The Dairy Code legislates the conduct of parties to a milk supply agreement.

Because many of the interactions between a processor and dairy farmer occur beyond the rights and obligations explicitly identified in a milk supply agreement, the Code of Conduct provides the broader principle of good faith to characterise the nature of the business relationship and expected manner of dealing between farmers and processors.

The Definition

Parties to a milk supply agreement are are under an over-arching obligation to act in good faith with respect to each other within the meaning of the unwritten law as in force from time to time in Australia.

Both Farmers and Processors

To emphasise that the principle of good faith applies both mutually to farmers and processors and generally between one of them and the plurality of all others, the Code sets out their obligations separately in section 11:

(1)  A processor must at all times deal with farmers in good faith, within the meaning of the unwritten law as in force from time to time, in relation to the supply of milk.
(2)  A farmer must at all times deal with processors in good faith, within the meaning of the unwritten law as in force from time to time, in relation to the supply of milk.

This section also provides for “civil penalties” that can be imposed by courts involved in reviewing the actions of the parties.

The Requirement

The obligation applies to the entirety of the relationship, including:

(a) negotiating or entering into a milk supply agreement;
(b) exercising rights, or performing obligations, under a milk supply agreement;
(c) dealing with or resolving complaints or disputes arising under or in connection with a milk supply agreement;
(d) varying or terminating a milk supply agreement.

Further Guidance

In other Codes, where the concept of good faith has been utilised, parties have complained that it is difficult to determine at the time of the conduct, whether a party’s behaviour could be characterised as not “in good faith” and therefore actionable. That is why the Dairy Code provides additional guidance about the type of conduct a court may take into account in making a determination about whether a farmer or processor has acted in good faith.

Such behaviour as (but not only) that the party has:

(a) acted honestly;
(b) tried to cooperate with the other party to achieve the purposes of any relevant milk supply agreement;
(c) not acted arbitrarily, capriciously, unreasonably, recklessly or with ulterior motives;
(d) not acted in a way that constitutes retribution against the other party for past complaints and disputes;
(e) a relationship that has been conducted without duress;
(f) a relationship with the other party that has been conducted in recognition of the need for certainty regarding the risks and costs of supplying or purchasing milk;
(g) not undermined, or denied the other party, a benefit of any relevant milk supply agreement;
(h) observed any confidentiality requirements relating to information disclosed or obtained in dealing with or resolving a complaint or dispute with the other party;
(i) acted in good faith in dealing with the party.