FEDERAL COURT OF AUSTRALIA

Springs Delight Investments Pty Limited v Premier Dairies Pty Ltd; In the Matter of Premier Dairies Pty Ltd [2009] FCA 1553

PRACTICE AND PROCEDURE – leave to amend the plaintiffs’ Statement of Claim – leave granted

Corporations Act 2001 (Cth), s 232, s 461(1)

IN THE MATTER OF PREMIER DAIRIES PTY LTD (ACN 000 683 787); SPRINGS DELIGHT INVESTMENTS PTY LIMITED (ACN 051 220 136), VJ HALFPENNY GRAZING CO PTY LTD (ACN 000 681 050) and DOROTHY DOREEN HALFPENNY v PREMIER DAIRIES PTY LTD (ACN 000 683 787), FRITH COMMON PTY LIMITED (ACN 051 172 466), RJ HALFPENNY INVESTMENTS PTY LTD (ACN 000 639 565) and RUSSELL JAMES HALFPENNY

NSD 492 of 2009

FOSTER J

21 DECEMBER 2009

SYDNEY

IN THE MATTER OF PREMIER DAIRIES PTY LTD (ACN 000 683 787)

THE COURT:

1.                  GRANTS leave to the plaintiffs to amend their Statement of Claim in accordance with the proposed Amended Statement of Claim (which is exhibited to the affidavit of Jennifer Joy Halfpenny sworn on 10 November 2009 and filed in this proceeding and marked with the letter “A”) and otherwise in accordance with Reasons for Judgment published this day.

2.                  ORDERS that the costs of the plaintiffs’ Application for Leave to Amend the Statement of Claim determined by Reasons for Judgment published this day be the defendants’ costs in the proceeding.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

IN THE MATTER OF PREMIER DAIRIES PTY LTD (ACN 000 683 787)

REASONS FOR JUDGMENT

1                     Russell and Victor Halfpenny were brothers.  Victor Halfpenny died on 25 August 1994.  Russell is still alive, although he is now 77 years of age. 

2                     Russell Halfpenny is married to Helen Mae Halfpenny (Helen). 

3                     Victor Halfpenny was married to Dorothy Doreen Halfpenny (Doreen).  Jennifer Joy Halfpenny (Jennifer) and John-Brett Halfpenny (John) are the children of Victor and Doreen. 

4                     For many years up to about March 1991, each of Russell and Victor, through corporate entities associated with each of them, owned equal portions of the issued capital of Premier Dairies Pty Ltd (Premier), the first defendant.  The issued capital of Premier has, at all relevant times, been divided into ordinary shares and preference shares.  The preference shares in Premier are the only class of shares which carry any entitlement to vote.  At all relevant times up to about late June 1995, other families had interests in Premier.  In late June 1995, the last of those other families sold out of Premier.

5                     Springs Delight Investments Pty Limited (Springs Delight), the first plaintiff, and VJ Halfpenny Grazing Co Pty Ltd, the second plaintiff, are companies which are now controlled by Doreen, Jennifer and John.

6                     Frith Common Pty Limited (Frith Common), the second defendant, and RJ Halfpenny Investments Pty Ltd, the third defendant, are companies controlled by Russell and his family. 

7                     In March 1991, certain transactions involving alterations to the share capital of Premier took place.  The effect of those transactions, amongst other things, was to create inequality as between Russell’s family and Victor’s family in the number of shares held by their respective family interests.  Each side of the family held, via its corporate entities, the same number of ordinary shares in Premier, but, from March 1991, Frith Common held one more preference share than Springs Delight held (737 to 736 preference shares as at March 1991).

8                     Since Victor’s death, Doreen and her children have not always seen eye-to-eye with Russell and his family.  In recent years, significant differences of opinion have arisen between the two families as to the management and control of Premier and also as to the management and control of a corporation in which Premier has a significant investment, ACN 000 691 396 Pty Limited, formerly known as Perfection Dairies Pty Ltd (Perfection).  Perfection was, until 2008, an incorporated joint venture vehicle through which the Halfpennys (both branches) and another group of dairy farmers, the Peels, conducted dairy farming activities.  In 2008, that corporation sold its entire undertaking to Dairy Farmers Limited.  That transaction has spawned another proceeding in this Court (NSD 209 of 2009). 

9                     According to the case which the plaintiffs will seek to make in the present proceeding, Russell has exercised an increasing degree of control over the affairs of Premier since the late 1990s.  He has, so it is said, utilised the extra voting share held by Frith Common to overpower Doreen and her children in conducting the business and affairs of Premier and has also usurped the position of Chairman of Directors and Chairman of General Meetings in order to control the conduct of such meetings.  It is alleged that he has purported wrongfully to exercise a casting vote at such meetings.  At this stage, of course, these assertions are no more than contentions being advanced by the plaintiffs and have not yet been subjected to any forensic testing in any hearing or made the subject of any findings by the Court.

10                  In early 2008, Perfection sold its trade marks, business and assets to Dairy Farmers Limited for $34,364,000. 

11                  As I mentioned in [8] above, Perfection is part owned by Premier and part owned by another dairy family, the Peel brothers.  Premier appears to be represented on the Board of Directors of Perfection by Russell and Helen.  Doreen and her children complain that Russell and Helen have not kept their side of the Halfpenny family informed as to the sale of the Perfection business and assets and have concealed important facts and matters from Doreen and her children in respect of that sale. 

12                  These proceedings were commenced on 28 May 2009.  The relief originally sought by the plaintiffs was an order that Premier be wound up, either under s 232 of the Corporations Act 2001 (Cth) (the Corporations Act) (oppressive conduct of affairs) or under s 461(1)(e)–(g) and s 461(1)(k) (oppressive conduct and/or the just and equitable ground).

13                  The proceedings remained under the management of a Registrar until 30 October 2009 when the matter was first listed before me for directions.  On that occasion, I was informed that the plaintiffs wished to challenge the retainer of David John Perkins, who is the solicitor on the record for Premier in this proceeding and in proceeding NSD 209 of 2009.  I was also informed that the plaintiffs wished to amend their Statement of Claim as well as file Interlocutory Process seeking interlocutory relief.  On 30 October 2009, I directed the plaintiffs to serve and lodge with my Associate by 10 November 2009 the final form of pleading to be relied upon by them in these proceedings and also directed that they file, by the same date, any interlocutory process in which they seek interlocutory orders together with all affidavits in support of that process.

14                  On 10 November 2009, the plaintiffs filed Interlocutory Process.  In that Process, they seek a number of orders.  They seek leave to amend their Statement of Claim; they seek to challenge the retainer of Mr Perkins both in this proceeding and in proceeding NSD 209 of 2009; they seek to restrain Premier, Russell and Russell’s family from progressing the Perfection proceedings; and they seek the appointment of a provisional liquidator to Premier. 

15                  On 25 November 2009, I fixed the plaintiffs’ Interlocutory Process for hearing on 11 December 2009.  When the matter was called on for hearing on 11 December 2009, I was informed that the only claim made by the plaintiffs in their Interlocutory Process which could be dealt with by the Court on that occasion was the plaintiffs’ application for leave to amend their Statement of Claim.  I was told that the parties were still in the process of filing and serving their evidence in respect of the other claims made by the plaintiffs in their Interlocutory Process and were not in a position to progress those claims on 11 December 2009. 

16                  Accordingly, I heard the plaintiffs’ Application for Leave to Amend their Statement of Claim.  These Reasons for Judgment determine that claim and that claim only.  The remaining claims made in the plaintiffs’ Interlocutory Process have been adjourned for future consideration.

The Proposed Statement of Claim

17                  The first Statement of Claim filed in these proceedings was filed on 10 July 2009.  It was five pages in length comprising 44 paragraphs.

18                  The proposed Amended Statement of Claim (the amended pleading) is 145 pages in length comprising 198 paragraphs and a number of schedules.

19                  The amended pleading is a catalogue of facts, matters and circumstances concerning the affairs of Premier, the Halfpennys and Perfection over some 40 years.  It is not possible for me, at this stage, in the absence of considerable argument, to determine whether it is either necessary or desirable that the plaintiffs’ case be pleaded in such a lengthy and complex fashion.

20                  The defendants do not oppose the plaintiffs having leave to amend in accordance with the amended pleading, subject to several specific complaints being addressed by the plaintiffs.  They do not resist the filing and service of the amended pleading in its entirety but rather confine their criticisms to four or five specific matters.  They have done so against a background of having raised various matters in correspondence and by way of requests for particulars.  In this way, the parties have managed to narrow the scope of their dispute concerning the amended pleading.

21                  During the course of argument, the disputes between the parties were further narrowed thus enabling these Reasons for Judgment to be briefer than they might otherwise have been. 

22                  Against the background which I have set out above, I will now turn to deal with the specific criticisms made by the defendants of the amended pleading.

Defendants’ Criticisms of the Amended Pleading

Paragraph 3

23                  In par 3 of the amended pleading, the plaintiffs seek to list in a comprehensive fashion but in summary form the matters of complaint which they wish to agitate concerning the conduct of Premier’s affairs.  The list set out in par 3 is then developed in later parts of the amended pleading.  The introductory words of par 3 are as follows:

The Conduct of Premier’s Affairs

3                    The Conduct of Premier’s Affairs means, some or all of the following, which occurred since Victor’s death:

…

24                  After the last sub-par in par 3, there is a catchall expression in the following terms:

… and The Conduct of Premier’s Affairs is not to be excused or mitigated by hypothetical past events which might have occurred, but did not occur, had some other conduct been engaged in by Russell, Helen, Frith Common and/or R. J. Halfpenny.

These remarks have no legitimate place in the amended pleading.  They should be removed.  The plaintiffs have agreed to delete these words.

25                  In par 4 of the amended pleading, the plaintiffs list future actions on the part of Russell and his family which should not occur in the conduct of Premier’s affairs.  Then, the plaintiffs plead the following at pars 6–10 of the amended pleading:

The affairs of Premier

6.         The matters summarised in paragraphs 3 to 5 and more fully pleaded in paragraphs 12 to 197 concern:

(a)        the promotion, formation, membership, control, business, trading, transactions and dealings and property of Premier, which are encompassed within the affairs of Premier by reason of section 53(a) of the Act;

(b)        the internal management and proceedings of Premier which are encompassed within the affairs of Premier, by reason of section 53(c) of the Act;

(c)        the power of persons, in particular Russell, to exercise, or to control the exercise of, the rights to vote attached to Premier Preference Shares, which are encompassed within the affairs of Premier, by reason of section 53(g) of the Act;

(d)        other affairs of Premier not specifically encompassed within sections 53(a), (c) and (g) of the Act;

(e)        the conduct of Premier’s affairs within the meaning of section 232(a) of the Act.

The Conduct Of Premier’s Affairs

7.         Some or all of The Conduct Of Premier’s Affairs is either:

(a)        contrary to the interests of the Premier Members as a whole, pursuant to section 232(a) and (d) of the Act; or

(b)        oppressive to, unfairly prejudicial to, or unfairly discriminatory against:

(i)         a Premier Member, namely:

(A)       Doreen;

(B)       Springs Delight; or

(C)       V. J. Halfpenny,

or

(ii)        Premier Members, namely any two or all of Doreen, Springs Delight and V. J. Halfpenny,

in the capacity as a Premier Member or Premier Members, as the case may be, pursuant to section 232(a) and (e) of the Act.

Contravention of section 461(1)(e) of the Act

8.         With respect to The Conduct Of Premier’s Affairs, insofar as it concerns conduct undertaken by Russell and/or Helen, as Premier Directors, then Russell and/or Helen as Premier Directors, have acted in the affairs of Premier in their own interests rather than the interests of the Premier Members as a whole, or in any other manner whatsoever that appears to be unfair or unjust to other Premier Members, pursuant to section 461(1)(e) of the Act.

Contravention of section 461(1)(f) of the Act

9.         By reason of The Conduct Of Premier’s Affairs, the affairs of Premier have been conducted in a manner that is:

(a)        oppressive or unfairly prejudicial to, or unfairly discriminatory against:

(i)         one or more of Doreen, Springs Delight or V. J. Halfpenny, as a Premier Member; or

(ii)        any two or more of Doreen, Springs Delight and V. J. Halfpenny, as Premier Members; or

(b)                contrary to the interests of the Premier Members as a whole,

pursuant to section 461(1)(f) of the Act.

Just and equitable winding up of Premier

10.       By reason of:

(a)        some or all of The Conduct Of Premier’s Affairs;

(b)        matters in paragraphs 3 to 9,

it is just and equitable that Premier be wound up pursuant to section 461(1)(k) of the Act.

26                  The defendants complain that the repetitive use of the expression “some or all ” in par 3 and par 4 of the amended pleading and the generality of pars 6–10 are bad in form and embarrassing and should not be allowed to stand.  The defendants submit that the plaintiffs ought to be compelled to plead with precision in respect of each identified ground for the winding up order which they seek all facts, matters and circumstances listed in par 3 which are relied upon in support of each such ground.

27                  During argument, it seemed to me that the defendants’ submissions were sound.  Ultimately, Counsel for the plaintiffs agreed that the pleading required amendment in order to deal with this particular complaint

28                  The plaintiffs will therefore be obliged to specify, in respect of each statutory ground relied upon in pars 6–10 of the amended pleading, which facts, matters and circumstances listed in par 3 relate to each such ground.  The expression “some or all ” should be deleted from par 3 and par 4 of the amended pleading.

Paragraphs 42–61

29                  These paragraphs deal with the affairs of Perfection.  The defendants complain that the paragraphs are embarrassing because they require them to plead to a range of matters which are utterly irrelevant to the essential claims made by the plaintiffs in the proceedings.  I do not agree with this submission.  The plaintiffs are entitled to point to the way in which Russell and Helen have participated in the affairs of Perfection with a view to relying upon their conduct in that context as supporting the claims for relief which they make in the present proceeding.

30                  I do not think that there is any difficulty with pars 42–61 of the amended pleading and they should be allowed to stand.

Paragraphs 75–82

31                  This series of paragraphs begins with the March 1991 share transactions which resulted in inequality within Premier as between the two branches of the Halfpenny family. 

32                  Paragraphs 78–82 are in the following terms:

78.       The objective commercial purpose, intention and understanding of Russell and Victor was that:

(a)        Russell and Victor through Echo Dairies had entered into the First Premier Enterprise and the Second Premier Enterprise and through Premier had participated in the Perfection Enterprise on the basis of equality;

(b)        Russell and Victor would continue to engage in the Second Premier Enterprise and through Premier in the Perfection Enterprise on this basis of equality and their dealings with each other would continue to be on that basis;

(c)        neither Russell nor Victor was to alter this fundamental basis of their dealings if either of them died or no longer had capacity to participate in the Second Premier Enterprise or through Premier the Perfection Enterprise;

(d)        the Andrew Bros. (Andrews brothers) Premier Ordinary Shares and Premier Preference Shares would be held by Russell and Victor respectively through their separate corporate vehicles, namely, Frith Common and Springs Delight and not in Echo Dairies. By this time, Russell and Victor jointly controlled and owned, through their corporate vehicles, R. J. Halfpenny and V. J. Halfpenny;

(e)        that basis of equality was not to be disturbed by Premier Shares acquired from Andrews Bros. (the Andrews brothers) not being held in Echo Dairies, but in Frith Common, in the case of Russell, and Springs Delight, in the case of Victor;

(f)        that basis of equality meant that neither Russell nor Victor nor their respective successors or assigns separate from the other was to have the ability or power to control Premier by Premier Shares being held in Frith Common and Springs Delight rather than in Echo Dairies.

79.       Insofar as the one extra Premier Preference Share was transferred to Frith Common, Frith Common was bound to hold it on this basis of equality as pleaded in paragraph 78.

80.       Thereafter, until:

(a)        Victor’s Death on 25 August 1994;

(b)        Russell’s and Doreen’s relations became acrimonious, as pleaded in paragraphs 90, 91 and 92(c) to (g),

Russell, through Frith Common, dealt with the one extra Premier Preference Share to those of Springs Delight on this fundamental basis of equality pleaded in paragraph 78.

81.       As events transpired, from at least the time of the 7 October 1997 Premier General Meeting, as pleaded in paragraphs 92 to 98, that situation altered and thereafter, as occasion arose, where there was disagreement and dispute in relation to the governance and management of Premier’s affairs, Russell caused Frith Common to exercise the voting rights attached to the one extra Premier Voting Share to those of Springs Delight in accordance with Russell’s views, which was contrary to this basis of equality pleaded in paragraph 78, and opposed and not consented to by Doreen.

82.       The substratum and basis of equality pleaded in paragraph 78 which underpinned Russell’s and Victor’s participation, through Echo Dairies and then also through Frith Common and Springs Delight, in the First Premier Enterprise and then the Second Premier Enterprise by Premier participating in the Perfection Enterprise, was not adhered to by Russell when his views no longer accorded with those of Doreen and commencing about 17 July 1993 Russell caused Frith Common to exercise the voting rights attached to its one extra Premier Preference Share to those of Springs Delight to vote:

(a)        in favour of Russell’s views and contrary to Doreen’s views at Premier General Meetings, whenever a poll was taken;

(b)        to elect Russell as the purported Premier Chairman and Premier General Meeting Chairman at Premier General Meetings until the next AGM, upon the taking of a poll, so as to enable Russell to assert and in fact control:

(i)         all Premier Directors Meetings;

(ii)        all Premier General Meetings;

(iii)       the governance and affairs of Premier,

and Doreen opposed and did not consent to Russell causing Frith Common to exercise the voting rights attached to the one extra preference share held by Frith Common in this way.

33                  The matters pleaded in this group of paragraphs in the amended pleading were amplified in particulars provided by way of correspondence.  Further, Counsel explained the basis of the contentions captured in these paragraphs during the course of argument.

34                  It seems that the plaintiffs wish to contend that Russell and Victor made an agreement or, perhaps, something slightly less well formed than an agreement, whereby equality between the two sides of the family was to be entrenched in the affairs of Premier.  The plaintiffs cannot and do not point to any particular conversation or conversations as constituting or evidencing an express agreement but rather contend that the Court ultimately will find that there was an agreement or common assumption which is to be implied from certain facts, matters and circumstances relied upon by the plaintiffs. 

35                  The defendants submit that the plaintiffs have failed to address the case which they seek to propound in a way which satisfactorily meets the rules of pleading.  They argue that the amended pleading is vague and ambiguous when dealing with the basis for and the terms of the alleged agreement or common assumption.  

36                  In broad terms, I think that the defendants’ submissions in respect of these paragraphs are sound.  In my view, the plaintiffs are required to specify with precision the facts, matters and circumstances relied upon by them as the material from which any alleged agreement is to be implied.  Having identified those facts, matters and circumstances, the plaintiffs should also specify the substance of the arrangement or agreement which they contend should be implied from those facts, matters and circumstances.  In other words, the plaintiffs should articulate the complexion or interpretation or, if more than one, the various interpretations, which they wish to place on the specified facts, matters and circumstances so that the Court and the defendants are not left to make up their own minds as to the way in which the material relied upon is ultimately to be deployed.  I consider that it is legitimate for the plaintiffs to tease out of the specified facts, matters and circumstances conclusions which may be expressed in the alternative but the alternatives should be spelt out.  

37                  Therefore, it seems to me that the plaintiffs ought to be required to specify the substance of the arrangement or arrangements which they contend ought to be implied from the facts, matters and circumstances relied upon and to do so in a comprehensive way.  The pleading should contain a precise statement of all material facts, matters and circumstances relied upon (whether by way of pleading and/or particulars) and a clear articulation of all of the terms of the alleged arrangement said to arise from those facts, matters and circumstances including any alternatives. 

38                  The defendants complain that the current pleading, even when read with the particulars provided, does not satisfy the criteria which I have described at [36]–[37] above.  They submit that, as matters presently stand, there is a great deal of ambiguity in the plaintiffs’ articulation of the substance of the arrangement said to arise from the material relied upon.

39                  The plaintiffs emphasise the difficulties which they face, given the nature of the case which they wish to mount, the long period of time with which the case is concerned and the fact that Victor is not available to provide instructions and to give evidence.  These matters do present difficulties for the plaintiffs but cannot be relied upon by them to avoid addressing the legitimate concerns raised by the defendants.

40                  The plaintiffs must recast pars 75–82 in order to satisfy the criteria which I have described at [36]–[37] above.

Paragraph 120(d)(iv)

41                  The defendants complain that the allegation in par 120(d)(iv), which relates to the appointment of Russell and Helen as Directors of Perfection, seems to be based upon an implied assertion of some underlying agreement and that this circumstance is not made clear in the pleading.  The plaintiffs submit that the matter set out in this paragraph of the amended pleading is simply a material fact and does not carry with it any implication of any underlying agreement.  If that is so, then the defendants’ complaint falls away.

Paragraphs 191–196

42                  This group of paragraphs contains complaints that Russell and Helen, being nominees of Premier on the Board of Directors of Perfection, received directors’ fees, failed to disclose to Premier the receipt of those fees and thus “may” have breached fiduciary and other duties owed by them to Premier.  During the course of argument, Senior Counsel for the second to fourth defendants, conceded that Russell and Helen received directors’ fees from Perfection over several years and that they did not account to Premier for any part of those fees.  Senior Counsel submitted that there was no obligation on the part of Russell and Helen to account for these directors’ fees and that the mere fact that they were arguably nominees of Premier on the Board of Perfection did not provide a sufficient basis in law for the alleged obligations to disclose and account.

43                  In their capacity as Directors of Perfection, Russell and Helen must discharge all of the duties imposed on them as directors of that corporation.  A nominee director may owe duties both to his or her appointor and to the corporation to which he or she is appointed as nominee director and, on occasion, may find himself or herself in a position of conflict. 

44                  The plaintiffs seek to use the allegations made in pars 191–196 of the amended pleading as a further ground upon which Premier ought to be wound up.  They do not claim relief directly against Russell or Helen as a result of the claims made in these paragraphs.

45                  I doubt that there is a general principle to the effect that a nominee director must disclose to his or her appointor the receipt of directors’ fees from the corporation to which he or she is appointed and, in the absence of some specific arrangement, to account to his or her appointor for those directors’ fees.  It seems to me that, in the absence of something more (such as an agreement or arrangement of some kind governing the basis upon which Russell and Helen would act as Directors of Perfection), there is probably not a sufficient basis in the allegations made in these paragraphs to amount to a ground justifying the winding up of Premier.  However, given that there seems to be no dispute about the facts—that is to say, there is no dispute that directors’ fees were paid to Russell and Helen over several years—and given the relative ease with which the amount of those fees can be established, the significance of the matter can be more carefully looked at when all of the evidence is in.  With some reluctance, I propose to allow these paragraphs to stand.  As a matter of fairness, if the plaintiffs wish to press these paragraphs, Helen should be joined as a party defendant and I direct that she be joined in the event that these paragraphs are pressed.

Conclusion

46                  I propose to grant leave to the plaintiffs to file and serve an Amended Statement of Claim in the form of the amended pleading but further refined in accordance with these Reasons for Judgment.  I will make orders accordingly.

47                  Both groups of parties have had some success in respect of the Application determined by these Reasons for Judgment.  However, I think that the defendants have had slightly the better of the argument, principally because they have succeeded in the most substantial of their complaints, namely that which related to pars 76–82 of the amended pleading.  I think that the appropriate costs order is an order that the costs of the plaintiffs’ Application for Leave to Amend the Statement of Claim determined by these Reasons for Judgment be the defendants’ costs in the proceeding.  I will make a costs order in those terms.

Associate:

Dated:         21 December 2009