Quality Bakers Australia Pty Limited v ISS Facility Management Pty Ltd

1. [1]

   BELL P: This appeal concerns the proper construction of a commercial contract entitled the “Letter of Intent regarding the Provision of Facilities Management Services by ISS to Goodman Fielder” (the Agreement) entered into by the appellants, Quality Bakers Australia Pty Limited and related companies (collectively, Goodman Fielder) and the respondents, ISS Facility Management Pty Ltd and a related company (collectively, ISS) on 5 February 2018.

2. [2]

   The appellants belong to the Goodman Fielder Group, which is a chain of food companies which manufacture, distribute, market and supply food products across approximately 50 manufacturing and distribution sites in Australia, New Zealand and the Asia Pacific.

3. [3]

   The respondents are Australian and New Zealand companies which form part of a group of companies that conducts business in approximately 65 countries, providing integrated facility services, including facility management, cleaning services, property services and catering services. The services are commonly bundled into a single contract.

4. [4]

   At issue is whether, as Abadee DCJ (the primary judge) held, Goodman Fielder is liable, under the Agreement, to pay $600,000 plus GST and interest to ISS on account of ISS’s due diligence costs in respect of a proposed long-term facilities management agreement that the parties had agreed to negotiate within identified parameters and in good faith (the Proposed Agreement). In particular, what is in issue is which party should be responsible for ISS’s costs of undertaking its due diligence in circumstances where, by the Expiry Date under the Agreement, namely 14 May 2018, the parties had not entered into the Proposed Agreement.

5. [5]

   The answer is, prima facie, supplied by cl 8 of the Agreement which, in clear language, was in these terms:

6. [6]

   Clause 10 of the Agreement provided that:

7. [7]

   Reduced to its core, the primary judge held that cl 10 was not engaged because ISS neither submitted a “revised offer” that was, nor insisted on entering into a Proposed Agreement on terms (insistence) that were, financially less favourable to Goodman Fielder than the Key Terms set out in Appendix 1 to the Agreement.

8. [8]

   In reaching this conclusion, the primary judge held that any such “revised offer” or conduct amounting to the requisite insistence would need to have been made or to have occurred prior to the Expiry Date (the temporal issue). As such, although the parties continued to engage in negotiations after the passage of the Expiry Date, the primary judge discounted various proposals that were made by ISS to Goodman Fielder after that date. In this context, his Honour held, in a finding that was not challenged on appeal, that the Expiry Date of 14 May 2018 was not extended by agreement of the parties: at [137].

9. [9]

   The only document relied upon by Goodman Fielder as purportedly engaging cl 10, which predated the Expiry Date, was a document entitled “Status Update for Facility Management Services” sent by ISS to Goodman Fielder on 11 May 2018 (the Status Update). The primary judge held that this document could not be characterised as meeting either the description of a “revised offer” or an insistence on terms that were financially less favourable to Goodman Fielder than the Key Terms set out in Appendix 1 to the Agreement (the characterisation issue).

10. [10]

    Goodman Fielder challenges the primary judge’s conclusions with regard to both the temporal and characterisation issues, as well as his Honour’s conclusion that the reference to offer in the phrase “revised offer” meant an offer that was capable of acceptance in the contractual sense. Ultimately, this construction was not critical to the primary judge’s conclusion because his Honour held that even if the term had the less technical meaning contended for by Goodman Fielder, namely a commercial proposal that was sufficiently detailed to be identified as a revision of the Key Terms in the Agreement, the Status Update did not meet that description.

11. [11]

    Before turning to consider the grounds of appeal and arguments advanced by Goodman Fielder in more detail, it is necessary to provide some brief and uncontroversial factual background to the dispute, as well as noting certain other terms of the Agreement.

Background to the Agreement

1. [12]

   As noted by the primary judge and by Mr Giles SC who appeared on the appeal for Goodman Fielder with Mr Hutton, most of the background leading to entry into the Agreement was not contentious. Much of the following summary is derived from his Honour’s thorough judgment.

2. [13]

   Goodman Fielder historically outsourced most of its facilities management services to many different service providers for each of its sites. During 2016, it considered consolidating its facilities management services towards a more centralised model by which one service provider would oversee and be responsible for the majority of Goodman Fielder’s facilities management services at its various sites in Australia and New Zealand.

3. [14]

   To this end, in early January 2017, Goodman Fielder invited ISS to tender for facility management services for its Australian and New Zealand operations and, on 12 January 2017, an “Opportunity Assessment Brief” was supplied to ISS and other potential suppliers for this purpose.

4. [15]

   At the outset of the tender process, Goodman Fielder communicated to ISS that it did not know what savings it could realistically expect to achieve by moving to an integrated facilities management services model. ISS communicated to Goodman Fielder in March 2017 that, while ISS’s experience was that moving from multiple subcontractors to a single service provider typically delivered savings of between 10% and 20% on baseline spend, Goodman Fielder should appoint ISS to carry out due diligence to understand both Goodman Fielder’s “baseline spend” on facilities management services, and the opportunities to achieve savings. The “baseline spend” concept is explained in further detail at [20] below.

5. [16]

   By April 2017, ISS had been nominated as one of two short-listed tenderers. On 25 April 2017, Goodman Fielder supplied ISS with a “Due Diligence Request for Proposal – RF1” (RFP), involving a due diligence exercise on three sites which were said to be representative sites. This document was also sent to the other potential provider being considered by Goodman Fielder, and it was intended that both would have the opportunity to conduct due diligence on the three sites. The RFP asked for each service provider to submit a Due Diligence Report and RFP submission.

6. [17]

   On 26 April 2017, some data was sent to ISS concerning Goodman Fielder’s spending across Australia and New Zealand. On 11 May 2017, Goodman Fielder provided further “spend” data to ISS, noting that “[i]t is our hope that a wider range of data will help you identify true trends and dismiss spending anomalies, the overall intent being to reduce assumptions”.

7. [18]

   On 15 June 2017, ISS provided Goodman Fielder with a submission in relation to the latter’s request for information. That response featured site specific proposals for three of Goodman Fielder’s sites, being Hawkes Bay, Longburn and Moorebank. Part of the response concerned baseline spend comparisons. The client baseline was identified as $3,066,000, but once other adjustments were made, the baseline spend fell to just over $604,000. It was plain from the covering email to this submission, as well as from the submission itself, that a significant number of staff of ISS had been involved in the preparation of this submission. At about this time, ISS informed Goodman Fielder that, on the basis of the work carried out on the baseline spend for the three sites, ISS thought that the baseline of existing spend overall might be in the order of $26 million.

8. [19]

   On 30 June 2017, an email from Mr Tom Dunn (Mr Dunn), Senior Commercial Manager of Goodman Fielder, to Mr James Warr (Mr Warr) of ISS acknowledged concern on ISS’s part about Goodman Fielder’s baseline spend. Mr Dunn said that:

9. [20]

   As the primary judge recorded, Mr Sean Tully, head of Goodman Fielder’s Commercial team during the relevant period, confirmed in his evidence that in 2018, Goodman Fielder budgeted to save $4.5m, which was predicated on a “baseline spend” of $35m. As explained by the primary judge at [3], the “baseline spend” concept may be regarded as the expenditure against which savings targets and guarantees could be measured for the in-scope services across Goodman Fielder’s multiple sites in Australia and New Zealand which would be the subject of a new consolidated facilities management agreement. That is, the baseline spend was the expenditure on facilities management services that ISS expected to be able to take over and make the requisite savings on.

10. [21]

    On 7 July 2017, ISS issued its response to the RFP to Goodman Fielder. At page 75 of the document, ISS outlined its initial offer. Relevantly, ISS assumed a baseline spend of $26.1m, which was based upon an analysis for the three sites visited but, at page 79, it was made clear that Goodman Fielder had advised a baseline spend of $35m. At page 81, ISS set out multiple Best and Final Offer scenarios based upon this assumption.

11. [22]

    By August 2017, Goodman Fielder had internally earmarked ISS as its preferred supplier and on 23 August 2017, Ms Leigh Garvan, a Commercial Manager of Goodman Fielder, sent an email to Mr Stuart Rose, Chief Commercial Officer and Director of Strategy of ISS, which attached a draft Facilities Management Services Agreement for ISS’s consideration. Thereafter, some correspondence ensued concerning the drafting of that proposed agreement.

12. [23]

    Negotiations thereafter continued including in relation to Goodman Fielder’s baseline spend and updated data since the RFP.

The Agreement

1. [24]

   On 5 February 2018, ISS and Goodman Fielder entered into the Agreement, described as a Letter of Intent which, as the primary judge outlined at [6], was expected to be the prelude to a longer term contract between ISS and Goodman Fielder. Under the heading “Background”, Recital B of the Agreement provided that the “parties intend to enter into good faith negotiations in accordance with the terms and conditions set out in this Agreement to finalise a long form contract for the provision by the Service Provider of a facilities management solution for the Sites (Proposed Agreement)”.

2. [25]

   Recital C stated that the opportunity for ISS to conduct due diligence was to enable ISS to validate assumptions which it had made during the tender period, and to allow it to develop a detailed services scope.

3. [26]

   By clause 1, Goodman Fielder authorised ISS to conduct due diligence from 5 February 2018, being the “date the last party signs this Agreement” to 14 May 2018, being the Expiry Date (unless the parties had, acting in good faith, agreed to a later date).

4. [27]

   By clause 7, ISS acknowledged and agreed that:

5. [28]

   The terms of cl 8 have already been noted at [5] above and, read with cl 7, set out the circumstances in which Goodman Fielder would be responsible for and pay ISS’s due diligence costs. These costs were defined in cl 9 to mean “any cost or expense or losses reasonably incurred by [ISS] for the purposes of conducting the Due Diligence exercise”. The only “circumstance” referred to in cl 8 which would trigger Goodman Fielder’s obligation to pay as provided for in cl 8 was “if the parties do not enter into the Proposed Agreement by the Expiry Date”. It was not in issue that no such agreement was entered into by the parties by the Expiry Date or at all.

6. [29]

   Clause 8 was expressly made subject to cl 10. The terms of cl 10 have been set out at [6] above.

7. [30]

   Clauses 12A-15 of the Agreement fell under the heading “Proposed Agreement”, and relevantly provided as follows:

8. [31]

   Clause 16 provided that within 7 business days of entry into the Agreement, Goodman Fielder was entitled to invoice ISS for a AUD$3.6m “Upfront Savings Payment”. The amount of the payment was based upon an “estimate” of AUD$35m per annum for the “baseline spend” which was defined in cl 16 as “the amount expended by Goodman Fielder on the facilities management services set out in the Proposed Agreement during the year ended 31 January 2017”.

9. [32]

   By cl 17, the Upfront Savings Payment was repayable if the parties did not enter into the Proposed Agreement by the Expiry Date.

10. [33]

    Clause 18 indicated that the Agreement was to terminate immediately on the earlier of (a) the signing of the Proposed Agreement; or (b) the Expiry Date.

11. [34]

    It is not necessary for the purposes of this judgment to reproduce the Key Terms which were referred to in Appendix 1 to the Agreement. It is sufficient to note that, as the primary judge observed at [23] of his judgment, they were derived from scenario 4 in ISS’s response to the RFP process.

Events after execution of the Agreement

1. [35]

   Soon after the Agreement was entered into, representatives of ISS and Goodman Fielder exchanged correspondence concerning the drafting and form of the proposed facilities management services agreement. On 7 February 2018, Mr Warr emailed Ms Paulina Koniecka (Ms Koniecka), Senior Commercial Manager of Goodman Fielder, a Draft Facilities Management Services Agreement.

2. [36]

   From February 2018 to early May 2018, ISS carried out due diligence at sites operated by Goodman Fielder in Australia and New Zealand. This involved ISS retaining third parties (such as Huddle Projects Limited and Kingfisher Group Limited) and consultants, and diverting its own staff to oversee, manage and coordinate the due diligence process and reporting. As noted at [5] above, it was ultimately not in dispute that ISS incurred costs in the sum of AUD$609,870.18.

3. [37]

   The primary judge highlighted the following exchanges between the parties in April 2018 at ([51]-[53]):

4. [38]

   On 11 May 2018, ISS submitted to Goodman Fielder the Status Update under cover of an email from Mr Warr to Ms Koniecka and Mr Tim Carter of Goodman Fielder, which stated as follows:

5. [39]

   The front page of the presentation contained the text “For discussion purposes only – ISS Group makes no offer or submission in connection with this analysis”. The presentation slides contained a slide headed “General DD Update – ‘Now v Then’” which contained “Key Findings during DD – 2018” which were as follows:

6. [40]

   Also on 11 May 2018, Ms Koniecka sent an email to Mr Ian Scanlon (Mr Scanlon), Chief Financial Officer of ISS Australia, which attached a proposed side deed. In the covering email, Goodman Fielder formally requested an extension to the Expiry Date of the Agreement. Clause 4 of the proposed side deed stated that:

7. [41]

   On 14 May 2018, Mr Scanlon responded to Ms Koniecka’s email of 11 May 2018 as follows:

8. [42]

   There was no submission on appeal that the suggestion in this email that negotiations continue amounted to some waiver or gave rise to an estoppel of some kind which operated to preclude ISS from contending, consistent with cl 18 of the Agreement, that the parties’ obligations under the Agreement terminated immediately on 14 May 2018 save for those obligations (those in cll 4, 5, 6, 7, 8, 17, 20 and 21) which, by cl 23, “survive[d] the termination of” the Agreement.

Events after Expiry Date

1. [43]

   On 16 May 2018, ISS provided “Additional Commercial Slides”, with one such slide carrying the title “Commercial Summary Tables” which indicated that over a 3 year term, Goodman Fielder might in fact make a loss after the savings for Goodman Fielder were compared to ISS’s costs.

2. [44]

   On 5 June 2018, a meeting took place between Goodman Fielder and ISS at which Goodman Fielder provided a document titled “Commercial Update”. On subsequent dates (18 June, 3 July, 12 July and 19 November 2018), ISS provided further commercial proposals.

3. [45]

   On 8 June 2018, ISS requested that Goodman Fielder ultimately repay the $3.6 million Upfront Savings Payment consistent with what the parties had agreed in cl 17 of the Agreement (see [32] above). This was done on 2 July 2018, a plain recognition that the Expiry Date had passed.

4. [46]

   Almost a year later, on 27 May 2019, Mr Rose sent an email to Ms Koniecka regarding the costs incurred by ISS in carrying out due diligence at the sites. On 30 May 2019, he sent an email to Ms Koniecka attaching several documents including, but not limited to, two invoices, a summary of due diligence costs incurred by ISS in New Zealand, a summary of the due diligence costs incurred by ISS in Australia, and an overall summary of the total due diligence costs.

5. [47]

   In May and June 2019, ISS and Goodman Fielder exchanged correspondence in relation to the costs, with Goodman Fielder refusing to pay ISS’s due diligence costs. That refusal led to the commencement of proceedings in the District Court of New South Wales on 26 August 2019.

The proceedings at first instance

1. [48]

   ISS sued Goodman Fielder in an action for breach of cl 8 of the Agreement in failing to pay invoices as issued by ISS on 30 May 2019 in relation to the costs of performing its due diligence.

2. [49]

   Goodman Fielder disputed ISS’s asserted entitlement by reference to cl 10 of the Agreement to which cl 8 was expressly made subject. It maintained that ISS had “submit[ted] a revised offer that is, or insist[ed] on entering into a Proposed Agreement on terms that are less financially favourable to Goodman Fielder than the key terms set out (in Appendix 1)”.

3. [50]

   Goodman Fielder referred to some seven proposals that had been submitted by ISS, all but one of which (the Status Update of 11 May 2018) were submitted after 14 May 2018 which, by cl 1, was the Expiry Date of the Agreement absent an agreement to extend the period by which the Proposed Agreement was to be entered into. Goodman Fielder maintained at first instance (although not on appeal) that there had been such an extension. It contended that all seven of the proposals were “less financially favourable” to Goodman Fielder within the meaning of cl 10 of the Agreement and that, accordingly, Goodman Fielder was not obliged to pay ISS’s due diligence costs.

4. [51]

   ISS contended that the only relevant “proposal” was that of 11 May 2018 because it was made prior to expiry on 14 May 2018, and that it was not “a revised offer” within the meaning of cl 10 of the Agreement because it was not an “offer” at all. ISS also contended that, in the alternative, it did not constitute or evince an “insist[ence] on entering into a Proposed Agreement on terms that are financially less favourable to Goodman Fielder on the key terms set out in Appendix 1 to [the Agreement].”

5. [52]

   The parties joined issue on the “proposals” that could be taken into account, with Goodman Fielder contending that all proposals made at least up until the time that ISS sent its invoice for due diligence costs on 30 May 2019 could be taken into account. The parties also joined issue on the characterisation of the proposals as “offers”, ISS contending that an offer had to be “one capable of acceptance” and Goodman Fielder maintaining that it was sufficient if what was contended to be a “revised offer” was a commercial proposal that was sufficiently detailed to be identified as a revision to the Key Terms.

6. [53]

   Goodman Fielder also contended that even if the 11 May 2018 “proposal” was not a “revised offer”, whether capable of acceptance or not, it represented or evinced ISS “insisting on entering into a Proposed Agreement” on terms financially less favourable to Goodman Fielder than the Key Terms that had been set out in the Agreement.

The primary judgment

1. [54]

   As noted at the outset of this judgment, the primary judge rejected Goodman Fielder’s contention that the Expiry Date of 14 May 2018 specified in cl 1.1 of the Agreement was extended “as agreed by the parties acting in good faith”: at [137]. The consequence of this finding was that, in circumstances where it was not disputed that no facilities management agreement had been entered into by 14 May 2018 then, subject to the operation of cl 10, Goodman Fielder was obliged to reimburse ISS for its actual due diligence costs, up to the contractual limit of $600,000 plus GST, under cl 8: at [145].

2. [55]

   At [147]-[152], the primary judge held:

3. [56]

   With respect to the construction of the exceptional circumstances in cl 10, the primary judge held that the Court should not be oblivious to the commercial realities driving an exception like cl 10, observing (at [155]-[156]) that:

4. [57]

   The primary judge turned to the construction of the terms of cl 10 and held that the reference to “offer” was to an offer capable of acceptance in a contractual sense. His Honour concluded that the “Status Update” of 11 May 2018 did not meet this description. This was a conclusion which Mr Hutton, who appeared for Goodman Fielder at first instance, accepted. Thus, on his Honour’s preferred construction, this meant that it did not fall within the first of the two contingencies referred to in cl 10: at [183].

5. [58]

   Against the possibility that the “offer” referred to in cl 10 of the Agreement did not need to be an “offer capable of acceptance”, the primary judge also held that he would not have characterised the Status Update as constituting a “revised offer” in some less technical, more attenuated sense as advanced by Goodman Fielder, namely a commercial proposal that was sufficiently detailed to be identified as a revision to the Key Terms. At [184]-[186], the primary judge stated that:

6. [59]

   At [188]-[189], the primary judge continued:

7. [60]

   The primary judge also rejected Goodman Fielder’s alternative submission, namely that, by reason principally of the Status Update, ISS was “insist[ing] on entering into a Proposed Agreement on terms that are financially less favourable to Goodman Fielder”. His Honour considered the meaning of this aspect of cl 10 of the Agreement at [173]-[179] of his judgment, treating it as covering a “situation where ISS wants one, or more than one, term falling short of a package of essential terms, to be included in a proposed agreement.” At [177]-[179], the primary judge held:

8. [61]

   His Honour noted the “immediate difficulty” for Goodman Fielder in its alternative argument lay in being unable to “identify, with precision, which term, or terms, ISS ‘insisted’ upon for inclusion in any proposed agreement within the period of due diligence”: at [194]. At [198]-[199], his Honour concluded:

9. [62]

   There was no contest by Goodman Fielder as to the reasonableness of the due diligence costs actually incurred by ISS between February and 14 May 2018, and the primary judge held that Goodman Fielder was liable to pay ISS $600,000 plus GST, together with interest and costs.

Grounds of appeal

1. [63]

   Goodman Fielder challenged the primary judgment on the following grounds:

Consideration

1. [64]

   Goodman Fielder made the general submission that:

2. [65]

   As to ground 1(a), relating to the primary judge’s holding that confined the words “revised offer” in cl 10 to a legally binding offer rather than any commercial proposal that was sufficiently detailed to be identified as a “revision” to the “Key Terms” and that was “financially less favourable” than the Key Terms, Goodman Fielder built upon its general submission set out above, contending that:

3. [66]

   The example given in support of the assertion that the primary judge’s interpretation operated “idiosyncratically against the objective interests of both parties” is not helpful. It does not in any way reflect what occurred in the present case, and does not provide any reason as to why the primary judge’s interpretation of the expression “revised offer” was incorrect nor does it bear upon the meaning to be given to that expression. Further Goodman Fielder’s submissions do not explain how the primary judge’s interpretation of the phrase “revised offer” made cl 10 “a trap for the unwary”. “Unwary”, in any event, would be a most inapposite description of both of the sophisticated commercial parties to the Agreement.

4. [67]

   Goodman Fielder’s preferred interpretation of “revised offer”, namely a “commercial proposal that was sufficiently detailed to be identified as a ‘revision’ to the Key Terms”, is more uncertain than that preferred by the primary judge because of the obvious room for debate as to the meaning of “sufficiently detailed”. Such a concept readily lends itself to differences of view and scope for disputation which it might be supposed commercial parties would not have intended.

5. [68]

   In any event, it is not strictly necessary to resolve the question as to whether or not the expression “revised offer” meant something less than a “legally binding offer” (to use the language of ground 1(a) of the Notice of Appeal) capable of acceptance that was favoured by the primary judge, or the more open-ended “commercial proposal that was sufficiently detailed to be identified as a ‘revision’ to the Key Terms” because I agree with the primary judge for the detailed reasons his Honour gave at [184]-[189] (see [58]-[59] above) that the Status Update of 11 May 2018 simply did not meet this description of a “revised offer”.

6. [69]

   For the same reason, Goodman Fielder’s submission that as a matter of ordinary English language, “something described as an ‘offer’ may or may not be legally binding” and that “it does not follow from the reference to ‘terms’ in cl 10 that the parties were concerned with legally binding offers only [because] [i]t is common to see the expression ‘commercial terms’ used in contradistinction to a legally binding agreement” is ultimately not to the point.

7. [70]

   The primary judge’s analysis of the character of the Status Update was not the subject of any serious challenge by Goodman Fielder on appeal. Mr Giles advanced the argument that the 11 May 2018 document should be read in conjunction with further “power point” slides which were furnished by ISS to Goodman Fielder on 16 May 2018 (see [43] above), after the Expiry Date under the Agreement had passed, on the basis that the covering email to the Status Update of 11 May 2018 had foreshadowed that further slides containing some financial information would be forwarded the following week.

8. [71]

   If, as I consider to be the case, any “revised offer” of the requisite character, in order to disentitle ISS from recovery of its due diligence costs pursuant to cl 8 of the Agreement, would have to have been made prior to the Expiry Date (see further at [81]-[87] below), it was not legitimate to take the additional slides supplied to Godman Fielder on 16 May 2018 into account. That Mr Giles sought to do so was tacit recognition of the fact that the Status Update was, as the primary judge said (at [189]), “so amorphous so as to preclude serious consideration by Goodman Fielder” and, “[a]t its highest, it was an update which served only to generate discussion”: at [188].

9. [72]

   As to ground 1(b), Goodman Fielder submitted that the primary judge should have found that the words in cl 10 “insists on entering into a Proposed Agreement on terms that are financially less favourable to Goodman Fielder on the [Key Terms]” would be engaged if ISS:

10. [73]

    Dealing with the first of these two suggested meanings, it is simply impossible as a matter of basic English to reconcile a party’s failure to do something as that same party “insisting” on a particular outcome.

11. [74]

    Both in this aspect of ground 1(b) and in his submissions, Mr Giles appeared to suggest that ISS was bound in the due diligence period, that is to say, between 5 February 2018 when the Agreement was entered into and 14 May 2018, to revert to Goodman Fielder as to whether or not it agreed with or confirmed the Key Terms, and that the Status Update of 11 May 2018 should be construed in this light. This was notwithstanding a concession made by Mr Hutton at first instance and recorded by the primary judge at [153] that good faith did not mandate that ISS put any offer to Goodman Fielder during the period of the Agreement.

12. [75]

    The primary judge considered that that concession was correctly made, as do I. ISS was not obliged during the due diligence period either to confirm that it was content with the Key Terms referred to in Appendix 1 to the Agreement or to submit an alternative, revised offer, although it was at liberty to do so. One position that was open under the Agreement was neither to confirm that it was content with the Key Terms nor to advance a revised or further offer that was on different terms. This is the position which, on the evidence, ISS took. Any suggestion that this entailed a breach of a contractual duty of good faith was eschewed and there may have been good commercial reasons for ISS to take this course, including that it was still working through its assessment of the potential engagement as at 14 May 2018 and/or that the due diligence that had been undertaken to that point in time still left it with uncertainty and questions about Goodman Fielder’s sites and the requirements of the potential engagement.

13. [76]

    In this context, it is not without relevance to note that one of the points made in the Status Update of 11 May 2018, described as a “Key Finding”, was that “Baseline data very difficult to verify and unable to acquire scope detail for a number of services”: see [39] above. Further, the language of the proposed but never executed side deed also of 11 May 2018 and drafted by Goodman Fielder noted that “negotiations on the Proposed Agreement are not far progressed”: see [40] above.

14. [77]

    Goodman Fielder submitted in writing that:

15. [78]

    Whilst it is plainly correct and is indeed trite that cl 10 fell to be construed in the context of the Agreement as a whole, the statement that “ISS was to ‘confirm’ the Key Terms, or not confirm them, following Due Diligence (cl 12A) and by the Expiry Date” overlooks the third possibility that I have referred to at [75] above. In short and contrary to Goodman Fielder’s written submissions, ISS did not have a binary choice, still less a binary obligation, either to confirm or not to confirm the Key Terms within the due diligence period. In the absence of any suggestion that the position ISS took (which was not to take a definitive position one way or the other within the due diligence period) was a breach of its good faith obligations under cl 13 of the Agreement, Goodman Fielder’s submission that “it was not open to either party to abandon its obligation to negotiate in good faith” leads nowhere.

16. [79]

    Dealing now with the second of the two suggested meanings of the words “insists on entering into a Proposed Agreement on terms that are financially less favourable to Goodman Fielder on the [Key Terms]” set out at [72] above, namely “indicated to Goodman Fielder that it was not open to accepting a Proposed Agreement that was at least equally financially favourable to Goodman Fielder as the Key Terms”, it is also not possible to reconcile this posited interpretation with the language of cl 10 of the Agreement.

17. [80]

    Not only does an “indication” that a party is “not open” to certain terms lack the quality of insistence, but it does not accommodate the fact that cl 10 is concerned with the party in ISS’s position insisting that certain terms form part of “a Proposed Agreement”. As the primary judge held, the “immediate difficulty” for Goodman Fielder in its alternative argument lay in being unable to “identify, with precision, which term, or terms, ISS ‘insisted’ upon for inclusion in any proposed agreement within the period of due diligence”: see [61] above.

18. [81]

    As to ground 2, namely that the primary judge erred in finding that only conduct prior to the Expiry Date could be taken into account in determining whether cl 10 had been engaged, the conduct which Goodman Fielder sought to have taken into account were the various proposals submitted to it by ISS after 14 May 2018 (see [44] above). This was forensically highly significant because it was accepted at first instance that all of these proposals were on terms that were financially less favourable to Goodman Fielder than the Key Terms in the Agreement.

19. [82]

    Goodman Fielder submitted that the primary judge was in error for the following reasons:

20. [83]

    The first of these submissions overlooks the fact that cl 10 must be read with cl 8. Clause 10 is effectively an exception to cl 8. The liability to which cl 8 refers must arise immediately following the passing of the Expiry Date. It is as simple as that. It is determined by reference to whether or not the Proposed Agreement had been entered into by that time. If it had not, Goodman Fielder was liable for ISS’s due diligence costs (subject only to the auditing process contemplated by cl 11) unless, prior to the Expiry Date, one of the two contingencies referred to in cl 10 had occurred.

21. [84]

    As to the second of Goodman Fielder’s submissions, the timing of the issue of the tax invoice referred to in cl 8 does not affect the fact of the liability to reimburse ISS; rather, it goes to the time frame in which that liability must be discharged. It would be wholly arbitrary if a contractual liability under a contract that had terminated could turn on events occurring after that date and by reference to the timing of the issue of a tax invoice.

22. [85]

    The example given by Goodman Fielder in para 56 of its submissions is not at all persuasive. ISS would, on the primary judge’s construction, be entitled to reimbursement of its due diligence costs at the Expiry Date. It would not “qualify” for that contractual benefit by anything it did or did not do after the Expiry Date. The suggested perversity or arbitrary result in fact only arises on Goodman Fielder’s preferred construction of cl 10 which the primary judge correctly rejected.

23. [86]

    As to Goodman Fielder’s fourth point and contrary to it, cl 10 is not included in the string of clauses which, by cl 23, survived termination of the Agreement.

24. [87]

    Finally, cl 10 in terms refers to a “revised offer” in respect of the Proposed Agreement. The Proposed Agreement contemplated by the Agreement had to be executed by the Expiry Date. If it were not, cl 18 of the Agreement provided that the obligations of the parties under it terminated (subject to the clauses including cl 8 that survived termination). That is a further powerful textual indication that conduct that may have engaged cl 10 had to occur prior to the Expiry Date.

25. [88]

    As to ground 3, Goodman Fielder submitted that:

26. [89]

    It may be accepted that this submission would succeed if grounds 1 and 2 were established but, for the reasons given above, I do not consider that they have been.

27. [90]

    Further, and for the reasons already given, the primary judge was correct to reject Goodman Fielder’s submission that the Status Update of 11 May 2018 engaged cl 10 of the Agreement with the consequence that Goodman Fielder was not obliged to pay ISS’s due diligence costs.

Conclusion

1. [91]

   For these reasons, the appeal must be dismissed with costs.

2. [92]

   MEAGHER JA: I agree with Bell P.

3. [93]

   LEEMING JA: I agree with Bell P.