The recent case of PFJV v Bartter Enterprises [2024] QSC offers valuable insights into the complexities of commercial transactions, particularly in the agricultural sector. Centred on a dispute over a broiler chicken farm in Ipswich, Queensland, the case examines the business risks associated with silence in contractual dealings. At the heart of the matter was the question of whether Bartter Enterprises, a major player in the poultry industry, had a duty to disclose potential plant closure plans, and whether its silence constituted misleading and deceptive conduct under Australian Consumer Law.
The court’s findings provide useful guidance on when one party might not be reasonably expected to disclose certain facts, and when withholding information may not constitute misleading or deceptive conduct under section 18 of the Australian Consumer Law.
What is a Broiler Chicken Farm?
Broiler chickens are those bred specifically for meat, not for laying eggs. Broiler chicken farms bring in day-old chicks, raise them for 5-6 weeks, and then send them to processing plants for … ‘processing’. These chickens form the backbone (pun intended) of brands like KFC and Red Rooster.
In this case, the farm at the centre of the dispute, Donnybrook Farm, in Ipswich, Queensland, had a chicken processing contract with Bartter Enterprises, a company now part of Baiada, the group behind popular chicken brands like Steggles and Lilydale.
The Main Characters
Mr. Vorster and Mr. Feitelson were the directors of the Plaintiff. They previously worked as a tax advisor and an architect/property investor, respectively. They had already owned one chicken farm and were considering purchasing Donnybrook, hoping for another processing contract to boost their business. Their existing farm had a contract with Inghams, one of Australia’s largest poultry companies.
Bartter Enterprises, the defendant, was led by the Camilleri brothers, cautious decision-makers who control the operations at Baiada. They are known for deliberating on decisions and looking at all options for months but acting quickly once a decision is made.
Other key players include Mr. Reppel, the director of Repstar Pty Ltd, the vendor of Donnybrook Farm, and Mr. Rapa, General Manager of Bartter Enterprises. Notably, Mr. Rapa made it clear that he was not a decision-maker within the company.
The Background Story
In 2016, Mr. Vorster and Mr. Feitelson expressed interest in purchasing Donnybrook Farm, knowing it had a chicken processing contract with Bartter Enterprises. They hoped that Inghams would extend a processing agreement similar to their existing contract, but Inghams was preoccupied with its stock exchange listing and declined.
Confident in their experience and ability to understand the contracts, Mr Vorster and Mr Feitelson instructed their lawyers not to review the Chicken Processing Contract with Bartter Enterprises. The contract contained a clause allowing Bartter to terminate the agreement with three months’ notice if the Ipswich processing plant was closed.
Despite this termination clause, the Plaintiff proceeded with the purchase of Donnybrook Farm, signing the sale contract in September 2016 and formally taking an assignment of the Chicken Processing Contract in November 2016.
The Dispute
In August 2017, Bartter notified the Plaintiffs that they would be closing the Ipswich processing plant and terminated the chicken processing contract. The Plaintiff claimed that Bartter knew as early as 2016 that the plant closure was probable and that the Bartter should have disclosed this information during discussions, particularly in a phone call between Mr. Vorster and Mr. Rapa on 20 August 2016.
The Plaintiff alleged that by withholding this information, Bartter engaged in misleading and deceptive conduct, in breach of section 18 of the Australian Consumer Law.
Legal Considerations
CJ Bowskill had several key issues to consider:
- What was said or left unsaid in the phone conversation between Mr. Vorster and Mr. Rapa on 20 August 2016?
- Did Bartter Enterprises have an obligation to disclose the possibility of closing the Ipswich processing plant?
- Did the Plaintiff rely on Bartter’s silence or statements when purchasing Donnybrook Farm?
- Did the Plaintiff suffer any loss due to the plant closure?
To determine whether there was misleading or deceptive conduct, CJ Bowskill referred to a four-step process recently confirmed by the High Court:
- Identify precisely the conduct alleged to breach section 18.
- Consider whether the conduct was in trade or commerce.
- Examine the meaning conveyed by the conduct.
- Determine whether the conduct was misleading or deceptive.
CJ Bowskill outlined a number of principles in relation to misleading and deceptive conduct by silence or non-disclosure including:
- silence or non-disclosure may, in some circumstances, constitute misleading or deceptive conduct;
- mere silence without more is unlikely to constitute misleading or deceptive conduct. However, remaining silent will constitute misleading or deceptive conduct if the circumstances are such as to give rise to a reasonable expectation that, if some relevant fact does exist, it will be disclosed;
- when the parties are engaged in commercial dealing, it is often the case that one party has more knowledge about a relevant matter than the other and yet that party will not ordinarily guilty of misleading or deceptive conduct by failing to make that knowledge known to the other.
Findings of Fact
It was found that discussions about closing the Ipswich processing plant had been ongoing for months, but no decision was made until July 2017. Mr. Rapa was unaware of these discussions, and no decision to close the plant had been made at the time of the phone call on 20 August 2016.
The court also found that Bartter Enterprises had no obligation to disclose its high-level, confidential deliberations to a potential assignee of the chicken processing contract in August 2016 or to an actual assignee in November 2016 because:
- it had not yet made a decision and had not advised the general manager of the processing plant that they were considering closure (among other options);
- the Plaintiff and its directors were legally strangers to the Defendant;
- the Defendant’s only obligation at that time was to give three months’ notice to the Vendor of the Donnybrook Farm before closing the Ipswich processing plant, not even as soon as a decision was made to do so.
Additionally, the Plaintiff was aware of the risks posed by termination clause in the contract and had chosen to proceed to enter into an unconditional contract to purchase the Donnybrook Farm, even before Bartter Enterprises had consented to the assignment of the chicken processing contract.
No Misleading or Deceptive Conduct
CJ Bowskill distinguished a case relied on by the Plaintiff, Hardy v Your Tabs Limited [2000] NSW CA 150 in which the seller of a home delivery pizza business deliberately withheld information about a pizza franchise that was about to open in the area, even when the purchase enquired as to the reason for selling the business.
In her ruling, CJ Bowskill determined that Bartter Enterprises had not engaged in misleading or deceptive conduct. There was no obligation to disclose discussions about the plant’s future, and the plaintiff had not relied on any statements or omissions when making their purchase decision.
No Loss Caused
The Plaintiff entered into a new chicken processing contract with Inghams about 12 months after the closure of the Ipswich processing plant. The Plaintiff calculated its loss at around $1 million for the 12 months. The court did not accept that they could have entered into the new Inghams contract earlier if they had known about the closure earlier. So, there was no causation of loss.
Ultimately, the plaintiffs’ claim was dismissed.
Final Thoughts
PFJV v Bartter Enterprises highlights the importance of understanding commercial risks, especially when entering into contracts with clauses that permit termination for convenience, even if they are ‘industry standard’.
It also gives useful guidance as to the circumstances in which it may not be reasonable for one party to form an expectation of disclosure of certain facts, and where the withholding of such information may not constitute misleading and deceptive conduct. Things to consider include the legal relationship of the parties to each other, whether any contractual obligations are owed to the other party at that time, or conflicting obligations owed to third parties; whether there are commercial reasons for not disclosing.
Postscript
The court noted that Donnybrook Farm had subsequently been valued at $13 million, up from the $10 million purchase price – perhaps inferring that Mr. Feitelson’s property investment experience may have provided a silver lining.
Mr Vorster and Mr Feitelson now own four chicken processing farms.
Article by Louise Wolf
