faxed it back to Sagacious on 16 April 2002, what I considered Mayne was doing was that it was securing the long term services of Sagacious up to 31 December 2004. Prior to me signing and returning this letter to Sagacious, I discussed the matter with and had the document reviewed by Camilla Woods from Mayne Group Procurement (“Woods”). It was the case that I had to deal with Mayne Group Procurement whenever significant procurement issues were being negotiated and agreed upon, on Mayne’s behalf with outside parties. 18. Prior to me seeing the letter from Sagacious dated 16 April 2002, I had seen a number of previous draft versions of the agreement contained within the letter that I ultimately signed. When those draft versions were delivered to me, usually by email, both Ms Woods and I worked on that draft letter and as the case would arise, we would amend that letter in mark-up and email our negotiated version back to Sagacious . This process took place on almost a daily basis between 28 March 2002 – 16 April 2002 until it was the case that mutually agreed upon terms were contained in that letter, which I believed I was authorised to sign on Mayne’s behalf. It was sent to me by Sagacious for signing by me on 16 April 2002. I read its contents on 16 April 2002, signed it and faxed it back to Sagacious. 19. At this time I ultimately reported to Paul Tissot, who was the General Manager of Mayne Health (“Tissot”). I had various discussions with Mr Tissot about the Sagacious contract over time. After the meeting on 15 January 2002, Mr Tissot and I spoke words to the following effect: Dalton: “I have negotiated an agreement with Sagacious Procurement to have a fixed cost of $11.50 per patient per day until 30 June 2002, which will provide us with the $1.3 million saving we require in food catering costs.” Tissot: “What are the risks?” We then discussed the pros and cons of the agreement and at the end of the discussion he said words to the following effect: Tissot: “Go ahead and do the deal.” 20. It was then the case that Mr Tissot departed from Mayne some time during the second quarter of 2002. 21. After the meeting on 28 March 2002 and from time to time prior to Mr Tissot’s departure from Mayne, I again discussed the issue of the Sagacious contract with Mr Tissot. We had several conversations in words to the following effect: Dalton: “The Sagacious contract is due to expire in August 2002. Do we want to go ahead with negotiating a new agreement with Sagacious?” Tissot: “If they continue to deliver the savings they currently are, why wouldn’t we?” 22. In my various discussions with Ms Woods and Geoff Morrison of Mayne Group Procurement (“Morrison”) during late 2001 – mid 2002, it was agreed that Mayne ought to continue with its contractual arrangements with Sagacious from August 2002 onwards. In a discussion among Ms Woods, Mr Morrison and myself we collectively estimated that if Mayne got rid of Sagacious, Mayne would need to hire 32 additional employees to conduct the same services that Sagacious was then currently providing to Mayne. On that basis, we jointly concluded that it was more cost effective to continue the contract with Sagacious than to not do so. The content of that discussion was one of the things I, on behalf of Mayne, paid attention to in the negotiated re-drafts of the document that ultimately became Sagacious’ letter dated 16 April 2002, which was agreed to by Mayne. At various times Ms Woods, Mr Dunne and I spoke words to the following effect: “If we do not do a deal that extends the Sagacious contract after August 2002, we will lose out through the extra cost of 30 odd employee and inefficient buying that will result.” This was an ongoing discussion where all three parties agreed that this would be the case.” [emphasis added to point up some of the issues of particular significance in the litigation]

Ultimately, as will appear in the reasons which follow, the court is able to accept some important aspects of conversations between Mr Dalton and Mr O'Shanassy for the simple reason that Mr O'Shanassy, in answering the affidavit version of these conversations given by Mr Dalton, is selective in that which is denied and that which is not denied. That which he did not deny may be accepted as having been said in the conversations and has a dramatic impact on certain findings. Ms Woods

Ms Woods was a difficult witness to assess for the reasons that: i. her recollection failed her frequently in relation to particular detail [on a number of occasions evidenced by an answer "I don't know" or "I'm not sure"]; ii. at the critical time [at the end of April/commencement of May] she could not explain what was the precise position which obtained with respect to the parties contractual arrangements and appeared to have become very confused in that regard. In particular : Events of April-May 2002: current State of contractual affairs between the parties (a) Ms Woods received no information to say that the agreement (as set out by the letter of intent) had been accepted (transcript 690.29) (b) Ms Woods was told that Sagacious had problems with the document that had been submitted (transcript 690.33) and the letter of intent: “Q. Indeed, what you were told was the contrary, you were told that Sagacious had problems with the document that had been submitted? A. Yes. Q. And had problems with the terms of the letter of intent? A. They had requested changes. Q. And changes were indeed made? A. Yes. Q. That process continued through into May, did it not? A. It did.” (transcript 690.33) (c) Ms Woods was not sure as to whether she understood that the new billing and pricing system had in fact commenced to operate in May (transcript 690.48) nor could she recall whether she asked anyone whether it did (transcript 690.52) (d) Ms Woods agreed that it was a matter of some substantial importance as to whether the new arrangement had been commenced by Sagacious Events of May to June i. Ms Woods could not recall whether she made any inquiry of Mr Dalton as to what was happening in relation to the documents that had been submitted to Sagacious between 10 May and the end of June (transcript 700.25) (a) Ms Woods understanding as to what was the nature of dealings between Sagacious and Mayne during this period was elicited at transcript 701.19; (b) Basically Ms Woods understood that the trial, as to the terms of payment, was continuing during this period and negotiation of the new agreement was still continuing.

For these and other reasons referred to below her evidence cannot be accepted as generally reliable unless clearly supported by contemporaneous written material and/or by the versions given by other witnesses whose evidence was accepted as reliable. Other lay witnesses

As and when appropriate the reasons which follow will deal with the reliability of other lay witnesses. However the fact is that some of these witnesses: [Mr Briscoe, Mr Mitchell and Mr McKennay] were really only called in relation to the formal proof of documents or in relation to relatively formal matters. And although taken into account together with all of the other evidence, it has been generally unnecessary for the Court to travel into the intricate detail treated with by a number of witnesses on both sides with an eye to expressing their opinions as to the viability/prospects which Sagacious had [ or in respect of which it fell short] in terms of ultimate viability. Had it been the case that quantum required to be dealt with, this exercise would have been elevated to an entirely different dimension.

The evidence of Mr Laurance requires to be assessed in light of the fact that he or his company, Pivot, had a potential interest in the outcome of the proceedings [although he did not know on his evidence, what that was]. Further his affidavit was only sworn on 10 May 2006 many years after the proceedings commenced. Additionally it is true to say that he produced no relevant internal documentary evidence of his or of Pivot in support of any of his assertions.

In relation to his evidence [only given in the witness box] of his concerns communicated to Mr O'Shanassy in relation to the authority of particular persons within Mayne to commit it to a transaction, this evidence must be weighed against his considerable uncertainty of events in other respects. He had no recollection for example, of seeing the 16 April letter at the time but appeared to be sure that " Mr O'Shanassy [had told him] he signed up Mayne" [Transcript 506.45].

My assessment of Mr Laurance also takes into account the fact that he did not appear to be particularly closely involved in the affairs of Sagacious as for example his not being able to recall that by June 2002, the $11.50 PPD. guarantee had cost Sagacious a lot of money. In fact it was his son, Mr Ben Laurance who was the person within Pivot who was directly concerned with the proposed transactions. I do not doubt that this witness genuinely believed to be true that which he stated in his affidavit and in the witness box as the events which he recalled. However failing memories are a common experience in the courtroom and the Court cannot give his evidence in terms of the crucial issues going to reliability such as the authority issue, any real live weight. This is not to express any view at all as to the weight of his evidence concerning the prospects of Sagacious viability which would have, but does not, fall centrally for examination on the liability issues treated with in this judgment. The overall picture established on the evidence

There is no doubt but that Mayne at particular points in time of relevance, was undergoing considerable difficulties of one kind or another. These included: i. A need to achieve savings. [The express purpose of the heads of agreement, continuing into the strategic alliance agreement, was to provide significant and quantifiable savings to Mayne's operations. The heads of agreement involved a guarantee given by Sagacious of a minimum saving of 6% to Mayne, based upon Mayne's previous catering supply costs]; ii. Regular changes in management structure [these included numerous changes in staff during the period of present relevance]; iii. In the fullness of time, a wholesale battle between the hospitals and doctors on the one hand and Mayne on the other hand [essentially concerning the hospitals’ and doctors’ dissatisfaction with the centralisation of the procurement arrangements put in place between Mayne and Sagacious].

The initial heads of agreement and following strategic alliance involved the concept of Mayne paying a management/administration fee to Sagacious. The fee was to be 4.75% based upon gross expenditures relating to procurement and supply of catering goods.

The Mayne connection was Sagacious’ lifeline from the commencement of the relationship. The financial position of Sagacious for most of the time was extraordinarily difficult. It set its sights upon the Mayne connection and business as its springboard into the future. Sagacious was not about to prejudice its prospects with Mayne unless as a matter of final last recourse. It was prepared to take risks to achieve, a solid tenure in terms of an agreement into the future.

Mayne was well aware of its importance to Sagacious.

At commencement of its dealings with Mayne there was no way in which Sagacious could foresee the problems which lay ahead in terms of a number of parameters, but most particularly and awkwardly, including the many occasions where Sagacious would simply find it close to impossible to find anyone from Mayne 'at home', when Sagacious would need to understand what its contractual position was and/or why it had been dealt with in a particular way by Mayne.

These were awkward and pressing times, particularly because Sagacious for reasons already given, could not risk offending Mayne, but mostly had to take the way in which it was being treated 'on the chin' [in effect slowly and repeatedly trying to continue this very difficult relationship, albeit that it continued to involve a contractual obligation on both parties to act in good faith]. Approximately December 1999

An indication of the types of matter discussed in at least one meeting and follow-up conversation prior to the entry into of the heads of agreement, can be gleaned from the following account, accepted as generally reliable and given by Mr O'Shanassy: “In or about December 1999 I, along with the other representatives of Sagacious, attended a meeting with Peter Ginn to finalise the key aspects of the Heads of Agreement. During this meeting we had a conversation in words to the following effect: Mr Clough said: “We are looking for a management fee of 20% of Mayne’s procurement spend to cover our operating expenses and make a profit based upon your revised procurement expenditure figures.” Mr Ginn said: “Mayne would expect a much lower charge of around 5% given that if the system works successfully, Sagacious will be able to build new business on the back of its relationship with Mayne – there must be a discount/advantage to Mayne taking this system on board .” I said: “Notwithstanding the previous figures bandied about early on, the management fee needs to be at least 20% of Mayne’s procurement spend to cover our operating expenses, capital investment in the computer system, licensing and rental fees for the software and hardware and a profit component. I do not think proper regard has been given to the scope of the services being offered to Mayne and the procurement expenditure has been overestimated.” Mr Ginn said: “If you want our business the best we can offer you is a 4.75% management fee and allow you the opportunity to pick up volume rebates. Every new business like Sagacious will have a loss leader to kick itself off and Mayne would be a perfect referral client to other potential clients of Sagacious .” I said: "Sagacious might think about agreeing to a lower management fee of around 5%, but only upon some key assumptions being accurate : the level of procurement volume you have told us being accurate, the ability to access that volume quickly, the assurance of a long-term relationship with Mayne and Mayne’s assistance to build new business of the back of our relationship." Mr Ginn said: "Well you can rely upon all these things - the forecasted figures are accurate, we’re committed to getting your system fully operating as soon as possible and you’ll have a long term relationship with us as your reference site for new business.” In a further meeting with Mr Ginn prior to the signing of the Heads of Agreement we had discussions about the matters set out in the previous paragraph, and in particular about the fact that if Sagacious was going to agree to such a low management fee, it would be counting on having a long term relationship with Mayne so that it could build new business off the back of that relationship, and about the importance of having the Sagacious Model implemented quickly so that Sagacious could start providing services and making money without delay. During one of those discussions Mr Ginn said words to the following effect: Mr Ginn said: "Obviously we will be a good reference site for you. It's in our own best interest to increase your volume of purchases as a means of getting the best price for the goods we consume." [Mr O'Shanassy affidavit 25 August 2005 paragraphs 21-22] September 2000 - March 2001: The rollout case

It is convenient to commence by dealing with this case.

The claim as pleaded is for damages alleged to have been suffered by Sagacious as a consequence of: i. “ the defendant unilaterally postpon [ing] the implementation phase ” (or “roll out ”) of Sagacious’ services under the SAA by letter dated 22 September 2000; and ii. the defendant not permitting the plaintiff to undertake the implementation phase under the SAA in respect of, or provide services to, 5 particular hospital sites.

The claim asserts that Mayne breached the terms of the Heads of Agreement and the SAA pleaded in the material paragraphs of the amended summons [11, 13, 16 and 20].

The allegations were that Mayne: i. failed to do all things reasonably necessary to carry out the implementation of the system; ii. acted contrary to the terms and spirit of the Heads of Agreement so as to allow forthwith the commencement of the implementation of the plaintiff’s; iii. acted other than in good faith; or iv. acted contrary to any implied term to deprive the plaintiff of the benefit of the SAA.

The evidence clearly establishes that Mayne indeed unilaterally postponed the implementation phase (or 'roll out') of Sagacious services under the SAA. The holding in this regard is that Mayne failed to do all things reasonably necessary to carry out the implementation of the system.

Albeit that the letter dated 22 September 2000 was couched in terms of 'suggestions' and gives the ‘appearance’ of being written in a somewhat ameliatory fashion, the evidence satisfies the Court that the postponement was dictatorial and non-negotiable.

It is clear from the evidence that Mayne determined that particular issues made it prudent that the rollout be stopped in its tracks pending further investigation of these matters. They included: i. the difficulty which Mayne believed it had perceived, in identifying whether the plaintiff was providing the “Minimum Saving Threshold” of 6% of purchases, as required pursuant to clause 8.2 of the SAA. [This related to suggested inadequacies in respect of the Savings Benchmark Model referred to in Schedule 13 to the SAA and the fact that from Mayne's perspective, it was unclear whether the plaintiff was actually delivering any savings to the defendant.] [cf the terms of the e-mail from Mr McKennay to Mr Moss and Ms Woods of 15 December 2000 PX4 tab 114A suggesting "No further roll-out to Mayne sites until we are satisfied with the ability to accurately measure savings and performance"]; ii. resistance to the implementation of the plaintiff’s model of food procurement, particularly by the defendant’s regional hospital sites; iii. the existence of pre-existing contractual arrangements in place at the defendant’s hospital sites that did not have fully functional kitchen facilities (whereby those hospital sites were “co-located” with nearby public hospitals).

None of these issues justified the unilateral and global postponement of the whole of the implementation task. It would plainly have been possible for Mayne to approach a resolution of each of these issues without the dictate of the whole rollout being stopped in its tracks . However Mayne elected to use a sledgehammer approach and was disentitled from doing so by its contractual obligation.

The clear evidence is that Mayne [at least by some of the officers such as Mr McKennay who were heavily involved in assessing the relevant rollout issues] gave very close consideration to whether the benchmarking model under the SAA was providing an accurate depiction of the savings being achieved and considered that financially the SAA was not a sound contract for Mayne. Mr McKennay formed the view that Mayne should end the relationship with Sagacious because it did not appear to be deriving much benefit from it, even although a penalty for early termination of approximately $600,000 would be payable. The clear evidence is that Mayne was about endeavouring to ‘tread water’ whilst reaching a decision as to whether or not to permit the contract to go forward. This was its motivation for the stop roll out order .

Whilst it is true that there were also certain logistical issues which meant that the implementation task was more complicated and time-consuming than the parties had originally envisaged when entering into the Heads of Agreement and SAA, these issues could plainly have been approached in an entirely different fashion to the prescriptive approach adopted by Mayne.

Indeed the evidence as to the difficulties which Sagacious encountered in even being able to arrange meetings with relevant Mayne employees or officers who were in a position to treat with the subject, bespeaks the uncompromising and dictatorial approach taken by Mayne to the rollout issue.

The matter is dealt with in the affidavit of Mr O'Shanassy of 25 August 05 (at [31]-[55]), all of which evidence is accepted as reliable.

At one stage Mr O’Shanassy [after having unsuccessfully and for a real period attempted to speak with a representative of Mayne], managed to speak to Mr McKennay [the business operations and support manager-Hospitals at Mayne who had been appointed to a new position following a restructuring replacing Mr McDonald].

Mr O'Shanassy's version of this conversation, which is accepted as reliable, is as follows: " I said: "Darren, I understand that you are now responsible for procurement of Mayne. I have been trying to talk to someone about our relationship for a long time but haven’t made any progress. I need to meet with you urgently because there have been some significant changes and mooted changes to the Strategic Alliance Agreement between us." I then talked about a number of matters and the conversation carried on in words to the following effect: I said: "There are a number of significant changes or variations that have been made to the Strategic Alliance Agreement which are impacting on our business and our relationship with you, along with our suppliers generally. Mayne has postponed the implementation of our procurement model across 47 hospitals and this is having a terrible impact on us." After hearing from me about these and a range of other matters, the conversation followed in words to the following effect: Mr McKennay said: "Why has this escalated into an insistence to meet with me urgently?” I said: "Well the changes that are being made are really affecting us. We need to ensure that any changes to the Strategic Alliance Agreement are properly agreed and implemented for a host of legal and operational reasons.” Mr McKennay said: " What’s the basis of our agreement ?” I said: "The essence of it is set out in the Strategic Alliance Agreement." Mr McKennay said: "I’ve got little or no knowledge of that agreement.” [Mr O’Shanassy affidavit 12 August 2005 (at [44])

The real burden of the defence to this claim is that Sagacious is seen in law to have forfeited its claim by having acquiesced in, waived or compromised the claim.

The basis for this defence is that Sagacious appeared to have approached the whole roll out interruption issue in a spirit of compromise, in due course: i. participating with Mayne in a number of respects including parameters concerning its training and ongoing support systems; ii. proceeding to enter into the 18 January 2002 variation to the SAA, and even later entering into the negotiations chronicled below concerning the 16 April letter and the letter of intent.

Waiver, acquiescence or compromise may often be confused in terms of the appropriate legal analysis. In particular the looseness with which the term "waiver" is used is notorious [cf Australian Workers Union New South Wales Branch v Minister for Natural Resources & Ors (1991) 26 ALD 461 per Priestley JA at 466]. Carter on Contract, Butterworths 2002 observes as follows (at [07-210]): "To conclude that a right has been 'waived' might be thought to suggest that the right has been lost. But that is not necessarily the case. In order to determine what precisely is the effect of waiver it is necessary to examine the basis for the conclusion: First, a waiver which is in truth a binding election between inconsistent rights is final in the sense that the inconsistent right must be regarded as having been lost. Second, a waiver which is in truth an estoppel may involve no more than a temporary suspension of contractual rights. Unless it would be inequitable so to allow, the right may be reasserted upon the giving of reasonable notice. Where there is a waiver, in either sense, in relation to a right such as the right to terminate for breach or repudiation by a promisor, the promisee, although no longer able to choose one of the rights available in respect of the breach, retains the right to sue for damages in respect of the breach which gave rise to the rights. However, in some cases waiver has an even greater effect. This is because, albeit rarely, the word 'waiver' is used in relation to a remedy rather than a right."

The Court's finding is that nothing in the dealings between the parties between the occasion when Mayne dictated that the rollout be postponed and the occasion when the rollout recommenced, constituted acquiescence, waiver or compromise by Sagacious leading to it forfeiting its otherwise rights to damages for a breach of the SAA.

Sagacious did not conduct itself so as to lead Mayne to act upon an assumption, departure from which would operate to the detriment of Mayne so as to make it unconscientious on the part of Sagacious. Unconscientious in this formulation means a departure from the induced assumption that would, in all the circumstances, be unjust and oppressive: Commonwealth v Verwayen (1990) 170 CLR 394 at 444-445.

The finding is that the implementation phase was delayed by approximately 7 months.

Sagacious has established its right to damages. 'Nullus commodum capere potest de injuria sua propria'

I accept that insofar as elements of uncertainty are likely to remain in relation to the quantification process qua these damages, Sagacious, for the purpose of quantifying damages, is able to rely upon the "presumption against the wrongdoer". In an affirmation of that principle in which the actions of the defendant had made it "difficult to assess the compensation due to the plaintiff", Handley J put the matter as follows: "In my judgment the Court should assess the compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party 'whose actions have made an accurate determination so problematic'": Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46, per Handley JA at 59.

This principle relies upon the maxim 'nullus commodum capere potest de injuria sua propria' - 'no man can take advantage of his own wrong': cf ADC v White [1999] NSWSC 43 at [89] et seq. There is a long line of authority to this effect [Cf. Broom's Legal Maxims, 10th edition, Pakistan Law House, 1989 at 191 et seq., noting that this maxim, being 'based on elementary principles, is fully recognised in Courts of law and equity, and indeed, admits of illustration from every branch of legal procedure'.]

The quantum of the claim established and informed by the above described principles is dealt with below. The five hospitals claim

An independent claim is advanced by Sagacious with respect to five hospitals to which Sagacious was apparently never given access at any stage. That the matter was independent from the rollout issue is made plain by the following evidence given by Mr O'Shanassy under cross-examination: Q… [A]nd you knew as at 18 January 2002 that apart from the delayed roll-out there were a number of hospitals in respect of which the roll-out had not occurred at all? A. Yes, I was aware of those hospitals, yes. [transcript 214]

The hospitals in question are Armidale Private Hospital, Frances Perry Private Hospital, Melbourne Private Hospital, The Geelong Private Hospital and The National Capital Private Hospital.

There was perilously little evidence given in relation to this claim, it apparently being conceded that access had never been given for Sagacious to provide food procurement services to these hospitals.

There is no evidence that following the resumption of the rollout, Sagacious advanced complaints on the five hospital issue.

In relation to this claim the finding is that Sagacious indeed forfeited its claim by having acquiesced in the continued failure by Mayne to permit any access at all to these hospitals. In relation to this matter it is fair to say that Sagacious conducted itself so as to lead Mayne to act upon an assumption, departure from which would operate to the detriment of Mayne so as to make it unconscientious on the part of Sagacious to press its claim.

Plainly the claim requires to be dismissed. The per patient fee day basis – December 2001 et seq

In late December 2001 and early January 2002 Mayne made clear to Sagacious that it wished to move to a new basis for paying for procurement services. It indicated that it wished to change the previous charge arrangements management fee of 4.75%, so that Sagacious would instead charge a fixed amount per patient per day ["per patient day rate" or “PPD”]. 15 January 2002

During a meeting of 15 January 2002 attended inter alia by Mr Dalton and Mr O’Shanassy, Mr Dalton, [as noted in a diary note PX 2564, tab 296 made by Mr O’Shanassy], gave as the reasons for a push to make savings, the fact that "Mr Tissot [CFO] under pressure to get results-needed to show $1.5 [meaning million] plus savings to help P & L". The PowerPoint presentation given by Sagacious at the same meeting outlined the basis for a Sagacious guarantee of the food costs at $11.50 per patient day giving on particular parameters, a saving estimate of $1.347 million.

This new development really sets the stage for the period following 18 January 2002, being the date of an agreement by which Sagacious acceded to accommodating a new pricing scheme on a per patient day rate.

The following months involved close negotiations on a number of matters concerning the new billing regime, an important parameter of which would involve Sagacious raising invoices by pre-billing for the coming month [the pre-billing to be based on forecast patient numbers for that month.].

The matter is best described by the following segment of the affidavit of Mr O’Shanassy accepted as reliable and accurate: In considering the position of Sagacious I, together with a number of other Sagacious representatives, sat down and undertook some calculations. We calculated that if Sagacious was at that time charging a per patient day rate rather than in accordance with the Strategic Alliance Agreement, the per patient day rate would be about $14.55. We then calculated that in order to achieve a saving of $1.3m across a year the per patient day rate would need to be set at $11.50. At this time we discussed the viability of a per patient day rate of $11.50. Obviously as at that date our calculations were that a per patient day rate of $11.50 would not give us the rate of commercial return that we had enjoyed under the Strategic Alliance Agreement (given that our calculation of a per patient day rate at that time would have been about $14.50). However, we discussed the possible cost savings that could flow from the various initiatives that were then being put in place and agreed that there was some prospect of achieving an equivalent commercial return on a per patient day rate of $11.50 if the various cost savings initiatives were particularly effective. During these discussions it was stated and agreed that moving from the Strategic Alliance Agreement structure to a per patient day rate was not in the best interest of Sagacious, however it was something that Sagacious might be prepared to agree to if there was a further assurance from Mayne that Sagacious would have a long term relationship with it that it could use Mayne as a reference site for new business and so long as there was to be a review of the per patient day figure. The review that we discussed was one under which the per patient day rate was reviewed once the possible cost savings initiatives had been implemented and assessed so that, if those initiatives were not effective enough to enable the $11.50 per patient day rate to cover Sagacious’ costs plus a reasonable amount for overheads and profit it would be adjusted upwards so as to cover such matters. To that end, it was proposed and agreed by the Sagacious executives that Sagacious give a presentation to Mayne during which these matters could be raised and discussed. A slide show presentation was then prepared and arrangements were made to give that presentation and to hold general discussions with representatives of Mayne on 15 January 2002. I attended that presentation meeting on 15 January 2002. Kevin Dalton (Operations Manager – Services for Mayne) and Mark Dunne were present at that meeting on behalf of Mayne. Representing Sagacious at that meeting was Glenn Kyne (Chief Operating Officer), David Edwards (Chief Financial Officer) and me. The document at tab 12 is a print out of the slides that were shown during the course of the presentation on 15 January 2002. Mr Kyne then gave a presentation to Mr Dalton and Mr Dunne that was generally in accordance with the terms of those slides. In short, Mr Kyne stated that, amongst other things, that: · as per slide 3, the purpose of the proposal was to provide Mayne with an immediate quantifiable saving following on from Mayne’s request for such a proposal in late 2001; · as per slide 4, that based on present information, to convert Mayne’s spending on procurement under the Strategic Alliance Agreement to a per patient day rate, the present rate was about $13. The per patient day figure of $13 was the product of an estimate of existing expenditure with Sagacious coupled with an estimate of the cost of some additional services that Mayne had suggested Sagacious provide, and in particular non catering items such as crockery; · as per slide 5, a reduction in that rate to $11.50 would produce a saving in the order of $1.347m; · as per slide 7, if the charge basis was to move to such a low per patient day rate, Sagacious would need to pre-bill Mayne. Mr Kyne said that this would involve Mayne paying for anticipated procurement services monthly in advance, with a subsequent adjustment to reflect the actual level of services provided; · as per slide 8, an important condition in order for the $11.50 per patient day rate to have any prospect of being maintained going forward was that a new menu be implemented. A new menu discussed at this presentation by Mr Kyne was a new co-ordinated national menu that was one element of a larger cost saving initiative designed to centralise and bring consistency to the way in which the various individual Mayne health centres purchased goods and services; · as per slide 10, the implementation and adherence of certain operational matters designed to increase the prospect of $11.50 being an acceptance per patient day rate going forward. The various cost saving initiatives included the introduction of a national menu, pursuant to which the item to be procured by Sagacious for Mayne hospitals would be standardised around Australia. Another was that Sagacious would no longer be required to supply hospital cafeterias – one of the initiatives proposed was that hospital cafeterias would be removed and Mayne were looking at various methods of removing cafeterias, including selling off all leasing and operating rights to a national operator. One of the things Mr Kyne said during the presentation was that there would be a need to review the dollar amount of the per patient day rate after a few months and once there had been an opportunity to test the effectiveness of the cost reduction measures that had or were to be implemented so that if the initiatives have not been as effective as everyone hoped the per patient day rate would be reviewed upwards so that the rate was commercially viable. During the meeting on 15 January 2002 the following exchange took place between Mr Dalton and me: Mr Dalton said: “We want to have a viable deal - we don’t want you to go broke by the $11.50 per patient day guarantee.” I said: “Yes, we need to ensure there is a mechanism to deal with adjustments at the end of the period - we are comfortable with the proposition of striking a dollar figure, to assist your financial results for this financial year, provided there is agreement to revisit the dollar numbers and correct them.” Mr Dalton said: “We should begin the deal and we will revisit the numbers during the course of the next few months, after the initiatives kick in and begin to drive down the costs.” Mr Dalton said: “I can tell you why there is a push to get these savings. Paul Tissot is under pressure to get results and needs to show $1.3m plus savings to help Mayne’s hospital groups’ Profit & Loss this year. If you agree to this proposal and show savings then you can be assured of a long-term deal. When Paul Tissot asks me “why Sagacious?” I can point to these savings, and a raft of back end savings. Paul Tissot has given me the authority to negotiate this deal and Geoff Morrison has been involved in the process. Geoff is a big supporter of Sagacious.” I said: “We will agree subject to a few things being sorted out. We would need to work through what operational issues would arise if we accepted such an arrangement. It would also be necessary to have an understanding that there would be an adjustment of the payments to us once there is a clearer picture of the actual cost to Sagacious. And we need your commitment to a long term agreement.” Mr Dalton said: “I agree with what you say. [There was then a brief discussion about certain operational issues.] We can work quickly to put a deal together." [Mr O'Shanassy affidavit 25 August 2005 [67] - [72]

The commercial imperative for Mayne to achieve a budget spend saving between January and June 2002 saving of $1.3 million, continued through the months which followed 15 January 2002, as the single pervasive driver to all that occurred thereafter. Information memorandum to directors of Sagacious called for 8 February 2002

Mayne's senior counsel made much of the explanatory statements and information can be found in an Information Memorandum to Directors of Sagacious called for 8 February 2002 where the following observations [in the main prepared by Mr O’Shanassy] are to be found: “Current Business Operations (a) Mayne Health Since the last meeting, the Company has entered into a revised Agreement with Mayne which will consolidate our strategic alliance over at the next twelve (12) months. We refer you to Appendix B provides a copy of the revised Agreement with Mayne. The revised Agreement is self-explanatory and it is significant for a number of reasons: (i) it ensures our relationship post the expiration date (August 2002) of the original Strategic Alliance Agreement; (ii) it overcomes most of the Company’s financial difficulties by virtue of the pre-payment(s) coupled with the Company’s recovery of the accruals which were running at approximately $350,000; (iii) it provides scope for further product range expansion within Mayne’s operations; and (iv) the per patient day mechanism is less complex and allows for our efficiencies and savings to be clearly quantified by Mayne. In relation to the longevity of the Sagacious/Mayne relationship, the negotiations which took place in finalising the amended Agreement were structured in such a way as to provide us with an ethical and legal basis for being reasonable in the belief that we have a long term commitment with Mayne. The amended Agreement was negotiated having regard for the risk the Company was taking on (albeit minimal given our knowledge and purchase power) in exchange for a commitment from Mayne for the future periods. We refer to Appendix C which is a copy of the contemporaneous notes taken during and immediately after the meeting. Essentially, the negotiations and the amended Agreement have created the basis for what is called “promissory estoppel” whereby Sagacious has done something/taken certain steps or actions which is potentially to its detriment or risk in exchange for a commitment or promise from the other party (Mayne). Whilst it is highly unlikely that the relationship with Mayne will deteriorate to the extent of having to call upon a legal doctrine to enforce our rights, it does add further weight to our position. The CFO will brief the meeting as to the relevant impacts and processes which have arisen out of the amended Agreement with Mayne.” [emphasis added]

I do not accept that anything sinister can be inferred from this particular report. Indeed it would seem surprising if an attempt to 'set up' an estoppel case would be so carefully documented rather than being hidden. The Court was satisfied from all of the materials that what was reported, albeit using legal phraseology, was at this date simply putting the position which obtained. Businessmen aware of legal principle are entitled to the benefit of estoppels which arise in appropriate circumstances. Where an estoppel succeeds in any court of law, that will be the case not because the party entitled to such a finding was at all material times aware of the relevant principles, but rather because the elements of an estoppel are made out.

However the document is an early indicator of a mindset to use the law as a tool if necessary. The crucial period of time for the purposes of the matters in issue- 18 January 2002 - 16 April 2002

Crucial in terms of the issues in the proceedings is the period of time between the 18 January 2002 letter and the 16 April 2002 letter. A very close focus upon what occurred during this period of time is necessary. Overview thumbnail sketch

It may however be convenient to immediately give an overview thumbnail sketch of what followed.

The evidence establishes that Sagacious was providing food under the 18 January 2002 arrangement at $11.50 PPD ["per patient per day"]. That was the rate needed to achieve the requisite budget spend saving of $1.3 million up to the end of June.

However Sagacious continued to incur losses on that arrangement and would necessarily do so: [transcript 594.43] and this where the actual PPD was $3.00 above the $11.50 as at January 2002.

The evidence establishes that the prospect of reducing the PPD rate by negotiations with suppliers was not something which could be achieved quickly enough to achieve the economies needed.

It was plain to Sagacious that unless it continued at the $11.50 PPD until June 30, the savings required by Mayne could not be achieved.

The options open to Sagacious were limited. Sagacious could revert to the SAA terms (4.7 per cent of COGS and reimbursement of COGS) under the 18 January 2002 letter terms (clause [12]). It was therefore not bound by a nominate term to produce the $11.50 PPD rate.

Representatives of Sagacious and Mayne discussed the prospect of a renewed term contract in December 2001 when discussing the PPD proposal and on other occasions prior to a 28 March 2002 meeting. At this meeting Sagacious made clear that it had in fact incurred significant losses to March 2002 by dint of the $11.50 PPD rate. The Sagacious representatives said that they thought the PPD rate could be brought down over time.

From time to time the discussions had included reference to the possibility that a feasibility study into Mayne operating through super kitchens could succeed. Such a feasibility study was seen as something which would take considerable time to complete but was to be kept as a background consideration against the event that the very substratum of the need to utilise the services of Sagacious would fall away should that study prove viable.

A national menu had been introduced during 2001. It was common ground that a far more powerful new national menu was intended to roll out on 1 May 2002, it being hoped that this rollout would assist the bringing down over time of the PPD rate. However the cost savings anticipated to come forward and by reason of the rollout of the new national menu would only come forward after a considerable time lag for reasons including the need for the suppliers to be given an opportunity to treat with the new supply arrangements.

The fact that the new national menu would roll out on 1 May 2002 points up a significant reason for it being appropriate that the parties would commit to some form of binding legal obligation to cope with the new initiative constituted by the national menu roll out. But by far and way the most significant indicator of it having been appropriate for the parties to so commit prior to 1 May 2002 was the fact that the new, 'two-month invoice in advance' arrangement, was to commence on that very day.

It was at about this time that Sagacious proposed a continuation of the PPD rate with a 2.5 year term, two months advance billing and other matters generally shown in the PowerPoint presentation referred to below.

It was apparent to both parties that Sagacious needed a respectable term arrangement in order to be in a position to maintain the $11.50 PPD rate.

This was the environment in which the parties through essentially March/ April 2002 continued to negotiate and in which the so-called 16 April letter of agreement came into existence. Sagacious contends that that letter of agreement would at one and the same time: i. necessarily achieve the $1.3 million budget spend saving required by Mayne to have been achieved by the end of June; ii. only so achieve by a continuance of Sagacious performance at the $11.50 PPD rate, by itself continuing to suffer the anterior losses which had been made during the period since that rate had been applied in January.

Sagacious case is that unless it obtained by a binding agreement both: i. the time to get the PPD down; ii. the chance to recoup the losses which by dint of the PPD it had experienced and anticipated continuing experiencing up to June 2002, there was no point in it continuing through the months of May and June with that PPD rate.

Sagacious case is that the only time over which it would have the prospect of recouping its losses, would be the time commencing in July. That, on its contention, was the matter expressly dealt with in the 16 April letter Agreement.

The 16 April letter Agreement is said to have coped with these disparate matters in detail. Sagacious’ case is that the term provisions would see at least an opportunity for Sagacious using its long-term agreement with Mayne, to endeavour to attract other and similar business as well as to attract financial backing or equity capital.

I accept that, depending upon questions of construction and certainty, a close reading of the 16 April letter agreement may be said to explain the manner in which the agreement served the interests of both parties. In this regard it is necessary to note the very careful attention given by that agreement in particular to the following matters: i. the review of the guaranteed PPD rate to take place following the identified trial period and the provision for adjustments to be made in that regard as from 1 August 2002, were it to be found that a patient PPD rate of $12 had been exceeded; ii. the careful manner in which the billing structure set out a series of steps for the invoicing during the term; iii. the manner in which provision was made (paragraph [2]) leaving it open to Mayne to be able, with six months notice, to remove certain groups of hospitals in particular regions or States from the arrangement, should Mayne decide to substantially change alter its food service operations in fashion which would result in making the Sagacious Service redundant [importantly this provision would give Mayne avenues for escaping the otherwise long-term set by the agreement, as for example should the event of central production kitchen feasibility prove that such kitchens were a viable proposition]. The intermediate position

There is also the possibility that the 16 April letter was intended to do no more than to bind the parties to an arrangement whereunder Sagacious would be entitled to recoup by an adjustment, an amount which would accurately reflect the guaranteed PPD rate against the actual PPD rate observed during the trial period provided for in the letter Agreement: 15 January 2002 up to 30 June 2000. The matter was raised by Mr Cotman in his opening address [transcript 91.46] where it was put that such a proposition was not logically inconsistent with the rejection of the case that a binding 2½ year agreement had been reached.

That this matter of looking at the proper analysis of what occurred was available to Sagacious is confirmed by Mayne's submissions on liability (at [112], [113] and [116]) and on quantum (at [12]-[15]). These submissions included: “112 In its opening, the plaintiff made reference to an intermediate position, namely, that there was an agreement for the period of the “ trial ”, but no agreement for a two and a half year term. 113 The issues on this aspect of the case are: a) did Mr Dalton have authority to commit Mayne to the “ agreement ” on the terms the plaintiff alleges?; b) did the letter constitute a valid and binding agreement for: i. the trial period; ii. a further period of two and a half years; or iii. both? 116 The question as to whether there was an agreement for the trial period as a separate matter, only has relevance to the case if there was a term of that agreement that at the end of the trial period, the rates which the plaintiff had agreed to charge for it were to be retrospectively varied so as to make up any loss which the plaintiff had suffered as a consequence of the guaranteed Per Patient Day rate (“PPD”). If, as we submit, no such term can be extracted in any event, the question of whether there was such an agreement is otiose. “

As Mayne has submitted, in terms of the objective matrix of fact, it would seem to be nothing short of astonishing if Mayne would be likely, as at the end of April 2002, to give away the whole of the benefit for which it had bargained when gaining the Sagacious guarantee on the PPD arrangement documented by the 18 January 2002 letter. No case advanced in terms of an adjustment of a subset of the trial period

I did not understand any case being pursued by Sagacious to the effect that the parties should be seen to have agreed to cover, what would be, in effect, a subset of the trial period: that is to say an agreement that in respect only of the months following April 2002 and terminating at the end of the trial period, Sagacious would be entitled to the adjustment importing such retrospectivity as would be relevant [“the subset case”] .

It is appropriate to indicate in passing that had such a case been put, barring other problems which may be posed for such a case, that case would at least not run foul of the notion that Mayne had simply given away the whole of the anterior benefit. An alteration of the arrangements current as at the end of April and to be effective for only the months following April, would have been an entirely different matter to any suggestion that Mayne had agreed to give away the entirety of the anterior benefit.

The subset case, even had it been put, would likely have run into the difficulties posed by: i. the fact that the letter agreement nowhere specifically refers to any subset of the trial period [as for example commencing with 1 May 2006]; ii. the fact that nominate paragraphs 1.2 and 3 [on page 7 of the letter agreement] do not expressly refer to: a) the possibility that no binding contract for services to be provided during a contract period of not less than 2½ years would be able to be reached, or, in that eventuality b) to the consequences for the new arrangement over that part of the trial period as commenced in May.

In truth the nominate paragraphs seem all directed to only the circumstance that the 2½ year long term contract would be entered into. Returning to the crucial period of time to deal with the detail

Mr O'Shanassy (at [78]-[101] gave detailed evidence over this period: Transition process Shortly after the completion of the transition process, Mayne electronically transferred to the Sagacious bank account the requisite one (1) month pre-billing amount of approximately $1.8 million. This constituted the first payment by Mayne to Sagacious based on the $11.50 per patient day rate as opposed to payment under the Strategic Alliance Agreement regime. From this point onwards Mayne did not pay Sagacious under the payment regime set out in the Strategic Alliance Agreement, but instead on a per patient day rate as per the 18 January 2002 proposal. [Affidavit [78]] 16 January 02 – 15 March 02 During the period 16 January 2002 to 15 March 2002 Sagacious attended to the various tasks set out in the 18 January 2002 agreement. This included, amongst other things: a) a complete review of the product database which had some 12,000 product line items; b) the commencement of the process of collating, reviewing, assessing and (where necessary) purging of the majority of the product line items (down to approximately 4000 line items by 30 June 2002); c) the development of a national menu plan involving a number of Sagacious and Mayne representatives; d) the commencement of detailed menu analysis and costings followed by further consultation (with Mayne's relevant personnel including nutritionists and dieticians) and further rounds of revision, re-costing and so forth to achieve the final menu; e) the development of a supplier negotiation plan incorporating Mayne's requirements vis-a-vis the short listed product required for the national menu; f) the implementation of the supply negotiations plan with continual monitoring and updating and renegotiating; and g) the commencement of a technology review & scoping for the likely upgrading Mayne's software interface (web enabled software extending to bedside ordering/bar-coding hardware and software systems). [Affidavit [79]] The March – April 2002 representations In about March 2002 Mr Dalton contacted me to say that Mayne was hoping that there would be scope for further improvements in the per patient day rate of $11.50 and that this was something to be considered in the context of setting out the terms of the longer term relationship between Sagacious and Mayne. [Affidavit [80]] The 28 March 02 meeting and its antecedents Either during this conversation or one shortly afterwards, Mr Dalton and I agreed that Sagacious would give a presentation to Mayne concerning the possibility of further costs reduction initiatives and progressing the initiative that had been taken in January 2002. A meeting was arranged for 28 March 2002. [Affidavit [81]] Prior to attending that meeting I had discussions with Mr Dalton in words to the following effect: Mr Dalton said: “In your presentation, you need to estimate what the achievable per patient day costs will be during the term of our agreement. Mayne is looking for some further improvements from the $11.50.” I said: “We will do our best to estimate it. So much turns on factors completely outside our control such as site [hospitals] compliance, changes over time as to what is required to be procured and normal price fluctuations over that same time.” Mr Dalton said: “Yes, I’m aware of those factors; you just need to speculate as to what the costs savings will be as a target or road map for the future.” [Affidavit [82]] Prior to attending the 28 March 2002 meeting, I was involved in a telephone discussion with Glen Kyne of Sagacious and Kevin Dalton of Mayne. During this discussion we had we had a conversation in words to the following effect: Mr Dalton said: "We are commencing a feasibility study into super kitchens which will be located strategically across the eastern seaboard -- these will supply the majority of our hospitals. There is a budget of some $50 million being touted around. This is highly confidential and we had to sign confidentiality agreements before commencing our tasks." Mr Kyne said: "We would like to think we could have a valuable input into this feasibility study and a working relationship with the super kitchens -- you will still need to procure raw materials." I said: "How does this sit with our current negotiations concerning a fixed term?" Mr Dalton said: "No problem, it will be at least 2.5 years before the super kitchens come into operation -- that's if they get past the feasibility stage." [Affidavit [83]] I recall that during the above telephone conversation Mr Dalton referred to the super kitchen project as code-named "Project X". [Affidavit [84]] I attended the meeting on 28 March 2002 together with Glen Kyne of Sagacious. Mr Dunne and Mr Dalton attended on behalf of Mayne. [Affidavit [86]] At the meeting Mr Kyne gave a slide show presentation. Copies of the slides that were presented at that meeting by Mr Kyne are at tab 15. A copy of certain notes that I took at that meeting are at tab 16. [Affidavit [87]] During the course of that presentation Mr Kyne stated that the objectives of the presentation included rolling over Sagacious’ contractual relationship with Mayne in accordance with the initiative that had been taken in January 2002. In that respect he proposed a two and a half year contract term with respect to the supply of services to Mayne’s operations as presently configured as then configured. Mr Kyne referred to the fact that he was aware that Mayne were commencing a feasibility study into super kitchens and that if Mayne ultimately went ahead with such an arrangement that would need to bring about a change to the nature of the relationship between Sagacious and Mayne. He said that he appreciated that if Mayne finalised an arrangement with super kitchens that would lead to an end of the current arrangement with Sagacious, but that there was significant scope for Sagacious to adapt and participate in any such new arrangement given that both Mayne and super kitchens would still need to procure new materials. [Affidavit [88]] During the course of the presentation, Mr Kyne also stated that what was envisaged was a general continuation of the terms and conditions set out in the January 2002 agreement with a number of alterations. He said that one of those alterations would be a revision of the pre-billing arrangements between Sagacious and Mayne – he said that Sagacious would be looking for Mayne to pre-pay two (2) months instead of one (1) month at a time as from 1 May 2002. [Affidavit [89]] One of the matters raised by Mr Kyne in the course of this meeting is set out in the copy slide headed “Outcomes”. He explained that it may be possible for Sagacious to charge Mayne on the basis of a fixed cost per patient day, which would initially be the sum of $11.46 for the period January to June 2002, decreasing over time to $11.00 per patient day for the period January to June 2004. He said that the per patient day rate was to be reviewed against actual costs and set at a commercially viable level if $11.46 was too low, and that in such a case the step downs would be adjusted upwards accordingly. [Affidavit [90]] On this slide headed “Outcomes” there is a reference to “Starting PPD $14.38”. This was a reference to the actual per patient cost to Sagacious of providing the procuring services to Mayne as at December 2001. The figure of $13 referred to in January 2002 was incorrect and this was noted at this meeting in March 2002. [Affidavit [91]] At this meeting on 28 March 2002, I was concerned to obtain Mayne’s agreement to an adjustment of the amount charged by Sagacious to Mayne per patient day should it transpire that the cost savings initiatives had not had their desired effect such that the costs to Sagacious of providing the procuring services was greater than the amount charged to Mayne or were such that Sagacious was not making a reasonable return. As such, during the course of the meeting on 28 March 2002 there was a conversation in words to the following effect: I said: “What we require is to come to an agreement as to the mechanism by which any adjustment can be calculated, so that when it comes time to make the adjustment between the guaranteed per patient day rate and the actual per patient day rate, there is no dispute on the methodology. It’s hard to get two accountants to agree.” Either Mr Dalton or Mr Dunne said: “We need to allow time for the saving initiatives to kick in.” I said: “We can continue to monitor that. We seem to be able agree upon the actual costs for each particular month but we need to agree upon a mechanism so that adjustment can be made. Mr Dalton said: “Yes, lets closely monitor the per patient day rate and you can word up the necessary mechanism, which we can sign off on. [Affidavit [92]] [I interpolate to note that the conflicting evidence as to what occurred at the 28 March meeting is the subject of findings dealt with below] Following the 28 March 02 meeting Shortly after the 28 March 2002 meeting, Glen Kyne and I redrafted the 18 January 2002 letter so as to include the changes which had been discussed in our meetings with Mayne. [Affidavit [93]] 4 April 02 On 4 April 2002 I received a copy of an email sent by Kevin Dalton of Mayne to Glen Kyne of Sagacious dated 4 April 2002, which advised of a recent meeting between Kevin Dalton and the procurement group of Mayne and subject to further additions/amendments then we will progress to drafting the new agreement ASAP. A copy of this e-mail is found at tab 17. [Affidavit [94]] 11 April 02 On or about 11 April 2002 I had a discussion with Mr Dalton in words to the following effect: Mr Dalton said: “We have agreed that the term of the agreement should be 2½ years with one proviso. If the central production kitchens come on line in particular States then Mayne can terminate your services for those relevant hospitals affected. Having said that, this super kitchen proposal is in the early stages and is going to take us many months just to get approval, let alone to get them constructed and operational. The super kitchen proposal is highly confidential, so I don’t want you to be specific about it in our agreement. They’re paranoid in here. They got me to sign a specific confidentiality agreement regarding the super kitchens proposal.” I said: “OK. So in other words, if the super kitchens come on line, this would be the only basis for termination for convenience?” Mr Dalton said: “Yes, that’s right”. I said: “OK. So as to give this agreement completeness, I would like to make reference to other provisions in the Strategic Alliance Agreement, which need to be included. Most of them can be verbatim for such things as intellectual property, volume rebates, GST, confidentiality, audit rights, dispute resolution, et cetera . Insofar as the termination provisions are concerned, we’ll adopt the ‘termination for cause’ provisions and obligations to act in good faith with the related definitions of default etc.” Mr Dalton said: “Yes, I agree with this approach.” [Affidavit [95]] 15 April 02 I had a further discussion with Mr Dalton on or about 15 April 2002 in words to the following effect: I said: “We need to give some thought to the wording for the mechanism for adjusting the actual versus the estimated per patient day costs at the end of a period of time. I will draft something up to encapsulate what we see as the intent being: If you were to look at the Trial Period and the subsequent 2½ term, then Sagacious would be put in a position so that it would have its COGS, overheads [operating expenses] and a reasonable profit margin covered.” Mr Dalton said: “Yes, that’s our intention, but how is the dollar adjustment dealt with at the end of the period?” I said: “Well, it can either be paid as a lump sum or paid in the early stages of the subsequent 2½ year term. Sagacious cannot afford to carry the liability that’s likely to crystallise.” Mr Dalton said: “Yes, I understand. There needs to be a trigger amount, why don’t we make it $12.00 per patient day?” I said: “OK, that seems reasonable. Obviously, if we need to adjust the actual per patient day rate at the end of the trial period, then we can do that and still adhere to the step downs between now and the end of 2004” Mr Dalton said: “Yes, I agree”. [Affidavit [96]] The 16 April 2002 Agreement On or about 16 April 2002 I sent a letter of that date to Mr Dalton. Mr Dalton counter-signed that letter on the same day. A copy of the counter-signed letter (‘16 April Agreement’) is at tab 18. [Affidavit [97]] [I interpolate to note that it was common ground that the letter was in fact countersigned by Mr Dalton on 17 April] I only agreed to the concept of Sagacious to providing services to Mayne in accordance with the terms of the 16 April Agreement because of the ability to adjust the per patient day rate on 15 July 2002 in accordance with terms of that Agreement and the various assurances I had received from Mr Dalton described in this affidavit, including in particular that Sagacious and Mayne would have a long term relationship and that Mayne would be a reference site for Sagacious in the future. [Affidavit [98]] It was my understanding based on the discussions I had with Mayne and Sagacious representatives as described earlier in this affidavit that the Billing Structure outlined on page 4 of the 16 April Agreement (i.e. the step down structure) would remain in place notwithstanding any adjustment to the per patient day rate on 15 July 2002, save that there would be an adjustment to each of the step down figures having regard to the extent to which the per patient day rate was reviewed. For example, if the actual per patient day rate observed during the trial period was $13.00, or 13% higher than the per patient day rate of $11.50 charge by Sagacious, then the figures set out under the heading “Billing Structure” would be increased by that same percentage. [Affidavit [99]] In these proceedings Mayne has asserted that Mr Dalton did not have authority to countersign the 16 April letter. I do not see how that could be because the question of Mr Dalton’s authority was raised by him prior to 16 April 2002 in a conversation about the structure of Mayne. During that conversation, which took place in the period between 28 March 2002 - 16 April 2002 I recall having a conversation with Mr Dalton in words to the following effect: Mr Dalton said: “As you are aware, a service provider such as Sagacious would normally come under the control of the Procurement Division but given the operational significance of your services, it comes under my control and I report directly to Paul Tissot, the CEO. I run everything past Geoff Morrison or Camilla Woods and get their sign off.” [Affidavit [100]] At that time Camilla Woods was the Procurement Manager – Corporate Services Group Procurement of Mayne and Geoff Morrison was the Head of Procurement – Group Procurement of Mayne. [Affidavit [101]] Other important parameters of the 28 March 2002 power point presentation by Sagacious

A question arises as to an important conflict of evidence as to what occurred at the 28 March 2002 PowerPoint presentation. That presentation is to be found at PX /3135. The presentation had of course been prepared prior its delivery during the meeting. The matters which require to be resolved by way of findings include: i. identifying which persons were present; ii. identifying what if anything, was said on particular topics but crucially what was said, if anything, in relation to sign offs by Mayne and authority to commit Mayne to a binding agreement. Persons who attended

The essential relevance of a finding in terms of the persons who attended this meeting is simply that Ms Woods gave evidence that she had attended and this matter is in high issue as, if she was present, her version of what she said would go a distance towards proving that Mr O'Shanassy had been informed of the authority constraints in the environment and of the line of authority necessary in order for Mayne to be bound to any agreement.

It is convenient to immediately record that the finding is that for reasons which appear below, Ms Wood was not present.

The PowerPoint presentation [prepared in advance] identified the attendees as: i. GM: it was common ground that this was a reference to Mr Geoff Morrison as a proposed attendee; ii. CW: it was common ground that this was a reference to Ms Wards as a proposed attendee; iii. KD: it was common ground that this was a reference to Mr Kevin Dalton as a proposed attendee; iv. MD: it was common ground that this was a reference to Mr Mark Dunne as a proposed attendee; v. POS: it was common ground that this was a reference to Mr O’Shanassy as a proposed attendee; vi. GK: it was common ground that this was a reference to Mr Glen Kyne as a proposed attendee. The evidence given by Mr O'Shanassy

Mr O'Shanassy gave evidence that in fact the attendees present at the meeting were: i. himself and Mr Kyne [from Sagacious]; ii. Mr Dalton, Mr Dunne and two other ladies whom he had not met previously: he thought one had the surname Woodgate and the other the surname Larcome [transcript 230.12].

Mr O'Shanassy had prepared his own file note of the meeting. He had filled out the box in his standard diary note form reading "persons involved" [as well as the initial section of the "Description of Work" box] the following: “GK, POS, Mark Dunne, Kevin Dalton, Gell Morrison [the diary note shows the reference to Mr Morrison with a line through it], Alex Woodgate, Sarah.”

The cross-examination of Mr O'Shanassy included the following: Q. It has got there Kyne, yourself, Dunne, Dalton, and then Morrison - is that crossed out? A. Yes, it is. Q. Was he not there? A. No, he wasn't there and my recollection was that I assumed he was running late and then someone at the meeting said, "Geoff's not going to be here". Q. So is this the position, you wrote that down before Mr Morrison got there as being present and you deleted it afterwards?… HIS HONOUR: Q. Well, the question is (a) when did you write down the names of the persons involved in the line which presumably at that stage wouldn't have had a line struck through the "Morrison" reference and when did you strike it through or can you recall how it came about that that striking is there and when, i.e. did you write those words and strike them straight away virtually when someone said to you, "he's not coming"? It is a point in time question. A. Your Honour, the best I can say to that is it is my normal practice to write down the names when the meeting first commences while people are shuffling and I must have seen after, during the course of the meeting, put a line through his name when he didn't appear. MR HAMMERSCHLAG: Q. I would just like to understand, Mr O'Shanassy, how it came to be that you wrote him down as being a attendee when he wasn't there? A. Because as we - as I understood it, he was going to be in attendance. Q. You see, because I think you told his Honour that you are going on the fact that, amongst others, your note doesn't show Ms Morrison as being present - I mean, Ms Woods as being present. A. That's right. Q. It also doesn't show the other people being present. A. Sorry, it does. Q. Where? A. Alex Wood gave to Sarah, and I didn't catch her name and I don't think she had a business card. Q. And so is this the position: Under description of work, that is a reference to other people being present? A. Sorry, yes. Q. Is it? A. It was people that came to the meeting, yes. Q. Were they there at the start? A. I think they came toward the start of the meeting, yes, and they were introduced. Q. Is there some reason why they don't figure in the column or the area of the note intended to reflect who was present? A. Yes, because prior to travelling to Melbourne, I don't think I had heard their names before. [Transcript 233.47- 235.5]

He did not have a recollection of Ms Woods being present. Under cross-examination he was asked and answered as follows: Q. Now, you wouldn't deny, would you that Ms Woods was at that presentation or would you? A. I've answered that question earlier. I can only say to you that I do not recall her being there. This Power Point presentation obviously - not obviously, I take that back - was prepared the day before the meeting and the names across the top are simply the people we thought were attending the meeting. Q. Would it be a correct way to put it that she may have been there but you don't recall her being there? A. No. Q. You would say on your oath that she definitely wasn't there? A. I say, and I appreciate I am under oath, that the diary note I took and the people's names I wrote down, Camilla's name was not listed, and my independent recollection is that she wasn't at the meeting… HIS HONOUR: … Q. You have said, as I have understood it, in answer to some close questions about the matter that you kept a diary note on which, as I understand you, you wrote the names of all participants? A. That's right. Q. And that her name was not noted by you as present? A. That's right. Q. Secondly, you have said that you have an independent recollection that she simply wasn't there? A. That's correct, your Honour. Q. And you have been asked about saying these things on both. Of course, you are on oath and I am presuming you know that throughout the whole cross-examination. A. Yes, your Honour. [transcript 232.32-233 .28] The evidence given by Ms Woods

Ms Woods gave evidence: i. that she had attended the presentation given by Mr O’Shanassy and Mr Kyne of Sagacious. Mr Dalton and Mr Dunne also attended for Mayne. ii. One or other of them had told her about the meeting and asked her to attend.

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

During Ms Woods’ cross-examination it eventuated that she had not had a diary note of any conference to take place on that day (transcript 669.44), even though it is her usual practice to record meetings in a diary (transcript 670.23).

Ms Woods’ recollection of people who were present at the meeting were Mr Dalton and Mr Dunne, on behalf of Mayne, and Mr O’Shanassy and Mr Kyne attended on behalf of Sagacious. (transcript 667.35) She recalled that the people who were not present were Mr Morrison (transcript 667.47), Ms Larcombe (transcript 668.23) and Alex Woodgate (transcript 669.06). [To the extent that this version departs from Mr O’Shanassy’s evidence, his evidence is accepted as reliable.]

It was put to Ms Woods on more than one occasion that she was mistaken in her recollection of attending the meeting (transcript 669.27 and transcript 670.36). On each occasion she disagreed with the proposition but when she was pressed about how certain she was about the accuracy of her recollection she replied, “Well, to the best of my knowledge”.

Ms Woods’ belief that she was at the meeting is based on her recollection of making some notes and asking questions about some of the topics in the power point presentation (transcript 670.50).

One indicator that Ms Woods recollection is faulty concerns the question of whether or not Ms Larcome attended at the meeting. Of all of the witnesses who gave evidence and who’s attendance at the meeting was not in dispute, only Ms Woods gave evidence that Ms Larcome had not attended [affidavit 5 April 2006; transcript 667.15] As Ms Larcome was not listed on the power point presentation materials as a proposed attendee, the only way in which Ms Woods could have known that she had attended would be if Ms Woods had herself actually attended. [the respective evidence of the other attendees may be briefly identified: i. Mr O’Shanassy – transcript 229.30 – 230.43 Q: Do you remember who was there? A: Yes, I Do. Q: Could you tell us who to the best of your recollection? A: Mr Glen Kyne from Sagacious, myself, from Mayne’s side Kevin Dalton, Mark Dunne, two people that we hadn’t met before. I think one was by the surname Woodgate and the other was Larcombe, and that’s as I recall them, the attendees. ii. Mr Kyne – Affidavit of 25 August 2005 49 I put together and then gave that presentation to Kevin Dalton, Mark Dunne, Alex Woodgate (Procurement Manager) and Sandra Larcombe (Head of Hospital Business Service and Support) of Mayne on 28 March 2002. Mr O’Shanassy accompanied me to that presentation. iii. Mr Kyne – transcript 367.40 – 371.15 Q: Do you recall who was present? A: Yes. Q: From Mayne’s side, who was there, do you recall? A: Mr Dunne, Mr Dalton, a gentleman from Procurement, Alex – sorry, I forget his surname, a gentleman Alex, and a lady also who we hadn’t met Sandra Larcombe. iv. Mr Dunne – Affidavit of 30 March 2006 81 On 28 March 2002, I attended a meeting held at Mayne’s offices at 419 St Kilda Road, Melbourne. The meeting was held in a meeting room on the main reception floor. Mr O’Shanassy and Mr Kyne attended on behalf of Sagacious. Mr Dalton, Geoff Morrison, Ms Woods, Sandra Larcombe and I attended on behalf of Mayne. I sat on one side of the meeting room table with Mr Dalton, Mr O’Shanassy and Mr Kyne. Mr Morrison and Ms Woods were on the other side of the table and Ms Larcombe was at the end of the table. Ms Larcombe was the Head of Business Services & Support, Hospitals and, at that time, had recently taken over Mr McKennay’s role. 125 Mr Kyne says the meeting was attended by Mr Dalton, Mr Woodgate, Ms Larcombe and myself from Mayne. As stated at paragraph 81 Mr Morrison, Ms Woods and Ms Larcombe attended with Mr Dalton and myself. v. Mr Dunne – transcript 599.35 – 612.15 Q: Do you recall a person called Woodgate attending the meeting? A: No. … Q: What I want to suggest to you is that you’re mistake in your recollection and that the people who attended that meeting were yourself, Mr Dalton, Ms Larcombe and Mr Woodgate on behalf of Mayne and Mr O’Shanassy and Mr Kyne on behalf of Sagacious? A: It’s a long time ago. Q: I understand that. All I am suggesting to you is that you are mistake in your recollection when you suggest that Ms Woods and Mr Morrison were at that meeting. Do you accept that you may be— A: If it’s been proven, yes. Q: I was just going to say to you do you accept that you may be mistake in your recollection as to who attended that meeting? A: I may have. What was said at the meeting

It was put to Ms Woods that her recollection of what was discussed at this meeting was reconstructed from what she had learned from subsequent meetings with Mr Dalton and Mr Dunne (transcript 670.37). It was also put to Ms Woods that any inquiries she made of various matters were made in relation to discussions held with Mr Dalton and Mr Dunne. (transcript 670.53).

Ms Woods maintained that she was at the meeting and recalls asking questions and making some of the notes (transcript 670.50), including a specific recollection of “asking the question about the ownership of the hardware of the palm pilots…of Sagacious” (transcript 671.03).

Ms Woods agreed with the cross-examiner that she met with Mr Dalton and Mr Dunne shortly after the 28 March meeting for the purpose of discussing that meeting and the power point presentation (T671.07), but could not recall the specific date of the meeting, which she referred to in her email to Mr Dalton and Mr Dunne (PX 343).

In re-examination, Ms Woods was taken to her handwritten notes on the power point presentation (from transcript 727.20). Ms Woods gave evidence that she wrote the note “We own palm pilots” (transcript 730.04) after she had asked, to her recollection, Mr Kyne about who would actually own the hardware and that note was the response to her question given by Sagacious (transcript 730.10).

In my view the evidence given by Ms Woods of events at the meeting cannot be regarded as reliable. Assessing that evidence with care in terms of weighing the same against evidence given, in particular by Mr O'Shanassy, leads to a finding on the balance of probabilities that Ms Woods over the years has become confused as to what in fact occurred.

It is very plain that Ms Woods was extremely busy in her role with the Mayne group. She attended numerous meetings. Her usual practice was to record meetings in a diary, yet she had no note of any conference to take place on the day in question. The fact that she had made some notes on the PowerPoint presentation document is not conclusive for the reason that those notes could easily have been made outside of attendance at the meeting and during the discussions which she clearly did have with Mr Dalton and with Mr Dunne at some time after the meeting in discussing the PowerPoint presentation.

Experience shows that from time to time witnesses are able to persuade themselves of a version of events which a Court is unable to accept in terms of the weight of other evidence, the court taking into account the reliability of a number of witnesses in that regard. That is not to suggest that such a witness has deliberately misled the Court, but simply that the passage of time can very easily result in mistakes being made as to exactly what occurred or when. This likely is the case with the instant situation involving the recollection of this witness. The Court proceeds on the balance of probabilities bearing in mind the whole of the evidence adduced. Dealing with the central issue in the case

The central issue for decision concerns whether or not the 16 April 2002 letter constituted a binding agreement: i. either by way of a long-term contract [ [the long term analysis"]; or ii. only by way of the above described intermediate short-term contract dealing with the whole of the trial period and no more ["the short term analysis"].

There are different considerations which obtain, depending on which of these analyses is in focus. Treating with the long term analysis

The issue when one restricts one's focus to the long term analysis can be determined in one of two ways: i. by a finding that the letter was solicited by Mr O'Shanassy on a pretence that it was needed for the purpose of being shown to prospective investors [in which event the signing of the letter by Mr Dalton was known by Mr O'Shanassy and Mr Dalton as no more than a proposal not intended to bind Mayne] ii. by a finding that the letter was not so solicited [in which event applying the principles earlier set out in this judgment, the whole of the matrix of negotiation prior to the letter, and following the letter will either : (a) reveal an objective intent to enter into a long-term binding agreement within one or other of classes 1, 2 or 4 of the above described Masters v Cameron [including Baulkham Hills] classes or (b) reveal no more than an objective intent that the parties would not be legally bound to a long-term agreement unless a formal document was executed].

The credit question which underlies the matter referred to in i above is very difficult to answer on the evidence. This is especially so because of the problems in accepting the affidavit evidence sought to be given by Mr Dalton [in contra-distinction to the evidence which he had given in the above described statutory declaration]. There is precious little in any evidence given by any other of the witnesses called by Mayne which can conclusively bear on the subject. Mayne essentially relies upon the evidence of the contemporaneity of the discussions which Mr O'Shanassy was having in relation to the obtaining of further finance/the proposed float. Ultimately in my view the evidence given by Mr O'Shanassy is on the balance of probabilities to be relied upon in relation to this issue. Notwithstanding the closest of cross-examination on the subject, he quietly and repeatedly denied having induced Mr Dalton to sign the letter on the basis that it was only needed to be shown to investors. He denied that such a conversation had ever taken place. That denial is accepted as the truth. Once one is not able to rely upon the evidence given by Mr Dalton, the balance of probabilities must favour the version given by Mr O'Shanassy. This is consistent with the proper approach to seriousness of the allegation made by Mayne. Notwithstanding the state of the pleadings [which put the case in terms of s 52 of the Trade Practices Act and in terms of an estoppel], effectively the content of the allegation if made out, would constitute one of fraudulent intent or as close as may be to such an allegation. Such an allegation, whether one of fraudulent intent or similar, is one of the most serious allegations capable of being made.

There is a plethora of authority in support of the proposition that the Court is bound to see that a case of such serious wrongdoing is clearly proved. The gravity of an allegation of such serious wrongdoing has been said to be such that whereas section 140(1) of the Evidence Act 1995 (NSW) stipulates a single standard of proof for all civil cases, namely the balance of probabilities, Section 140(2) preserves the doctrine in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362; Pedler v Richardson (unreported, Supreme Court of NSW, 16 October 1997, Young J) at 10-11. See also McLelland CJ in Eq in Watson v Foxman (2000) 49 NSWLR 315, 319.

More recently in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 the High Court has put the matter in the following terms: “The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary “where so serious a matter as fraud is to be found”. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.”

I would venture to make the point that the above observations made in Neat Holdings are also apposite where the essential gravamen of an allegation [albeit pleaded as a Trade Practices representational case or a case of estoppel] would, if proven, amount to deception of high order. That is the position which obtains presently.

The High Court has pointed out that the evidence given by a man of his intention and state of mind, must be tested: “Most closely and received with the greatest caution.” [ Pascoe v Commissioner of Taxation (Cth) (1956) 30 ALR 402]

It is far easier to determine the proceedings by reference to the matter referred to in ii. I proceed to give the Court's reasons in relation to this matter.

As already observed a huge amount of the evidence the subject of cross-examination and the subject of affidavits simply does not provide any, or any real assistance in relation to the issue. It is the contemporaneous documents which hold the real clue to what happened.

I do not see it as necessary to travel through every communication which passed between the parties. Of course all of the communications are taking into account as part of the evidence. The truth is that across this period of time, the evidence enables one to discern that there appears to have existed a real state of uncertainty as between the parties as to the way forward. The position at Mayne which is exposed, is one in which the relevant officers were not always nor regularly kept in touch with the movement in the negotiating positions. This was clearly the case with Ms Woods who received no information to show that the May letter of intent had been accepted; she was told that Sagacious had problems with the letter of intent and that changes had been requested and that the continuing 'back and forth' communications were continuing.

Approaching the matter from the long-term analysis, the really material communications of special relevance seem to me to be the following: i. the terms of the so-called 16 April 2002 letter Agreement ii. the terms of the 10 May letter from Mayne to Sagacious [and the variations to the draft of this letter procured by the express representations of Mr O'Shanassy made to Mr Dalton] iii. the terms of the 4 July 2002 letter from Mr O'Shanassy to the procurement division of Mayne. The signal indicators as to what occurred

The signal pointers to what in fact occurred may be summarised as follows: The apparently seamless exchange of communications i. the extraordinarily short period of time which expired between: (a) the signing by Mr Dalton [on 17 April] of the 16 April letter (b) the forwarding by e-mail of 22 April 2002 by Mr Dalton of the first of the draft letters of intent [which following the settling of a number of drafts, emerged in final form on 10 May 2002] Mr O'Shanassy's role in reformulation ii. the role played by Mr O'Shanassy in reformulating certain of the terms of the draft letter of intent [and in particular the change suggested by him, which led to the second paragraph including in parenthesis the words "(based on your proposal on 16 April 2002)".] The trial period iii. the trial period [always contemplated as continuing until 30 June 2002] was intended to throw up results of significance which, to use the words of Mr O'Shanassy, [transcript 292-294] was to constitute "information [to be taken] and [to be dropped] into the finalisation of [the agreement].”

It is appropriate to deal with these matters seriatim. The apparently seamless exchange of communications

There were only five days which passed between the signing of the 16 April letter and the receipt by Sagacious of the first of the draft letters of intent, ultimately emanating in final form on 10 May 2002. This is not suggestive of an intent by the parties to have been finally bound to the terms of the 16 April letter [reading the same as giving the long-term of not less than two and a half years]. On Sagacious case, the signing of the 16 April letter would have represented a watershed in terms of the legal relations between the parties. The balance of probabilities suggested by this contemporaneity [in what appears to have been a seamless exchange of communications], is against there having been an objective intent that the 16 April letter be a binding agreement to provide the longer term. Mr O'Shanassy's role in reformulation of the letter of 10 May 2002

It was common ground through the cross examination of Mr O'Shanassy that one of the three respects in which he had suggested variations to the letter of 10 May 2002 [which was to issue from Mayne to Sagacious], was the inclusion of the words "based on your proposal of 16 April 2002". It will be recalled that these words follow the commencement of the letter: "Thank you for your recent proposals regarding the renewal of the Agreement for the supply of catering products and related services to Mayne Health Hospitals. We are pleased to advise that, conditional to your acceptance of the terms and conditions of Supply Agreement 10105 C (attached), Sagacious Procurement Pty Ltd has been successful as the ongoing supplier of catering supplies to Mayne. This agreement ( based on your proposal on 16 April 2002) supersedes the strategic Alliance of July 2000 as of January 2002 [emphasis added]

What was known to both Mr O'Shanassy and Mr Dalton was that the words "based on your proposal on 16 April 2002” had emanated from Mr O'Shanassy. Even accepting Mr O'Shanassy as a witness of reliability, this description [of the 16 April 2002 letter] which he volunteered as apt to be included in the 10 May 2002 letter, is totally inconsistent with the notion that the 16 April 2002 letter was, or was to be regarded as a binding document insofar as providing for the long-term. Mr O'Shanassy was a lawyer. The characterisation of the 16 April letter was a matter of very great significance in the instant environment. To suggest that use of the word "proposal" can be explained away by a looseness of language, would be very far-fetched, bearing in mind the environment in which the letter came to be written.

The fact that this word was inserted into the letter at the express request of Mr O'Shanassy is an extraordinarily powerful indicator that both Mr O'Shanassy, as well as Mr Dalton, had at all material times, regarded so much of the 16 April letter as involved the long-term proposition, as no more than a proposal. This underlines the probability that the parties intended that they would not be legally bound to a long-term agreement, unless and until a formal document was executed.

It is appropriate to add that notwithstanding that Mr Dalton had indeed been the signatory of Mayne's acceptance of the terms of the 18 January 'Billing Option' variation to the anterior contractual arrangements, there can be perceived to have been a dimensional difference between on the one hand, that January short crisp ‘one off’ variation to the extant contract, and on the other hand, the ambit of the 2½ year suggested term, provided for in the relatively formal and complex 16 April letter.

Nonetheless one is left with requiring to cope with why the 16 April letter was countersigned by Mr Dalton, if it were not to be regarded as a binding agreement. This is one of the mysteries of this case, particularly so in the light of Mr Dalton having sworn in the statutory declaration that he had considered that the letter countersigned by him indeed procured an agreement to secure Sagacious' procurement services for the next 2½ years. The balance of probabilities seems to me to suggest that the intent may well have been that the only part of the arrangement posited in the 16 April letter which would bind the parties, was that dealing with a subset case: namely that dealing with the intermediate short-term position covering the trial period commencing only from May 1. And this although no witness gave evidence to this effect. As already indicated any such intent was not documented with sufficient precision for the court to be able to hold a binding agreement to this effect.

Perhaps all that may be said about this mystery is that (1) the Court reaches its findings based upon all of the evidence before it; and (2) that the communications between the parties, both before, as well as following the countersigning of the letter by Mr Dalton, are strong indicators that the letter was never intended by the parties to operate immediately in terms of a long term binding agreement. In that regard the letter may be regarded as falling within the third Masters v Cameron classification. In all of this it is important to keep in mind the sense in which the court approaches the ascertaining of the parties intention: what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties [cf Reardon -Smith Line Ltd v Hansen-Tangen supra].

The balance of probabilities appears to me to favour the proposition that the parties intended that a new deal commence only for that section of the trial period as would commence on 1 May and that, in that respect, the parties simply failed to achieve such an aim with the appropriate words in the document. The closest indicator of such an intent is arguably to be found in clause 2 of the letter Agreement where Sagacious agrees to provide its services as described in the proposal, for a period commencing 1 May 2002. All of this would be entirely consistent with the concerns which to the knowledge of Mayne, Sagacious had at the time during the March/April period, in terms of not being in a position to go forward with the continuity of the recurring anterior losses which could no longer be sustained.

There is no particular problem in an analysis which would view the 16 April letter as intended to bind, but only in so far as dealing with the subset case analysis commencing on 1 May, which analysis albeit not finding express mention, is at least not at odds with the contemporaneous documentary evidence. That analysis is consistent with the email [PX11 Tab 421] from Mr Dalton to Ms Woods of 10 May 2002 written in relation to the draft letter of intent and reading: “Camilla, I have met with Sagacious again they have a couple of changes to enable more time to come up with an appropriate agreement. It means that they will continue on the current new arrangement until we get it done. we are OK with that are you?” [emphasis added]

It is especially important to note that on the version of events given by Mr Dalton in his first affidavit (at [71], apparently Mr O'Shanassy telephoned him at some time on 17 April 2002. What is very important is to note which sections of Mr Dalton's version of this conversation were and which were not, denied by Mr O'Shanassy in his responsive affidavit. To assist in that regard the relevant portion of paragraph 71 of Mr Dalton's affidavit is set out below but is marked up to show which segments have, and which have not, been denied by Mr O'Shanassy [the sections which are denied are underlined; the sections which are not denied are placed italics]: On the morning of 17 April 2002, I received a facsimile from Mr Kyne being a further draft version of the 16 April 2002 letter. A copy of this facsimile is at tab 19 of KJD:1. This version included “marked-up” changes. I also received an email version of this letter early that afternoon. I forwarded that email (together with the attachment) to Mr Dunne and Ms Woods. A copy of my email is at tab 20 of KJD:1. I had a discussion with Mr O’Shanassy at around this time. During this discussion Mr O’Shanassy said words to the effect: “I want to amend the letter to include reference to the $11.50 PPD being reviewed after 30 June. We can then assess how we have gone against the rate. I have told you before that we are struggling to make money at that rate. I want some mechanism whereby we can sit down and talk about this if, notwithstanding the things that we are doing to try and meet this rate, we find that we still can’t do it. We can refer to this as a trial or something like that. If it transpires that the rate is unachievable, and we want to suggest a higher rate, [ you will have the opportunity to decide whether you want to go forward with us or we could talk about some other payment mechanism .] [ This will be fair to both of us because we will both be in a position to assess whether it is feasible to enter into a new agreement based upon a guaranteed PPD model. By this stage, the effect of the national menu will be known and we will know what we have been able to renegotiate with our primary suppliers .]” I said words to the effect: “[ That sounds sensible]. [ If we do decide to enter into a new agreement ], [ there is no point in locking you into a PPD rate if it is not sustainable and if it is going to cause you to go broke ].” Mr O’Shanassy said words to the effect: “ It will take a little bit of time to gather all the data after 30 June. I suggest that we do this in mid July .” I said words to the effect: “[OK. That will still allow us time to make a decision before the end of July as to whether we want to go ahead or not .”] Mr O’Shanassy said words to the effect: “I will put something in the letter and send you another version.” [emphasis added]

It was later on that same day, 17 April that Mr Dalton received a further version of the 16 April letter which was also dated 16 April and which included the last three numbered paragraphs which follow the words "Notwithstanding the provisions". That was the form of the document signed by Mr Dalton who in his affidavit evidence moved totally away from his statutory declaration, by now stating that he did not seek and did not obtain the authority of anyone within Mayne to his signing the letter as a binding agreement and that he believed the letter to be ‘but a stage’ in a negotiating process and did not regard the document a binding document. Indeed the lateness of the arrival of the nominate paragraph amendments is itself an indicator of a lack of informed negotiation and consideration.

Clearly there is particular significance to be found in the failure of Mr O'Shanassy to deny that in the above described conversation: i. Mr O'Shanassy had said that after the ‘trial’ both parties would be in a position to assess whether it was feasible to enter into a new agreement based upon a guaranteed PPD model; ii. Mr Dalton had said that this sounded sensible and that there was no point in locking Sagacious into a PPD rate if it was not sustainable; iii. Mr O'Shanassy had indicated that it would take some time to gather all the data after 30 June, suggesting that that be done in mid July; iv. Mr Dalton had said that this would be in order as it would still allow Mayne to make a decision before the end of July as to whether they wished to go ahead or not .

These matters not being denied by Mr O'Shanassy, are strongly supportive of an inter partes communication anterior to the countersigning by Mr Dalton of the April letter, which posited the parties being in a position to assess the feasibility of entering into a new agreement, and of making that decision following the trial period: at a time when the effect of the national menu would be known and when Sagacious would know what it had been able to renegotiate with its primary suppliers. None of this is suggestive of anything otherwise than the parties, by the letter, intending not to legally bind themselves to an agreement providing for the longer term, unless and until a subsequent formal document was executed.

The other indicators that there was no intent to enter into a binding agreement providing for the longer-term may be chronicled as follows: i. until the 11 July 2002 and 24 July 2002 Mr O'Shanassy did not assert to Mayne that the signed letter was a binding agreement. Indeed there had never been any prior reference made by Sagacious to Mayne stating that Sagacious even held such a signed letter; ii. Mr Dalton and Ms Woods prepared the first draft of the letter of intent in response to Mr O’Shanassy’s request, which first draft was sent to Sagacious on 22 April 2002, That draft speaks of “ your recent proposals ”. Notwithstanding that that letter underwent a number of changes at the request of Mr O’Shanassy, he did not request removal of the words: “conditional to your acceptance of the terms and conditions of Supply Agreement 10105-C (attached), [the plaintiff] has been successful as the ongoing supplier of catering supplied to Mayne”.

Albeit that it was not an inter partes communication, on 1 May 2002, the next directors meeting of the plaintiff occurred. The minutes make no reference to the 16 April 2002 letter or any binding agreement for a further term having been entered into by the parties or at all. In fact, Mr O’Shanassy, as Chairman, “ reported as to ongoing discussions with Mayne executives in driving down the actual PPD ”. These minutes were signed by him. The balance of probabilities permit the drawing of an inference that had Mr O'Shanassy considered the agreement to be a binding agreement for a long term, such an important matter would have been reported at the meeting.

Moving forward in terms of later events, it is also to be noted that the Sagacious presentation given on 25 June 2002 to Mayne, included under the heading "Trial Results" a subheading 'Method' which in turn gave a number of particular steps in the following terms: “i. Move all raw materials across to Sagacious Procurement system from sap ii. Charge Mayne Health fixed cost of $11.50 ppd iii. Run trial for six months isolating costs for menu, retail and other iv. Develop initiatives for new financial year beginning 01 July 2002 v. Review and Negotiate new agreement based on trial results .” [emphasis added]

The last reference also suggests an intent to review and negotiate a new agreement based upon the trial results. Although one must bear in mind Sagacious case that all of this was occurring in a circumstance in which it had not been prepared to raise its litigious gun, it may be observed that not to mention its contention that the 16 April letter bound the parties, may be regarded as surprising, as by this time alarm bells as to the future of the relationship were ringing in the Sagacious camp. The trial period

There is also much significance, it seems to me, in the references in the 16 April letter to the fact that notwithstanding the provisions earlier outlined in the letter , the parties expressly agreed: i. that Sagacious would provide its services between 15 January 2002 and 30 June 2002 on a trial basis. ii. that adjustments necessary [if it be found during the trial period that the actual per patient day rate exceeded a per patient day rate of $12] would be incorporated into the contract for services provided by Sagacious to Mayne during the contract period of not less than 2½ years [expressly put as an intent that subsequent contractual terms would be adjusted so that Sagacious would receive revenue sufficient to meet the cost of goods purchased for Mayne and a reasonable Sagacious overhead and profit component"]

Whilst of course extremely close examination of the relevant context is always critical, as a general matter the very notion of a ‘trial period’ will commonly bespeak an activity in which something is tested over a probationary period. In my view the parties are taken by the references to the trial period in the instant context [constituted by the 16 April letter] to have objectively intended that the trial period would be a probationary period, following which the results of the review would form the foundation for such agreement, if any, as was to go forward for an extended contract period of at least two and half years. Uncertainty

The letter agreement, insofar as put forward as providing for the longer term agreement, also fails for uncertainty.

When it was put to Mr O'Shanassy that he understood, as at May 2002, that there were to [be] negotiations towards a two and a half year contract with Mayne, his evidence was: “There were some aspects of the 16 April letter that needed to be negotiated, that’s correct” [transcript 267.50].

His evidence was that “the finalisation [of a two and a half year contract] wasn’t dependent upon the outcome of the trial period, but it was a factor that had to be finalised” [transcript 269.15].

He was asked whether he his understanding after the meeting on 25 June 2002 was that there would be negotiations between Sagacious and Mayne to finalise a long term agreement. He answered: “if by negotiation you mean matters to be finalised, yes”. He was asked: “matters to be agreed?”. Mr O'Shanassy answered: “finalised and agreed, yes”. [transcript 286.45]

The clearest indicators that the letter lacked the precision necessary for certainty are the following: The termination provision i. Clause 1.3 (h) is in the following terms: Sagacious and Mayne acknowledge this agreement (and the final Service Level Agreement) will include provisions, or similar in intent to the July 2000 Strategic Alliance Agreement. Such provisions will include: Subcontracting Dealing with 3rd parties Conflicts of Interest Intellectual Property Volume Rebates Communication Costs Fees are inclusive Taxes generally GST Termination Obligation to act in good faith Confidentiality Permanent Disclosure Audit Rights Dispute Resolution ii. The words "or similar in intent" leave considerable room for negotiation and are not suggestive of the type of certainty necessary to uphold an agreement; iii. Reference back to the strategic alliance agreement provision with respect to "termination" is instructive. That provision commences with the following clause: 9.1 Termination for convenience (a) Subject to clause 9.3, during the Initial Term, Mayne Nickless may terminate this agreement for convenience by giving one months notice provided always Mayne Nickless pay to NSS the Early Termination Payment as described and calculated in Schedule 17 [it is to be noted that schedule 17 set out a particular methodology for calculating the early termination payment by reference to the date of termination as it related to the commencement date and the application of the appropriate time category and amount payable, listed in a table giving in two columns, the breakup of particular months and the amount payable] iv. There is insufficient specificity in clause 1.3 (h) to enable the termination provision foreshadowed in the April letter to be able to be identified without scope for negotiation in a situation in which no third-party is given an entitlement to impose a particular provision in the event of disagreement. v. Nor is the provision severable. Adjustments requiring to be negotiated i. Mr O'Shanassy conceded [transcript 301.41-46] that he understood that operating costs would change and that any adjustment would be required to be carried out by agreement: "there had to be scope for annual review" and that such adjustments would have to occur annually ii. That was a matter which was not provided for in the 16 April letter and would have had to have been negotiated. iii. The 16 April letter states: “In other words, the subsequent contractual terms will be adjusted so that Sagacious receives revenue sufficient to meet the Cost of Goods (COGS) purchased for Mayne and a reasonable Sagacious overhead & profit component”. iv. Sagacious finally submitted that this means that the letter “contemplated remuneration after July 2002 on a basis of an amount being the verified cost of the goods supplied and two increments being overheads ... and a reasonable profit allowance” and that this “does not render the contract uncertain”. v. Sagacious then refers to authorities in which courts have considered what amount would be “reasonable” in different situations and draws an analogy to claims for an award of a quantum meruit. The contention is that the 16 April 2002 letter constituted a contract that required the defendant to pay a “reasonable” amount and that the Court must now determine that amount. vi. Sagacious submission itself highlights the uncertainty of the provision: a) On the one hand, Sagacious contends that the letter fixes a formula for determining remuneration, being “ the verified cost of the goods supplied and two increments ”. b) On the other hand, Sagacious suggests that the letter simply requires payment of a reasonable price. vii. Adopting either approach would be to, in effect, rewrite the letter. At the very least, the letter does not specify that an allowance would be made for two components to be added to COGS – it refers to “ a … component” . viii. In Australian Granodiorite Limited v Devex Pty Limited (unreported, Supreme Court of New South Wales, 28 May 1991), Brownie J was considering an alleged agreement which spoke of a management agreement “ on a basis to be agreed but including profit component ”. His Honour said (at page 8) “ The expression ‘profit component’ is so elastic it seems to me to, of itself, raise very great problems concerning any argument that a truly binding agreement was reached on 9 May ”. ix. While the mere fact that a contract refers to a “ reasonable ” sum does not, without more, make the contract uncertain, in the cases cited by Sagacious, evidence was available of what amount would be reasonable in the relevant circumstances. x. Even accepting that the 16 April 2002 letter simply requires payment of a reasonable sum, Sagacious has not put on any cogent evidence of what such a sum might be. xi. Importing an implied term to pay a “ reasonable ” amount, cannot cure an agreement of uncertainty when the reason for the uncertainty is that no objectively determinable reasonable level of payment for the goods or services exists, see Biotechnology Australia Pty supra at 137 per Kirby P. Payment terms i. There is no provision in relation to payment terms for any 2½ year period ii. In short there is no provision as to whether the defendant was to pay in advance or in arrears, nor as to what invoice period would be required. iii. These matters required to be negotiated. Penalties i. Mr O'Shanassy accepted that the issue of penalties would require agreement between the parties in the long-term agreement. [transcript 304.50] ii. That was another matter which required to be negotiated. The issue concerning the "Service Level Agreement"

Another significant issue concerns the use in the 16 April letter of the term "Service Level Agreement", in which respect it will be recalled that clause 7 provided that the parties would act in good faith to expedite the finalisation of the Service Level Agreement which would be provided to Sagacious by Mayne.

The whole question of the history of any discussions between the parties in which the terms ‘Service Level Agreement’ were used was the subject of close attention given by Mr Cotman SC to a series of requests for information by the Court [to be found at transcript 1296-3003].

The position appears to have been as follows: i. The 24 January 2000 heads of agreement clearly contemplated the provision of particular services by NNSS to Mayne; ii. Between the signing of the heads of agreement and the signing of the strategic alliance agreement, a document entitled Service Level Agreement appears to have come into existence [witness the first draft to be found at PX tab 50, given a revised date of 29 March 2000]; iii. Comments in relation to a draft of a "Service Level Agreement" were prepared on 20 April 2000 [PX 2 tab 253]; iv. The SAA of July 2000: a) Included in the 'Definitions' provision [clause 13.1] a definition of the term "Service Level Agreement" or "SLA" in the following terms: Service Level Agreement or SLA means the documents collectively forming the basis of the operational manual by which the Procurement Services, in accordance Strategic Alliance Agreement, will be delivered by NNSS to the Mayne Nickless Facilities. The components of the SLA are as follows: (a) The Hospital and Medical Facilities list; (b) The Occupational Health & Safety guidelines; (c) The Risk Management Model (d) The Food Procurement Services Model; (e) The Performance Indicators and Performance Objectives; (f) NNSS Organisational Structure; (g) NNSS Resources; (h) Communication, Reporting & Accountability; (i) NNSS Supplier Agreements; (j) Procurement Protocol Model; (k) Information Security Policy; (l) Procurement Process Model; (m) Savings Benchmark Model; (n) Reporting Function Model; (o) The Procurement Product Categories & Product Items; and (p) The Senior Management Steering Committee Charter b) did not include any schedule entitled "Service Level Agreement, although one of the schedules is entitled "Procurement Protocol Model" [PX 2 tab 65 page 812] and appears to include a number of particular services; v. When taxed by the Court as to what was the "service level agreement" referred to in the April letter, or as to what was the genealogy of any anterior service level agreements which may be identifiable by reference to the parties communications between one another, Mr Cotman answered as follows: There is not a document that is or is styled the service level agreement as one finds it behind tab 50. That's my point, that one ends up with in effect a stand-alone document, being the strategic alliance agreement, which is used as the document to embody the dealing between the parties. That is to say what appears to have happened between the heads of agreement and the strategic alliance agreement initially was some attempt to try and ram into the internal document the terms of dealings as they are contemplated by the heads of agreement, which idea appears to have been simply abandoned. One has a different description of the agreement being the SAA itself. [transcript 1299] vi. It appears that there were a number of iterations of Mayne's document 1015-C referred to in the correspondence [usually described as the draft letters of intent] during the hearing [transcript 1299.50]. PX 10 tab 381 is an example of such an iteration, this one bearing the revised date 25 March 2002 and significantly including a verbatim copy pasting of portions of the 16 April 2002 letter; vii In its reply submissions in writing, Sagacious contended that: "… the concept of SLA was the description of the operational rules contained in the Schedules to the SAA" [I interpolate that I do not see this submission as unravelling the instant problem thrown up by the imprecision in terms of what were and were not to the catchment area constituting the terms [or indeed the type of terms] to be incorporated, presumably by an agreement to be called "Service Level Agreement"] viii. Mr Cotman appears to have had some difficulty in explaining precisely how the Court was to deal with the term "Service Level Agreement" as used in the 16 April letter: witness the following portions of the transcript: HIS HONOUR: And so what I am interested to know is what sort of things would the parties have up their negotiating sleeves or within the negotiation contemplation? How difficult? Could an outsider say that there was no problem with all of that because it could be determined reasonably and objectively... Indeed, the whole idea of what a service level agreement actually does, what parameters it treats with, is a little difficult for me to follow. MR COTMAN: Well, except that what the 16 April letter tells us is that, first of all, its own terms go into the service level agreement. HIS HONOUR: And then you have got 1.3(h)… MR COTMAN: Yes, and then …in the service level agreement will be provisions by reference to the strategic alliance agreement, so that in a sense what has been dealt with by the authors of the letter is the matter that had - it may not have been consciously in mind, I don't suggest that there is any evidence to suggest that it was consciously in mind, but what was being really addressed was that if there was a service level agreement, it would deal with matters that are in the strategic alliance agreement, because as your Honour has already seen back at the earlier negotiation between the parties, the proffering of a strategic alliance agreement… HIS HONOUR: But the strategic alliance agreement didn't apparently have this service level agreement in it or part of it. MR COTMAN: No, that is the point. What has been contemplated in the 16 April letter is that whatever it is, that is the final service level agreement, will be this letter plus the material from the strategic alliance agreement and one can then look to the form of document which was sent to see what material can sensibly drawn from that that can sit consistently with this letter and the material dealt with in 1(h)…. HIS HONOUR: You have to have a lot of definition in relation to that which is contractually certain and in the service level agreement world. I need to have explained to me what was, or was not, able to be made certain, and why anything else was de minimis… Can I just add this: I still have difficulty in knowing what a service level agreement is supposed to deal with? MR COTMAN: That is the point, your Honour. Neither the 16 April letter nor the case depend on that question for this reason: The 16 April letter in terms takes effect according to its own terms and does so in anticipation that while there will be some bona fide negotiation and so forth towards a service level agreement, the 16 April letter otherwise governs the relationship. So that if no service level agreement is ever concluded between the parties, notwithstanding bona fide negotiation and so forth, that doesn't, with the greatest respect, interfere with the operation of the 16 April agreement-- HIS HONOUR: Where does it say that? MR COTMAN: Because in terms it says that, first of all, in the opening paragraphs, that it supersedes all the previous negotiation; that it will provide for its own term in section 2; and the various conditions as to price and what the services will be and how they will be delivered and matters of that sort; and then itself provides that in 7(c) "Sagacious and Mayne acknowledge and confirm they are bound by these terms and conditions". [transcript 1301-1302]

This last submission effectively puts the analysis as one of either the first or fourth of the Masters v Cameron categories. However the Courts finding is that the appropriate analysis is that of the third Masters and Cameron class.

In the result the case is seen to be one of imprecision in terms of what were and were not to be the terms to be incorporated, presumably by an agreement to be called "Service Level Agreement" , by way of the matters provided for in: i. clause 7 of the 16 April letter; ii. the final three nominate paragraphs which follow clause 7 (c).

It seems clear that the proper reading of the first sentence of nominate paragraph 3 is as follows: "Any adjustments necessary (as described above) will be incorporated into the contract: for services provided by Sagacious to Mayne during a contract period of not less than 2½ years."

The lack of definition in relation to just what was meant by the term "Service Level Agreement" provides yet another salient difficulty which stands in the path of Sagacious in contending that: i. the parties are seen to have objectively intended that a particular class or classes of matter be included in such an agreement; or ii. the reference to the necessity to negotiate and finalise such an agreement without a very tight approach to what was to be included, can possibly be regarded as satisfying the well-known criteria for certainty.

Indeed the evidence of Mr O'Shanassy when descending into this field of discourse seemed to be very loose, as for example his evidence [already referred to] that the trial period [always contemplated as continuing until 30 June 2002] was intended to throw up results of significance which was to constitute "information [to be taken] and [to be dropped] into the finalisation of [the agreement] [transcript 292-294].” [emphasis added].

In some contexts it is possible to produce a tightly worded agreement which will define with sufficient precision, that which is to constitute the content of a further contractually binding document which the parties are in good faith to negotiate. The matter is always instant specific. Here the simple fact is that the whole of the suggested further negotiation by way of the finalisation of the so-called "Service Level Agreement" is simply sufficiently so imprecise as to pose yet another insuperable obstacle in the way of Sagacious’ claim that the 16 April letter should be upheld as a binding document.

All of this is indicative of the facts that i. that the parties did not intend to be bound to the longer term unless they themselves filled the gaps in the matters requiring to be negotiated (rather than leaving the task to the Court or a third party). ii. there remained unagreed matters which, looking at the matter objectively, the parties are inferred to have themselves regarded as a prerequisite to any binding agreement having been entered into Returning to the intermediate position case

As already indicated the short term analysis case [dealing with the whole of the trial period and no more], fails. The authority issue

For the reasons already given it is unnecessary for the Court to proceed to a decision on the authority issue. That notwithstanding it is appropriate to make clear that had the matter required determination, the holding would have been that ostensible authority had been conferred by Mayne on Mr Dalton. He had been held out by Mayne as authorised to signify its acquiescence to the 18 January 2002 billing option 1 (b) by appending his signature to the end of that document. That holding out continued up to and including April 2002. Had the finding been that the parties intended to enter legal relations, it would have been appropriate to find that Mayne by its conduct, had clearly conferred ostensible authority upon Mr Dalton to bind Mayne to the provisions of the 16 April letter. The representational case

Sagacious pleads 3 alternative or cumulative oral representations which have as their foundation, an assertion that Mayne held out that it spent “ about $23 million per annum ” on goods which Sagacious would procure for Mayne under the terms of an arrangement that it is alleged was contemplated between them.

Sagacious asserts that it relied on the representations and, but for the representations, would not have entered into the Heads of Agreement and/or the Strategic Alliance Agreement in the terms it contained.

The representations pleaded are founded upon one alleged conversation between Mr Ginn on behalf of Mayne and Mr O’Shanassy and Mr Clough on behalf of Sagacious. Sagacious alleges that, had it not been misled, the parties would have entered into an SAA on terms which made provision for a management fee of 8.23% or more (rather than the 4.75% within the SAA: clause 8.1) and claims as damages, the difference between the profit it earned under the SAA on application of the 4.75% management fee and the profit which it claims would have been earned on a 8.23% management fee (particulars to para 38 of amended summons).

This case fails at threshold for more than one reason: i. Sagacious has been unable to prove that it suffered any damage connected with the alleged representations. It has not put a " no transaction" case. Its only case has been that Mayne would have agreed to a substantially higher management fee of 8.23% than it in fact agreed to in the transactions that were done, namely, 4.75%. ii. Sagacious has not called anyone from the Mayne pool of witnesses nor any decision maker from Mayne to give evidence that had Sagacious asked for the 8.23% management fee, they would have agreed. iii. Hence Sagacious has been unable to establish that Mayne would have agreed to a substantially higher figure (or to any other figure for that matter) and would have done business on that basis. iv. The only management fees % ever referred to during negotiations were 3.75%, 4.75% and 2.5%, 3%, 3.5% at potential variable 3 to 5 year terms v. As Mayne has submitted there is no rational basis upon which the Court could conclude either that some alternative deal would have to be done and, a fortiori , at what rate and other terms any such alternative deal would have been done on (see Troulis v Vamvoukakis (unreported, Court of Appeal, 27 February 1998, pages 27-29 per Gleeson CJ)); vi. Further there are a number of issues in terms of the reliability of the evidence as to these representations having been made. The absence of any complaint to Mayne about the allegation at any time prior to 18 November 2005, provides a clear indicator that the alleged representation was not made, not relied upon and caused no damage; vii. even if the representations were in fact made, it is plain that they are too imprecise and uncertain so as to have any forensic significance. Mr O’Shanassy’s gave evidence in paragraph 20 of his affidavit sworn 25 August 2005, that the words used were “ of about $23 million ”. When Mr O’Shanassy was asked during cross-examination what Mr Ginn had said, Mr O’Shanassy said that Mr Ginn said “ The procurement of Mayne will be in the order of $23 odd million ” [T133.30]. The question arises as to what that means, and when a spend of either less or more than that figure ceases to be “ odd ”, “ about ” or “ in the order of ”, for example, 5%, 10%, 20%, 30%, 40% variation? viii. Sagacious did not rely and could not reasonably have relied on any such alleged representations. Amongst other factors, the parties’ negotiations concluded with the comprehensive SAA which is the last memorial and codification of what its rights would be. It makes no provision for any minimum spend which the defendant was to direct through the plaintiff. ix. In addition: a) the parties were arms length commercial entities; b) the plaintiff was, at all material times, represented by legal advisors, being Sagacious Legal Services/Mr O’Shanassy; c) the Heads of Agreement contained precise terms and was subject to a number of drafts and negotiations (Vol 1, tabs 2, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 16, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30 and 31); d) the SAA contained detailed precise terms and with 17 separate material schedules, is some 146 pages long, and was subject to a number of drafts and negotiations (Vol 1, tabs 36, 38, 40, 41, 42, 45, 46, 48, 50, 52, 53 and 60); e) the various drafts of the Heads of Agreement (Vol 1, tabs 20, 25, 27 and 32) and SAA (Vol 2, tab 65) were actually prepared by the legal advisors of the plaintiff, Sagacious Legal Services/Mr O’Shanassy; f) the per annum representations pleaded in paragraphs 21, 26 and 32 of the amended summons were not embodied in the Heads of Agreement and the SAA; and g) the parties agreed that the SAA superseded all previous agreements and/ or discussions in respect of their subject matter and embodied the entire agreement between the parties, save any presently irrelevant provisions of the Heads of Agreement. It was a term of the SAA, as contained in clause 13.12 (B747), that: “This Agreement supersedes all previous agreements and / or discussions in respect of their subject matter and embody the entire agreement between the Parties SAVE any and all relevant provisions in the Original Agreement [the Heads of Agreement] concerning the Implementation Phase / Stage of the relationship between the Parties.”

The representational case fails.

It is next appropriate to deal with the quantum of loss issue in relation to the roll-out. Loss caused by delay of the implementation phase Experts’ approach

In terms of the methodology, both Mr Weeks [called for Sagacious] and Mr Kus [called for Mayne] adopted a similar approach to calculate the loss caused by delay of the implementation phase. The analysis involved: · Determining the period of loss applicable to each hospital (from 1 October 2000 to 1 May 2001 “the Delay Period”) · Identifying the hospitals which were affected by the delay of the implementation phase · Calculating the Mayne food costs for the Delay Period for the hospitals which were affected by the delay of the Implementation Phase · Calculating management fee and rebate income based on the Mayne food costs during the Delay Period. Quantum of loss

The quantum of loss as calculated by the two experts was summarised in Table 4 of Mr Kus’ report dated 20 April 2006: The Kus Report The Weeks’ Report Number of hospitals affected by the delay to the Implementation Phase 16 19 Food procurement costs relating to the affected hospitals $2,165,851 $3,173,351 Management fee income $102,878 $144,535 Rebate income $108,293 $152,142 Loss caused by delay of the implementation phase $211,171 $296,677 Reasons for differences in quantum

The difference in amounts calculated by the experts is accounted for by the following: · Mr Kus excluded three of the nineteen hospitals included by Mr Weeks in his calculation of the claim [vide Caloundra, Nambour and Nepean Private Hospitals]. Mr Kus’ reasons for the exclusion are set out in paragraph 34 of his report [which can be conveniently summarised as hospitals also being referred to by other names: hence those hospitals did not appear to have been affected by the delay of the implementation phase] The evidence of Mr Kyne confirmed the name issue. · Mr Weeks based his calculation of food procurement costs on Sagacious’ cost of sale (“COS”) for the period 1 June to 31 December 2001 (the seven month period following the Delay Period) whereas Mr Kus used the annual Mayne food costs for the year ended 30 June 2001 to calculate the average monthly food procurement costs in respect of the sixteen hospitals. Mr Kus’ approach is preferred

In my view Mr Kus’ approach is correct for the reasons expressed in his report Exhibit D4 at [50] – [52]

The difference in the calculations of Mr Kus and Mr Weeks is not of particular significance. In response to Mr Kus’ report, Mr Weeks stated in his report of 19 May 2006 that he was unable to confirm Mr Kus’ assumptions about the three hospitals because he did not receive any further information or instruction (at paras 5.10, 5.13, 5.16). Allowance for uncertainties

An allowance is appropriate to be made in the award of damages by reasons of uncertainties concerning the evidence of some difficulties being faced during the implementation phase including: · certain logistical problems arising out of the implementation of Sagacious’ computer software and training of hospital staff; and · questionable resources on part of the plaintiff which placed in some doubt its ability to always adhere to the implementation timeframe

These problems were acknowledged in the evidence given by Mr O’Shanassy. In my view the appropriate allowance for those uncertainties is achieved by a reduction of the damages award by 5 percent. The resultant damages award

In the result the damages award for the loss caused by the delayed implementation phase is calculated as follows: Loss caused by delayed implementation $211,171 Less: 5% for uncertainties ($10,564) Award $200,607 The amended cross claim

The principal issue which arises for decision on the amended cross claim simply concerns the circumstances in which Mayne paid the sum of $1,781,205.26 to Sagacious on 2 August 2002, there being no issue but that this sum was paid on that day.

It will be recalled that the term of the SAA was to end on 30 July 2002.

The environment in which the payment was made was that Sagacious in July 2002 had asserted that the 16 April letter was a binding agreement which obliged Mayne to continue to accept goods and services after the end of the term of the SAA.

Mayne by a responsive letter of 31 July 2002 informed Sagacious that it disagreed with that assertion and further and alternatively gave three months' notice of its intention to cease to accept the goods and services.

The findings are; i. that on 31 July 2002 the parties agreed that, without prejudice to the position of Mayne that the SAA had ended on 30 July, for the three-month notice period given to Sagacious by Mayne in its letter of 31 July, Sagacious would continue to supply goods and services to Mayne and Mayne would pay the amount of $13.40 PPD to Sagacious for those services in respect of that period; ii. shortly before 2 August 2002, Mayne received the September 2002 pre billing invoice number 705 from Sagacious in the above-described sum in respect of goods and services to be supplied by Sagacious to Mayne during the month of September 2002; iii. On 2 August 2002 Mayne paid that sum to Sagacious in respect of and on account of goods and services to be supplied by Sagacious to Mayne during the month of September 2002; iv. Sagacious refused to continue to provide the goods and services because of what it alleged to have been Mayne's repudiation of the 16 April 2002 Agreement and by its letter of 9 August 2002 Sagacious gave Mayne notice of what were contended to be Mayne's breaches of the agreement, the same notice stating the intention of Sagacious to cease providing the goods and services unless those breaches were remedied.

In the circumstances of the findings in the reasons above, the cross claim must succeed.

The amended cross claim also has a series of counts only pressed in the event that the court would find that there was a binding and enforceable agreement between the parties contained in the 16 April 2002 letter. As the reasons above make clear, no such finding is made. Leave to file defence to amended cross claim

Notwithstanding the objection of Mayne to paragraph 26 (a) of the defence to the amended cross claim dated 27 June 2006, the court grants leave to Mayne to file that cross-claim. Short minutes of order

The parties are directed to bring in short minutes of order on which occasion: i. submissions will be taken on the appropriate amount of interest to be ordered on the delayed implementation award; ii. costs may be argued.