WALLACE CORPORATION LTD V INTERNATIONAL MARKETING CORP LTD HC AK CIV 2003-404-7227

WALLACE CORPORATION LTD V INTERNATIONAL MARKETING CORP LTD HC AK CIV 2003-404- 7227 24 November 2005IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2003-404-7227BETWEEN WALLACE CORPORATION LIMITED Plaintiff AND INTERNATIONAL MARKETING CORP LTD Defendant Hearing: 18-22 April, 9-10 May 2005 Appearances: Mr Long & Mr Cundy for plaintiff Mr Johnson & Mr Shackleton for defendant Judgment: 24 November 2005 at 10 30 amJUDGMENT OF WINKELMANN JLee Salmon Long, Auckland Martelli McKegg Wells & CormackIntroduction[1] The plaintiff, Wallace Corporation Limited (WCL), is a meat processing company. At the time with which these proceedings are concerned the defendant, International Marketing Corp Ltd, (IMC) marketed meat products. [2] Between December 2001 and late 2002, WCL supplied meat with a value of approximately $23 million to IMC. At issue in the proceeding is the basis upon which that meat was supplied, there being no signed contract. [3] WCL seeks to recover $434,262.58 plus interest from IMC, which it says is the invoice value of meat sold to IMC by it and not paid for. IMC says that it was marketing the meat for WCL, and was only obliged to pay WCL the price IMC obtained for meat on on-sale. It was entitled to process monthly adjustments to the invoice price to reflect on-sale price. By reason of these adjustments, IMC says that it owes WCL nothing. [4] WCL's statement of claim contains two causes of action. The first cause of action alleges that the meat the subject of the claim was sold to IMC pursuant to WCL's standard terms and conditions, which included terms that payment was to be made within 14 days and that there would be no set off. During closing submissions however, counsel for WCL, Mr Long, conceded that there was no evidence to suggest that WCL's standard terms of sale were incorporated into the contract between IMC and WCL. He said however that the only certain and unequivocal facts as to the basis of dealings between WCL and IMC are the invoices recording the ordering of meat and the market prices stipulated for by IMC. WCL says that IMC bears the onus of excusing itself from payment of the invoices in question by proof of the terms of a marketing agreement it alleges existed for the marketing by IMC of WCL product. WCL says that IMC cannot do so, and therefore the invoices govern and regulate relations between WCL and IMC.[5] The second cause of action is pleaded as an alternative to the first. WCL says that if there was a marketing agreement between WCL and IMC, then the terms of that agreement included obligations on IMC to maintain a "forward sold" position in respect of WCL product and to carry out its marketing responsibilities in a competent fashion so as to eliminate market risk. WCL alleges that if IMC had maintained a forward sold position the invoice prices for which WCL claims payment would have been based on the actual prices IMC had already obtained for the product through on-sale. [6] WCL says that it was a term of the agreement that IMC would buy the product at the invoice price. At the end of each month however, a reconciliation would be undertaken and the invoice price could be subject to minor monthly adjustments reflecting the differences between invoice price and the price at which peripheral product was on-sold by IMC. However, these "wash ups" were only permissible if they arose from: (a) product not being produced in exact saleable lots by WCL so that it could not be forward sold; (b) variation between expected and actual kills; and (c) the need to amalgamate on-sales across several weeks production. [7] WCL alleges that in breach of the agreement, IMC failed to maintain a forward sold position in relation to WCL product. By reason of this failure, WCL says that IMC also failed to carry out its marketing responsibilities in a competent fashion so as to eliminate market risk to WCL in the bulk of its product. [8] It is WCL's case that had IMC not breached the agreement, losses on on-sale by IMC would not have occurred. Therefore IMC's purported adjustments to price are invalid and the $434,262.58 is due and owing. Alternatively, WCL is entitled to damages from IMC in the amount of IMC's monthly adjustments. Judgment is sought for the $434,262.58, or an inquiry into damages.[9] IMC accepts that it was contractually obliged to carry out its marketing responsibilities in a competent fashion, but says that it was not contractually obliged to maintain a forward sold position, or to eliminate market risk for WCL. It says that market risk on the product remained with WCL until on-sale by IMC, and the arrangement for a monthly reconciliation reflected that fact. The reconciliation included various items including on-sale price. [10] IMC says that in keeping with the terms of the marketing agreement, it processed wash up invoices that have not been paid by WCL. It has purported to set these wash up sums (as well as a further two amounts of $11,774.08 and $623.19) off against the $434,262.58 worth of invoices for which WCL claims payment. IMC also brings a counterclaim against WCL for the $433,432.72 worth of wash up invoices, the additional claims of $11,774.08 and $623.19, and a further sum of $4,693.48. [11] The issues for determination are: (a) Was the meat supplied by WCL to IMC pursuant to a simple sale contract and did that contract incorporate WCL's standard terms of sale? (b) If not, was an agreement reached for the supply of meat to IMC on the basis that it was to market that meat for WCL? (c) If so, what were the terms of that agreement and in particular, was it a term of the agreement that IMC would: (i) maintain a forward sold position, except in those limited cases where meat was not produced by WCL in saleable lots? (ii) eliminate market risk for WCL in respect of the bulk of its product? (d) Has WCL proved IMC breached the agreement by failing to competently market WCL product?(e) If so, has WCL proved that it has suffered loss by reason of any such breach? (f) Has IMC proved that it is entitled to a set off in respect of the wash up amounts? (g) In any case, has IMC proved its counterclaim?Factual backgroundEarly discussions[12] In late 2001, WCL entered into an agreement to purchase a meat processing plant in Thames. IMC had been involved in a marketing arrangement with the prior owners of that plant, Coromandel Food Processors, and had assisted with the marketing of steer and heifer boxed meat from the plant. [13] Meetings took place between WCL and IMC to discuss the possibility of an arrangement between IMC and WCL, whereby IMC would market the meat produced by WCL from the Thames plant, and in particular, boxed prime beef. It is common ground between the parties that a key part of the arrangement was that IMC would pay WCL for its production on the basis of an invoice and that this would have the effect of providing working capital for WCL to enable it to pay farmers for their livestock. [14] Mr James Wallace, the managing director of WCL, was at initial meetings where the proposed arrangement was discussed. He said it was proposed that IMC would purchase stock from WCL at a price based on the prices for which IMC was able to on-sell that product, and that IMC would be entitled to add a margin on the WCL product it sold. [15] Mr Wallace said that at those meetings he stated "categorically" that it was WCL's "absolute" policy that any marketing arrangement would be such that WCL would not be exposed in any way to risk of price movement in the market. He saidthat WCL had been through a "baptism of fire" in a previous relationship with another company for marketing meat from WCL's Waitoa plant. The marketer had failed to maintain a forward sold position and had failed to market competently, resulting in problems with unsold meat in storage. The marketing arrangement had ultimately been terminated with a $1 million settlement in favour of WCL. He therefore explained that any marketing arrangement would be on the basis that the marketer had to be forward sold at all times and the agreement would include the obligation to market competently. IMC representatives did not disagree. [16] He gave evidence that he stated explicitly in those meetings that: given that IMC would be buying the product off us at the prices it had nominated, then any gain or loss made by IMC by taking a position in the market (i.e. by not forward selling), would be to its account.[17] He also said:I note that the only reason WCL considered another marketing arrangement with an outside company was that the purchase of the plant, and the costs of the necessary upgrading for export certification, would stretch its banking facilities to the point where we would need to source the necessary working capital (which would be up to $3 million) from another party. The structure proposed by IMC achieved that objective.[18] From 2001 to 2003 Mr Anthony Perkins was the General Manager of WCL's Meats division. He attended the initial meetings for WCL with Mr Wallace, and was the key person in managing WCL's relationship with IMC. His evidence was that both he and Mr Wallace made it clear to IMC that any marketing arrangement would have to be along the lines that market risk to WCL be minimised as far as possible, and that this would require IMC to market competently and to maintain a forward sold position in relation to its sales of product. [19] At the time with which these proceedings are concerned Mr Blair Cooper was the manager of the meat export and trading business of IMC and Mr John McDermott was a director of IMC. Both attended the early meetings with Mr Wallace and Mr Perkins. [20] Mr Cooper said that it was always clear in discussions that the market risk in relation to the ultimate sale price of the meat would remain with WCL. Mr Coopersaid there were discussions at the meeting as to how to minimise market risk and he recalled hearing of WCL's bad experience in relation to an earlier marketing arrangement affecting Waitoa supply. He also recalled that the need to minimise market risk as far as possible was discussed but in conflict with the evidence of Mr Wallace and Mr Perkins he said that there was no stipulation by WCL that IMC should be always forward sold or as forward sold as possible. [21] Mr Cooper said that only once in the initial meetings did the subject of sales positions come up in discussion. He made it clear based on his own experience that the marketing of boxed prime beef was very different from WCL's area of experience, the selling of boxed manufacturing beef. He said that it might be necessary to channel product to the domestic market because at that time it was paying a premium over the export market. It therefore might also be necessary to carry inventory because supermarket chains liked to place bulk orders when they knew that the inventory was in store. However, IMC would forward sell if that produced a better outcome. He said that WCL management appeared to accept that sometimes it would be necessary to carry inventory. [22] There is also a conflict of evidence as to the mechanics of fixing price. Mr Perkins's evidence was that on the Thursday before product was supplied to IMC, IMC would advise WCL of the price it anticipated paying WCL for various products. WCL characterised that as the first price supplied by IMC or the 'Thursday price'. During the following week WCL would procure livestock, process the animals and supply the livestock. Approximately 10 days after procurement, IMC would stipulate the prices it would pay for the quantities actually produced and received by IMC. WCL would then render an invoice to IMC on the basis of those prices and quantities. [23] Mr Perkins said that IMC therefore had a second opportunity to set the price that it would pay for the particular quantity. It had 10 days between the Thursday price and when it stipulated the invoice price, to get it right. His evidence was:If IMC had been forward selling appropriately then there ought never have been significant differences between the prices realised by IMC through on- sales and the weekly production invoices, so that any monthly adjustmentsor "wash ups" would have to be negligible. These would only arise in limited circumstances, for instance: (a) where the amount of a particular item delivered by WCL to IMC was different to the amount which IMC had been invoiced for; (b) in relation to certain peripheral items that are produced from the livestock, but which are not typically in demand in the market so that sufficient on-sales to be forward sold could be secured.[24] Mr Perkins said that WCL relied upon the accuracy of the Thursday price in determining the price it would procure the meat at. He said that once the Thursday price was received he or another WCL employee would call Mr Cooper to discuss it. They would specifically seek confirmation that the indicative prices were based on actual sales and market data, and could be relied on by WCL. [25] Mr Perkins said that WCL paid to IMC a marketing margin of 4.25% on the product it purchased. At the end of the month IMC would render an invoice to WCL for the marketing margin for product purchased during the month. [26] Mr Wallace said that until mid 2002, he was under the impression that there was only one price, and that was the Thursday price. He understood that price to be the price at which IMC would be invoiced for the meat, and that the invoice was the beginning and end of the story. Any "wash ups" would be very minor and they would for the most part have nothing to do with the price of on-sale. He said that:Normally and internally within the Corp and other companies of the same sort, the price given on the Thursday represents the actual sale, not an indicated market sale, because unless it is the actual market sale you are going to [be] misled about what you pay for your stock. IMC had the opportunity to reconcile the actual production with the sales it made before they indicated to us what we should invoice them. Normally a marketing division will be committed to the bulk of its sales and have made them on Thursday and covered them for foreign exchange and the only major discrepancy will be that you produce more or less than you anticipated on the Thursday. But that is dealt with by a marketing department on a rolling basis, so they stay within the same market - they have under sold, or over- sold, and they will in the days that follow - the result is if that marketing department is doing its job properly the -- internally wash ups will be minor.[27] IMC's witnesses describe the pricing arrangement quite differently. Mr Cooper's evidence was that at the early meetings he outlined a specific pricing mechanism whereby on the Thursday morning of the week prior to processing, IMCwould provide market information to WCL to assist WCL with its procurement decisions. The stock would then be procured, processed and delivered into IMC's stores. [28] On the Tuesday of the week following processing, WCL would provide to IMC a summary of production for pricing. IMC would then stipulate a price for that particular quantity of product. As agreed, the pricing reflected the actual sales price where product was sold forward and an estimated sales price where product was as yet unsold. WCL would then issue an invoice that Mr Cooper described as 'pro- forma'. IMC would make payment on that invoice. [29] A monthly reconciliation or wash up would be undertaken by IMC. The wash up consisted of adjustments to the price to be paid to WCL by IMC, the quantum of which would depend on the actual price of the meat obtained (be it up or down) together with other adjustments relating to administration, specification, fault and quality issues. [30] Mr Cooper's evidence was that there was no 'Thursday price' as such, just the provision of market information for WCL management to use as a tool to feed into its internal processes for procurement. IMC was not to be part of the decision making in respect of WCL's procurement, in terms of price or volume. Other factors than price might bear on the decision, such as a desire to develop supply from a particular source. [31] Mr Cooper and Mr McDermott both agreed with Mr Wallace's evidence that an important feature of the arrangement for WCL was that IMC provided WCL with its working capital, by means of paying the Tuesday or pro forma invoice promptly and before farmers were paid for procurement. [32] Mr Cooper said that for its efforts to fund, manage inventory and market the WCL product, IMC was to be paid a gross commission of 4.25%. However, from this IMC had to carry the cost of funds, and pay for some direct costs, such as cold storage, inventory insurance and interest.[33] Mr Cooper said that after meeting costs IMC calculated its net return would be somewhere between .6% and .8% on the product sold.Toll Processing arrangement[34] In mid-October 2001 IMC and WCL entered into an interim arrangement whereby WCL procured livestock and then pay the then owner of the Thames plant a fee to process it. IMC then bought the product from WCL and sold it in the market. Mr Cooper's said this was a very short-term arrangement to cover the transition period before WCL obtained possession of the plant. The agreement with WCL was that IMC paid the invoice price for the product, and thereafter market risk was with IMC.Documentation[35] Mr Wallace's evidence was that he had attended the initial meetings only and that the precise details of the arrangements were not explored in depth at those meetings. Mr Wallace met with IMC in late October 2001. He did not become involved again in the detail of the relationship and dealings with IMC until July of 2002. He said that he left Mr Perkins and other WCL managers to work out the detail of the documentation, although Mr Perkins did discuss some issues in relation to draft documents with him. [36] No written contract was ever signed but efforts were made to document the agreement. Over the period 10 December 2001 to January 2002, WCL and IMC exchanged correspondence and draft agreements. [37] On 10 December 2001 Mr Cooper sent a letter to Mr Perkins recording his thoughts on a possible sales/marketing structure at Thames. Most of the letter is directed to personnel issues and in particular which of the existing marketing and sales staff, and marketing operations should shift to IMC. As to the relationship between WCL and IMC, Mr Cooper said in the letter:My thoughts are that IMC take ownership of product at the time of shipment to cold store. Wallace Meats would invoice IMC on a weekly basis for the previous weeks production at 100% of the market indicator, this invoicewould be paid in line with the average stock turn (14-21 days), IMC would then market & sell the product and invoice the customer directly. A monthly reconciliation would occur between the two parties to ensure that any under and over adjustments were settled in the current trading period.[38] Four drafts of the agreements were produced by IMC. Mr Perkins provided comments on some of these drafts but denies receiving the fourth draft. [39] There was no evidence to suggest that either WCL or IMC sought any legal advice or assistance with drafting. Mr Cooper said that he used the Toll Processing agreement as the base document and then amended it. A first draft of an agreement was prepared and submitted to WCL. It was entitled "marketing agreement" and recorded that IMC would provide "marketing services" to IMC. Marketing services were defined to include:Selling product. Providing market intelligence in order to maximise product returns. Being available, where practical to progress best practice in marketing strategy, boning specifications and any value added initiatives. New product development. New customer and market development. Invoicing sales, collection of cash. Inventory management.[40] The objectives of the agreement were said to be to provide product funding, marketing services and technical processing assistance in the marketing of WCL products. [41] Clause 3 of the draft recorded the "guiding principles". These were that the maximum capital input by IMC at any one time would not exceed $2.5 million (excluding GST) to be made up of stock and debtors. Stock in-store was to be invoiced from WCL to IMC weekly at 100% of the net sales, on the week following production. Net sales were defined twice in the draft agreement and each time differently. Broadly speaking, it was the net return on a sale after some costs were deducted. Payment of the invoice was to be within 14 days.[42] WCL had a right to re-purchase any stock that had not been sold if it identified a better market opportunity. [43] The draft records that IMC's sole revenue from the agreement was to be the marketing commission of .6% on all sales made of WCL product. All costs were to be passed on. A monthly reconciliation between WCL and IMC was to take place, and where necessary adjustments to the previous months "Net Sales return" by item were to be recognised by the parties. [44] Under a heading "Security", the draft recorded that IMC's security was that it had complete control over stock in its store and that (clause 5.1.2):At any time IMC will have paid 100% of the 'Net Sales Price'. By reviewing prices every week IMC and Wallace are only exposed to price changes in that current week.[45] Credit risk for onward sale remained with IMC. Claims for production fault were for the account of WCL. [46] WCL and IMC personnel met on 18 December 2001 to discuss the draft. Mr Cooper said there was general acceptance at that meeting of the terms of the first draft of the agreement, although it was also accepted that it needed fine-tuning. He said that the fundamentals of the relationship were never in dispute being: (a) IMC would purchase the meat; (b) an initial amount would be payable on the indicative pro-forma invoice, based on market indicator price; and (c) although payment was to be on that invoice, on-going liabilities would be subject to a monthly wash up including adjustment for price. [47] Mr Perkins said that although the first draft appeared to proceed on the basis that IMC would be forward sold, WCL was concerned that it did not explicitly state that IMC was required to be forward sold and to market competently.[48] After the meeting Mr Cooper made amendments to the draft which included provision that the price in the first invoice was to be "market indicator" rather than Net Sales price, and that outstanding invoices were to be settled 7-12 days after the invoicing. "Market indicator" was defined as meaning "the FOB price, having regard to either the free market or committed price, as appropriate". However the price that IMC was to pay for the product was recorded as the "Net Sales" price, which is defined as the net return on sale after all costs of sale and shipment to market have been deducted. Clause 5.1.2 was amended so that IMC's security was that:At any time IMC will have paid 100% of the 'Market Indicator Price". By reviewing prices every week, IMC and Wallace are only exposed to price changes in that current week.[49] Mr Cooper said the amendments were intended to capture what had been discussed at the 18 December meeting. [50] The second draft was sent to WCL on 24 December 2001. In evidence Mr Perkins characterised the changes made from the first draft as small. The draft was not acceptable to WCL he said, because again it did not expressly record obligations on IMC to market competently and be forward sold. Mr Perkins said he regarded the market indicator price as still a firm price, because IMC would be forward sold. [51] After further discussion a third draft was prepared by IMC and sent to WCL. The third draft recorded the following amendments of significance: (a) "Debtor risk" was added to the definition of marketing services. (b) Clause 3.1.2. and 3.1.4 confirmed that IMC's sole revenue from the agreement was to be the gross marketing commission of 4.25% rather than the previously recorded .6% on all product purchased and sold on WCL's behalf of costs paid from the point of ownership. The commission was to be payable on the weekly production as invoiced and was subject to review at the time of monthly reconciliation.[52] The third draft provided that IMC would bear the cost of interest, blast freezing, storage and transport.[53] Mr Perkins evidence was that it was the third draft agreement that WCL was working to and was happy with. There was no reference in the third draft to an obligation upon IMC to maintain a forward sold position. [54] A fourth draft was prepared by IMC after Mr Cooper had received some comments from the company accountant, Mr Fairley. Mr Fairley said that he requested amendments be made to the draft to make clear that while IMC carried the costs of interest and storage, WCL carried delivery and shipping costs. [55] He also said he requested amendments to the clause that recorded the "security" for IMC (clause 5.1.2) to make clear that the market indicator price would at any time be reflected in the monthly reconciliation, and that if the reconciliation resulted in an amount being payable to IMC, the invoice raised could be off set when payment was made to WCL. [56] Those amendments were made. Mr Cooper's evidence was that he faxed the fourth draft to Mr Perkins and another WCL employee on 22 January 2002. Mr Perkins was clear that he did not see that document until much later in the year, and did not at any stage agree to its amended terms.Subsequent Conduct of parties[57] The first wash up was not processed until late March 2002. Mr McDermott and Mr Perkins met on 14 March 2002 before the reconciliation. Mr Perkins said that at that meeting he raised concerns with IMC that there was a substantial discrepancy between the advance schedule prices given on a Thursday and the invoice prices stipulated for when stock was delivered to IMC. He said that Mr McDermott's response was to reassure WCL that in relation to its February/March 2002 purchases from WCL, it had been able to sell those products at prices significantly greater than those at which it had purchased from WCL, becauseIMC had underclubbed the prices it had advised WCL. It accordingly expected to be in a position to make a wash up payment of at least $30,000 to WCL. [58] Mr McDermott agreed that when he met with Mr Perkins he had anticipated that the first wash up would result in a payment of about $30,000 being made to WCL. He did not however recall saying that IMC had been underclubbing its Thursday schedule prices. [59] When the credit note was issued on 26 March 2002, it was for a sum of only $500.19 (including GST). [60] On 28 March 2002, Mr Perkins sent a letter to IMC protesting the size of the wash up. He said:We have all the risks and are making all the loss while you are receiving a profit and always will i.e regardless of margins. We accept the losses aren't your fault and if we were making spectacular profits we wouldn't be coming to you with a counter-argument.[61] Mr Perkins's evidence was that he was protesting losses arising from the discrepancy between the Thursday price and the pro-forma invoice price, the high cost of IMC commission and operational losses resulting from rises in the cost of processing livestock for little or no margin. [62] The relationship between IMC and WCL proceeded. Although negotiations for a formal written agreement were not pursued by WCL or IMC, WCL continued to supply and invoice IMC with product, and pay IMC's commission. Mr Perkins's evidence was that he continued to stress to IMC that WCL could not be exposed to market risk, and that both the advance and actual prices nominated by IMC should be based on actual prices obtained for selling the product. [63] IMC continued to generate wash up invoices. The wash up invoice generated on 11 April 2002, required payment by WCL of $11,317.78. Mr Perkins said that that came as a complete surprise to WCL because he said that it had been made consistently clear to IMC that it was essential to the relationship between IMC and WCL that they be forward sold at all times. He said that it was never agreed thatIMC could have a third opportunity to set its prices at the end of the month. Accordingly, Mr Perkins said that he told Mr Cooper that the invoice would not be paid. There is no written record of any such discussion and Mr Cooper denies that WCL asserted during this period that the losses were for IMC's account. [64] Over the next several months IMC rendered several wash up invoices requiring payment to be made to IMC by WCL. WCL did not pay on those invoices, with the exception of one issued in May 2002 for $377.35. WCL's accountant paid that. Mr Perkins said he would have challenged the payment of that invoice if he had known about it. [65] There is no correspondence from WCL in the period March through to late July 2002 evidencing that WCL protested IMC's contractual entitlement to generate wash up invoices for losses occurring on on-sales by IMC. In one June email sent in response to information from Mr Cooper of a falling market, Mr Perkins responded:Not good news and certainly reinforces the need to be well placed/forward sold. Hence we need the certainty of knowing that the previous weeks expectations will be realised i.e. no surprises please.[66] On 11 June 2002, Mr Cooper sent an email with further bad news. He said:I'm sure you are getting the picture that we are going to realise some losses when we eventually liquidate some stock items on the current falling market. To assist returns to Wallace at this time and recognising our role in sharing some of the pain, I am, with John's reluctant agreement, dipping into some of the forward cover that he has taken on the wool business to use against sales of Wallace product. In this way I am trying to get us in a more current position on Thames stocks with hopefully less pain to Wallace. I have consigned myself to the fact that we will not realise the income we originally targeted from this relationship and that we will be doing well to get between 0.3% - 0.5% return, but this season has been some what unique and if we can get through together than hopefully there will be some positive shakeouts and a positive future.[67] Mr Perkins responded:Much appreciated. We too have consigned ourselves that we will not realise the income(s) we expected but with your support we can at least minimise the losses.[68] Mr Perkins's evidence was that when he said he had "consigned" himself to losses, he was talking about losses caused by the gap between procurement and on- sale. [69] This email exchange was forwarded to Mr Wallace. Mr Perkins said that at that time Mr Wallace had not been told of the wash up invoices. In late June however IMC began pressing for a meeting because of concerns regarding erratic procurement by WCL. [70] Sometime in mid-2002 Mr Perkins began to re-involve Mr Wallace in the difficulties that were occurring with losses for WCL on the marketing arrangement. Mr Perkins gave evidence that he thought he told Mr Wallace about the difficulty with IMC in August 2002. Mr Wallace's evidence was that he became involved again in late July 2002, after receipt of a memorandum dated 24 July 2002 from a WCL employee, Mr McDonnell in which Mr McDonnell questioned the value of the relationship and recommended review. I am satisfied that Mr Wallace again became involved in issues relating to IMC after receipt of the McDonnell memo. [71] It was following Mr Wallace's re-involvement that the issues regarding the wash up invoices came to a head. [72] On 25 July 2002 Mr Cooper warned Mr Perkins that the wash up for June would be approximately $132,000. On 26 July 2002 Mr Perkins sent an email, which was the first correspondence in which Mr Perkins protested that such a wash up was inconsistent with their arrangement. He said:Thinking about our conversation last night (in fact I thought about it all night), I must reiterate my response to you. Should the wash up turn up on my desk with a $132 K deficit I will be sending it back to you. It goes back to the essence of our arrangement. That being we do not want to take any risks in the market. If you had been forward sold as instructed repeated times we would not be looking at this loss, which as advised would be on top of our existing operating loss.[73] That same day, Mr Cooper responded:Your response is disappointing and your non-acceptance and suggested actions in response to this deficit is a breach of our agreement. I would suggest that John and I meet with you and James fairly soon to discuss. When you analyse the data you will realise that we were forward sold in many areas, it is naive of you to think that we could be 100% forward sold given the prevailing market conditions. Tony, it appears that you have conveniently forgotten about all of the other factors that have impacted on this situation, all of which I have well documented. Unless you wish this arrangement to turn to custard, may I suggest that we work together to focus on how we can do this business better.[74] Representatives of IMC and WCL began a series of meetings and correspondence. Witnesses gave evidence for both IMC and WCL as to the content of those discussions. Submissions were made that this evidence supported the different versions of the contract contended for by both IMC and WCL. In closing Mr Long did however astutely observe that I might be little assisted by that evidence. I do not regard the evidence of the contents of those meetings or the correspondence that followed as reliable or helpful. By August of 2002, the parties were heading for their corners and were clearly already in dispute. [75] The parties continued to do business, although in decreasing volumes. [76] Between 22 September 2002 and 16 November 2002, WCL supplied meat to IMC and issued the following invoices for it:Date of invoice Amount of invoice28 September 2002 $156,699.65 5 October 2002 $103,461.35 12 October 2002 $46,008.19 19 October 2002 $54,635.76 26 October 2002 $76,653.86 2 November 2002 $53,430.299 November 2002 $51,225.74 16 November 2002 $2,306.41[77] IMC refused to make payment of those invoices, but has purported to exercise a set off in respect of 43 "wash up invoices" issued by IMC that remain unpaid.Relevant principlesDetermining whether there was agreement[78] In these proceedings the Court is being asked to determine whether the parties reached an agreement, and if so, to determine the terms of that agreement. The evidence before the Court is wide ranging and includes conduct, documentation and industry practice. It is generally accepted that it is permissible to forgo strict adherence to the traditional offer and acceptance analysis of contract formation and ask whether the totality of the dealings between the parties has resulted in a concluded agreement. In an often quoted passage Cooke J said in Meates v Attorney-General [1983] NZLR 308, 377 that the issue for the Court is:whether, viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain.[79] Similarly, in a useful passage Beale et al, Chitty on Contracts, Volume 1, Sweet & Maxwell, London 2004, says at 2-026, 2-027:When parties carry on lengthy negotiations, it may be hard to say exactly when an offer has been made and accepted. As negotiations progress each party may make new concessions or new demands, and the parties may in the end disagree as to whether they had agreed at all. The court must then look at the whole correspondence and decide whether, on its true construction, the parties had agreed to the same terms. If so, there is a contract even though both parties had reservations not expressed in the correspondence Businessmen do not, any more than the courts, find it easy to say precisely when they have reached agreement, and may sometimes continue to negotiate after they appear to have agreed the same terms. The court will then look at the entire course of negotiations to decide whether an apparently unqualified acceptance did in fact conclude the agreement. If it did, the factthat the parties continued negotiations after this point does not affect the existence of the contract between themthe binding force of an oral contract is not affected or altered merely by the fact that, after its conclusion, one party sends to the other a document containing terms significantly different.[80] See also Broadcasting Corporation of New Zealand v Daniels (1988) 2 NZBLC 103,535 at 103, 541 per Hardie Boys J where His Honour said that the Court is entitled to look at the whole context to determine whether there has been a meeting of the minds.Determining the terms of the agreement[81] Where a contract is concluded in the method described above, it follows from such a fluid and dynamic process that the precise terms of an agreement will often be difficult to ascertain. Chitty on Contracts provides that the Court can (at 2-029): resolve the uncertainty by applying the standard of reasonableness or by reference to another contract (whether between the same parties or between one of them and a third party), or even to a draft agreement between them which never matured into a contract.[82] This is the approach I will adopt and I intend to take into account a range of matters. These include the draft documentation, my impression of the witnesses, industry experience and reasonableness, in terms of the possibility of remaining forward sold at all times. In addition, the conduct of the parties throughout the period is relevant. It is now uncontroversial that post-contractual conduct can be used to ascertain whether there was in fact agreement on a specific term (or the existence of the contract itself): Broadcasting Corporation of New Zealand v Daniels(1988) 2 NZBLC 103,535 at 103,541, Hill v National Bank of New Zealand Ltd[1985] 1 NZLR 736, McLaren v Waikato Regional Council [1993] 1 NZLR 710 at 731 following Mears v Safecar Security Ltd [1983] QB 54 (CA). Fisher J inMcLaren emphasised that whether a specific term was agreed upon is a question of fact and subsequent conduct can help determine the existence of this fact.Was the meat supplied by WCL to IMC pursuant to a simple sale contract and did that contract incorporate WCL's standard terms of sale?[83] When the proceedings were commenced in December 2003, the Statement of Claim contained only one cause of action. That was substantially the same as the first cause of action in WCL's Amended Claim now before the court. WCL sought summary judgment on its claim on the basis that there was a contract of sale in respect of meat that had been supplied to IMC pursuant to WCL's standard invoice conditions. Mr Kevin Dawson for IMC swore an affidavit in which he deposed:WCL would then render an invoice to IMC at those prices for the volumes delivered. All sales were governed by WCL's then current standard terms. Clause 1 of the standard terms recorded that payment of WCL's account was to be made strictly according to terms outlined on WCL's invoice. It also provided that all payments were to be made without deduction, and no payment was to be withheld, reduced or deferred on account of any claim, counter-claim or setoff or otherwise. I annex marked ("A") a copy of the standard terms current when the Agreements were entered.[84] At hearing however, the standard terms, presumably printed on the reverse of the invoice, were not produced into evidence. It was the evidence of both Mr Wallace and Mr Perkins that there was a marketing agreement with IMC in place. Mr Wallace accepted it was a verbal agreement. The effect of Mr Perkins's evidence was that he thought its terms were in accordance with the third draft of the agreement. Mr Perkins said that the meat supplied between September and late November 2002 were supplied "consistent with the practice that had been followed throughout the relationship between IMC and WCL". [85] It cannot therefore be seriously contended that the meat was supplied by WCL to IMC pursuant to its standard invoice terms as pleaded in the first cause of action. [86] As an alternative Mr Long submitted that a finding was open on the evidence that the parties had never been ad idem as to the terms on which the meat was supplied. In that case Mr Long submitted that the Court should regard the invoicesas recording the price at which the meat was sold, that being a market price that IMC had stipulated for. [87] As set out below, I am satisfied that the parties were ad idem on all essential matters as to the basis upon which meat was to be supplied to IMC. Even were I not so satisfied I would not enter judgment in favour of the plaintiff on the first cause of action. If no contract was concluded between the parties then the plaintiff's claim should have been pleaded as a claim in quantum meruit, or perhaps under the Contractual Mistakes Act. [88] Accordingly, the first cause of action cannot succeed.If not, was an agreement reached for the supply of meat to IMC on the basis that it was to market that meat for WCL?[89] I am satisfied there was an agreement between IMC and WCL whereby IMC would market the meat for WCL and that by early 2002 WCL was supplying IMC meat in accordance with its terms. As observed above, the evidence of WCL's own witnesses was that there was such an agreement. [90] Negotiations for the agreement began in October 2001. Initially those negotiations involved very senior personnel from WCL (Mr Wallace) and IMC (Mr McDermott). Those early discussions did not however involve detailed discussion of how the arrangement would operate. The working out of the relationship appears to have been left to Mr Perkins and Mr Cooper. From the evidence of Mr Wallace and Mr Perkins and from the documentary evidence, I am satisfied that it was Mr Perkins who had primary responsibility for negotiations and dealings with IMC from December 2001 until August 2002. For IMC, primary responsibility rested with Mr Cooper. [91] By the third draft of the agreement, Mr Perkins was satisfied to the extent that he was content that IMC and WCL deal with each other on that basis, and did not pursue documentation further.[92] Although a fourth draft of the agreement was prepared by IMC, there is no evidence that it was actually received by Mr Perkins. Mr Perkins's evidence was that he did not receive the fourth draft until August 2002. Following a discussion in which Mr Cooper had referred to its terms, Mr Perkins asked that the fourth draft be faxed to him. His hand-written note on that draft made at that time is supportive of this evidence. It reads:First receipt of this changed version - not what we are working to.[93] The fourth draft contained two amendments. One was to delete the obligation on IMC to meet transport costs, and the other was an editing of clause 5.7.2. According to Mr Fairley and Mr Cooper's evidence, the latter amendment was intended to better express what was already agreed between the parties. I doubt that it did better express the agreement. But in any event neither matter is so significant in the dealings between the parties to support a finding that the parties were not ad idem on the key terms. I am satisfied that the amendment in relation to transport costs was not agreed to by WCL, and did not form part of the agreement between the parties.If so, what were the terms of the agreement?[94] The agreement between the parties was as expressed in the third draft of the agreement. [95] Accordingly, property passed to IMC on initial invoicing. The prima facie position is that all risk in the product passes with property (s 22 Sale of Goods Act 1908). However, the parties agreed to vary that default position, such that risk of spoilage and price remained with WCL. [96] In particular, the parties agreed a two price system. The two prices were the "market indicator price" and the "net sales price". The Thursday price could not properly be described as a price, but was rather the in-put by IMC of market price related information, into WCL's internal procurement processes.[97] The market indicator price was utilised in the Tuesday invoice, and was the price IMC would initially pay. It was to be the on-sale price if the meat was already sold by IMC. Otherwise it was the market price. [98] The price IMC was to ultimately pay for the product was the net sales price. The net sales price was as defined but effectively the price at which IMC on-sold the meat for WCL less the cost of sale and shipment.Was it a term of the agreement that IMC would maintain a forward sold position, except in those limited cases where meat was not produced by WCL in saleable lots?[99] WCL's version of the basis upon which the product was supplied by WCL to IMC has changed significantly over time. When the claim was initially brought, WCL alleged the product had been supplied pursuant to its standard contractual terms. At trial, Mr Wallace said that the basis of the agreement was that if IMC chose not to be forward sold on WCL product, then market risk on that product was for IMC. In closing, Mr Long said that WCL's case was that if there was a marketing agreement, the risk on the market value of the product did stay with WCL, but IMC was to manage that risk by forward selling product and marketing competently. [100] It has at times been difficult to discern what WCL alleged the agreement with IMC was. However Mr Long's articulation of WCL's case in closing was clear, and was consistent with its current pleading. This is the basis on which I address WCL's claims. [101] WCL therefore contends that it was a term of the agreement that IMC would maintain a forward sold position, except for those products where it was necessary to accumulate product until it reached a saleable lot. [102] The first difficulty for WCL with this claim concerns the meaning of being forward sold. There was conflicting evidence before me as to the meaning of that expression.[103] Mr Wallace said that being forward sold meant that IMC was required to sell the product either before the Thursday prior to procurement, or during the 10 to 12 days prior to invoice. There was no evidence to suggest that he explained to IMC that this was the sense in which he used the expression. [104] Mr Green, a witness for WCL, said that being forward sold meant that the marketer had contracted sales for any given product that exceeded the quantity physically in store. Therefore, as or before the slaughter is taking place, most of the resultant products have already been sold for known prices. [105] Mr Weir was called as an independent expert by IMC. Mr Weir's evidence was that being forward sold means being committed to more supply than there are current procurement contracts in place for. His evidence was that there are risks associated with being forward sold, namely a shift in the procurement market after the marketer has committed to supply. He said that it is prudent to take a balanced position by acquiring livestock and selling meat on the same markets. This is achieved by entering into back to back agreements for procurement and sale, effectively selling at the same time as procurement. [106] I observe that Mr Wallace and Mr Green's definition of a forward sold position seems the same as Mr Weir's definition of a balanced market position. However, regardless of the definition of forward selling, I am not satisfied that it was a term of the agreement that IMC would at all times maintain a forward sold position on saleable lots of WCL product. I prefer the evidence of Mr Cooper as to what was agreed between IMC and WCL. Mr Perkins' evidence was at times inconsistent, and I did not regard his evidence on this issue as reliable. Mr Wallace was unable to give evidence in relation to the key period of time in which the terms of the agreement between IMC and WCL were worked out. [107] In reaching the view that a requirement to be forward sold (in whatever sense) was not a term of the agreement, I have taken the following into account:(a) Mr Wallace conceded that the discussion concerning the requirement that IMC must always be forward sold would not have taken up much of the early meeting at which it was raised. (b) Mr Wallace delegated the contractual negotiations to Mr Perkins at an early stage. Mr Wallace was not aware of the arrangements that were agreed between Mr Perkins. (c) Until mid to late 2002, Mr Wallace believed that there was only one price and that was what he referred to as the Thursday price. However, the pricing and sales system operated between IMC and WCL did not involve IMC giving a price for particular product, but simply providing pricing information. (d) There is no reference in the draft documentation to a requirement that all saleable lots of products be forward sold. Mr Perkins said the omission to include that term was the reason WCL did not sign off an agreement. This is difficult to reconcile with his evidence that he was content to do business on the basis of the third draft of the agreement, and that he did not continue to press for re-drafted documentation. (e) The third draft of the agreement was poorly expressed. However, it provided that the Tuesday price was to be the market indicator price, not the net sales price. It also provided for a monthly reconciliation to enable adjustment to the Tuesday invoice price, to reflect the fact that the Tuesday price might not accurately reflect the on-sale price. Such reconciliation was only necessary if the product was not already contracted for on-sale at the time of the Tuesday price. There is no stipulation in the draft agreement that the reconciliation process only applied where product was not supplied by WCL in saleable lots. That would have been an easy matter to provide for. (f) The system that operated was not consistent with a requirement that IMC always be forward sold. WCL was responsible for procurement.As Mr Perkins acknowledged, WCL made a commercial decision in relation to procurement in which many factors could come into play. IMC was not involved in the procurement decisions, although it did provide pricing information to assist WCL. The Thursday information that IMC provided did not include details of the contracts that IMC was committed to. One would expect that it would be vital that WCL have such information if IMC were required to enter into contracts in advance in respect of all or substantially all of WCL's procurement. (g) Similarly there was no evidence to suggest that IMC was told of the quantities WCL proposed to procure or had procured. Mr Cooper's evidence was that IMC only became aware of the volumes of particular product procured after it had been delivered to IMC's stores. As is dealt with below, WCL's procurement was at times erratic, and WCL retained the right to sell product to parties other than IMC. In such circumstances forward selling would not always be possible. IMC did not have timely information as to product quantity or identity. Further, it could not count upon a predictable level of supply. (h) Mr Perkins accepted that he knew by February that sizeable portions of the product had not been sold at the date of the invoice. He said that this was not a problem for WCL because market risk in the product was with IMC if it was not forward sold. However, that is inconsistent with WCL's claim that IMC was contractually obliged to manage market risk for WCL by being forward sold and by marketing competently. (i) It was in March that Mr Perkins protested the small credit available to WCL on reconciliation of on sales. Mr Perkins had anticipated, and been prepared to accept a $30,000 credit. That also is inconsistent with market risk having passed to IMC.(j) The first documented protest by Mr Perkins to IMC's failure to forward sell did not occur until July 2002. The correspondence in between records Mr Perkins acceptance that the market risk on the product remained with WCL.Was it a term of the agreement that IMC would eliminate market risk for WCL in respect of the bulk of its product?[108] WCL contends that IMC was contractually obliged to eliminate market risk for WCL. WCL says that this was to be achieved by being forward sold at all times. IMC does not accept that it was obliged to eliminate market risk. [109] As formulated by WCL, the obligation to eliminate market risk is a repetition of the contention that IMC was always to ensure it was forward sold. I have already held there was no such term in the agreement. For the reasons set out in paragraph [ ] above I am also satisfied that it was not otherwise agreed that IMC would market in such a way as to eliminate market risk. In reaching this view I also take into account that the marketing principles in the third draft of the agreement included that IMC would maximise product returns within the constraints of the business. There was no mention in that draft, or any earlier draft, that the marketing principles should include marketing to eliminate market risk.Has WCL proved that IMC breached the agreement by failing to competently market WCL product?[110] It is WCL's case that competent marketing required a completely, or at the very least substantially forward sold position and the elimination of market risk. It says that if IMC had been forward sold, then the monthly reconciliations would not have produced the negative variances the subject of the wash up invoices, and now the claimed set off. [111] IMC says that it marketed WCL's product competently. It says that its performance in a difficult market was acceptable, and in keeping with the performance of major industry participants. Its ability to forward sell oralternatively, sell at the market indicator price was adversely impacted by the unavailability of markets in the United States of America and European Union. Although it was known from the outset that the European Union markets were not available, the Thames plant lost its certification for the United States of America in January of 2002. The combined effect of this was that IMC was heavily reliant upon the domestic market for WCL product. Mr Cooper's evidence was that it was difficult to be forward sold in the domestic market, because supermarkets required that inventory be in store with the supplier before committing to purchase. [112] IMC also pointed to difficulties caused by WCL's procurement methods, and in particular the fluctuations in the quantities of procurement. Mr Cooper raised concern regarding WCL's procurement in a number of emails to Mr Perkins over the first half of 2002 and into July 2002. [113] In support of its claim that IMC did not competently market, WCL points to the losses incurred on on-sale. However, the existence of losses alone is not sufficient to prove WCL's claim in this case. It is common ground that throughout 2002 the market for beef was declining. There was evidence produced by IMC that other meat suppliers had suffered significant losses in that particular season. [114] WCL called no independent expert evidence to prove that there had been a failure to competently market by IMC. It relied upon the evidence of Mr Phillip Green, the General Manager of WCL's meats division, to prove industry standards in relation to forward selling, and to prove that IMC had not complied with those standards. Mr Green's evidence did not comply in substance or form with the requirements of expert evidence as set out in the Code of Conduct for Expert Witnesses: Schedule 4 to the High Court Rules. Mr Long referred Mr Green to the Code of Conduct for Expert Witnesses on re-examination in an attempt to cure this defect. Mr Green had not seen that Code before re-examination, nor was there a suggestion that the substance of the requirements of the Code had at least been drawn to his attention prior to his giving evidence. [115] On re-examination Mr Green confirmed he had complied with the Code in preparing his evidence. However, it follows from clause 3(a) of the Code ofConduct and Rule 330A(2) of the High Court Rules that an expert is to be provided with the Code before preparation of his or her evidence. The practise by the witness of the disciplines described in the Code during preparation of their evidence is vital to ensure that the evidence can truly be characterised as independent expert evidence. [116] Even were it not for this defect, Mr Green cannot be described as independent. Mr Green has been intimately involved in the dispute with IMC on behalf of WCL. The first part of his evidence was devoted to his account of the meetings he had attended with IMC and the correspondence with IMC that had ensued. An expert is not an advocate and must exercise independent and professional judgment: Code of Conduct clauses 2 and 7. [117] The difficulty with Mr Green's evidence was raised with counsel for WCL during the course of the hearing. I do propose to consider Mr Green's evidence on the issue. However, in weighing it against Mr Weir's conflicting evidence, I will take into account Mr Green's close involvement in the dispute, and continued employment relationship with WCL. Mr Long conceded that these are matters that are relevant to the weight that is to be accorded to Mr Green's evidence. [118] Mr Green said it is industry practice to be forward sold, and that this is vital in an industry which is subject to price volatility and where margins are small. He undertook various calculations to establish the extent to which IMC was forward sold. On the basis of these figures he expressed the opinion that IMC was significantly undersold. He said that:The amount of unsold stock is outside the parameters I would expect from a competent marketing company, and certainly fails to guard against the market risk that Messrs Wallace and Perkins made clear at the initial meetings that WCL was not willing to accept. Had IMC been forward sold, then the overall position would have been such that few items (if any) were undersold, and the overall position would have been no large volumes unsold at any time carrying the risk of later reductions in value when on- sold. It is certain that the amount of unsold product that was being carried forward was heading to a day of reckoning when higher valued earlier production was finally sold and invoiced for on-sales by IMC. This is what occurred in June 2002, July 2002, August 2002 and then again in November 2002, when the very large wash ups invoices were issued by IMC.[119] He also concluded:If a forward sold policy had been followed by IMC, then wash ups that represented difference between the weekly invoices and on-sales by IMC could have been only of a very minor nature. WCL's risk should have only arisen between the indicative price levels provided on the Thursday and the actual sales price levels provided the Monday of Tuesday the week after the production. The wash ups claimed by IMC are significant in value, and represent exposure to market risk that must have arisen by IMC failing to remain forward sold.[120] Mr Weir was called as an expert witness for IMC, and was properly qualified as such. Mr Long established on cross-examination that Mr Weir had in the past been contracted to work on a part time basis for Mr Cooper's current employer, and had worked with Mr Cooper in that role. This contract lasted for several months. I do not consider that this itself is sufficient to undermine his independence as a witness. I was impressed by the balanced and careful way in which he gave his evidence. [121] Mr Weir's gave evidence about industry practice in relation to forward selling. He said:The disciplines described by Mr Green in his evidence are not so easily applied in referred to Prem Steer, Prime Beef and Lamb which is generally regarded as a higher valued product and more complex with parts of the animal targeted at retail, restaurant and food service, as well as other parts targeting further processing and commodity grinding markets. The reasons are many, and using Prem Steer as an example, there is greater diversity of specification and product use, there are more complex and widely spread markets (including domestic markets), there are typically different forms of supply either chilled or frozen etc. Because of the diversity of factors mentioned above, different specifications accumulate at different speeds and are typically marketed in different ways. It would be an unrealistic expectation and would not be the preferred practice by New Zealand specialist Prem Steer meat packer/exporters to have a forward sold position. In summary therefore, it is not industry practice to maintain a totally forward position. A forward sold position needs to be balanced with the risks associated with market movement both up and down. In respect of Prem Steer, Prime Beef and Lamb, a balanced sales position would be the more appropriate course of action.[122] Mr Weir confirmed that it would have been prudent to have a balanced portfolio, but said that the ability to sell back to back was dependent upon a good flow of information as to procurement. [123] Mr Weir also gave evidence in relation to the impact of other factors on IMC's ability to market WCL's product. He said that New Zealand producers are heavily reliant on markets in the United States of America and the United Kingdom for Beef and Sheep. When the Thames plant lost its certification for the US market, that reduced substantially the marketing opportunities open to IMC for WCL product. He said that suspension of US certification would have wiped significant value off stock in store as well as any work in progress. [124] Mr Weir reviewed the major marketing decisions taken by IMC. He assumed for the purposes of the review that IMC did have the difficulties with WCL Mr Cooper described in his evidence in relation to communication, information, consistency of supply and non-exclusive supply in New Zealand. Mr Weir's conclusion was that:It is my understanding that IMC marketed on behalf of WCL approximately $23,115,000(including GST) during the term of the marketing agreement. I also understand that IMC's evidence is that after deductions for variances previously agreed between the parties being admin error, claims and agreed costs, the variance between the indicator price and the amount realised was less than 1.6%. In my opinion given the market conditions at the time, the percentage variance is reasonable and understandable. In my opinion, given all the contributing factors, IMC appears to have carried out its marketing role appropriately. It is very easy to say in hindsight that a more aggressive forward sold position should have been maintained by IMC but if this reading of the market had been that obvious and easily achieved, then large companies like AFFCO and Richmond (being the largest beef packer/exporter) would not all have reported significant operating losses for the 2002 season[125] I am satisfied that Mr Weir's factual assumptions are correct. There were significant obstacles for IMC in maintaining a balanced (current) or forward sold position. In particular: (a) The timing of the information as to quantity of supply would have limited the ability to commit to forward or back to back sales.(b) Procurement by WCL was erratic. I accept Mr Cooper's evidence that there were difficulties with WCL's procurement. His concerns as to procurement were recorded in a series of email communications between Mr Cooper and Mr Perkins. (c) The loss of US certification. WCL's response is that it was IMC's role to market the product in the market of the day and within any constraints such as loss of markets. That may be so, but it was accepted by WCL that the loss of US certification would have impacted upon the returns obtained on product in store and work in progress at that time. (d) For the time the suspension was in place, the extremely limited marketing opportunities left for IMC would have negatively impacted upon IMC's ability to forward sell. [126] I regard Mr Weir's evidence as more reliable than Mr Green's on the issue of market practice. I therefore accept Mr Weir's evidence that it was not the industry standard to be fully forward sold on premium steer, beef and lamb but rather that a current or balanced position was the ideal. I also accept Mr Weir's evidence that in the market conditions for the 2002 season, and given the loss of certification for the US, and erratic procurement by WCL, IMC carried out its marketing role appropriately. Mr Green made little allowance for the loss of US certification in his assessment of IMC's performance, and did not take into account at all the impact of erratic supply from WCL. It was clear to me that Mr Green's evidence strayed into advocating for WCL's claim which is perhaps natural given his role within that organisation. [127] Accordingly WCL has failed to prove to the required standard that IMC breached its contractual obligations to market WCL product competently. The issue of whether WCL has proved loss flowing from such a breach therefore does not arise.Has IMC proved that it is entitled to a set off in respect of the wash up payments?[128] WCL has failed to establish the necessary elements of either cause of action and it is not therefore necessary to determine IMC's affirmative defence of set off. However, to avoid the need for further litigation I propose to consider the claimed set off. [129] WCL does not dispute that it is obliged to allow credit to IMC for the following set offs claimed by IMC: (a) product claim W47020 $44,000 plus GST $49,500.00 (b) product claim 33452 $8795.00 (c) Eskimo Logistics and Horizon Meats, product claim $9960.00 (d) Invoice 1388 for left over meat sold back to WCL $623.19 [130] Although WCL disputes IMC's entitlement to payment of the price adjustment 'wash up' invoices, it does not dispute the calculation of the $327,355.56 price adjustment claimed by IMC. I have held that IMC was only obliged to pay WCL the price IMC on-sold the meat for, and further that it did not breach its obligation to market the product competently. It follows that IMC is entitled to payment of its 'wash up' invoices. [131] IMC also claims to set off $37,822.16 for Eskimo Freight charges. IMC bears the onus of proving that WCL contracted to pay for those charges. In the third draft of the agreement, transport charges were recorded as being for the account of IMC. In the fourth draft they are shown as being for the account of WCL. However I have held that there is no evidence that IMC received the fourth agreement. [132] Although Mr Cooper's evidence was that the fourth draft accurately captured what was always agreed in relation to transport charges, I am not persuaded that is so. Mr Perkins protested the invoicing of these charges as soon as WCL wasinvoiced for them. Further, IMC's own internal guidelines provide that the matters to which invoice 5377 relates were to be IMC's costs. IMC's claim for a set off of this amount therefore fails. [133] The final amount claimed by way of set off that is disputed by WCL relates to the cost of storage of WCL product that was stored at the Coromandel plant in December 2001, prior to WCL entering into possession. WCL paid storage costs prior to 8 December 2001. However, IMC delayed in invoicing WCL for the period 8 December 2001 to 15 December 2001 because it had mistakenly charged Coromandel for that period. [134] WCL challenge the adequacy of the proof of this claim. IMC has produced invoice documentation in support of the claim, together with a detailed explanation from Mr Fairley as to how it arose. I am satisfied on the basis of the documentation and Mr Fairley's evidence that IMC has proved that it was agreed that WCL would pay for the storage cost of its meat at Coromandel, and that it has failed to do so for the period 8 December 2001 to 15 December 2001. Accordingly IMC is entitled to the set off of $11,774.08.In any case, has IMC proved its counterclaim?[135] IMC seeks judgment for the following amounts: (a) The amounts set out in paragraphs [129] and [130]. (b) $37,822.16 for Eskimo Freight charges. (c) $11,744.08 for storage of WCL meat at Coromandel. (d) Additional amounts of $4693.48 (invoice 5743, excess fat claim) and $295.48 (invoice 5767, bull bolar beef claim). [136] For the reasons set out above IMC succeeds in its counterclaim on the amounts set out in paragraph [135](a) and (c). WCL does not dispute the amountclaimed by IMC as described at paragraph [135](d), and IMC is therefore also entitled to judgment for that amount. [137] For the reasons set out above, IMC is not entitled to judgment on its claim for payment of $37,822.16 for Eskimo freight charges.Judgment[138] Accordingly, WCL is not entitled to judgment on either its first or second causes of action. IMC is entitled to judgment on its counterclaim, with the exception of the $37,822.16 Eskimo claim. [139] IMC having substantially succeeded with its counterclaim, it is prime facie entitled to costs. If the parties are unable to agree quantum, they may file memorandum as follows: (i) IMC by 10 February 2006. (ii) WCL by 17 February 2006. Winkelmann J