FEDERAL COURT OF AUSTRALIA
NSD 1556 of 2015
IN THE MATTER OF QUEENSLAND SUGAR LIMITED ACN 090 152 211
DATE OF ORDER:
1 FEBRUARY 2016
THE COURT DECLARES THAT:
1. The resolution amending Article 31 of the defendant’s Constitution (being the amendment proposed in item 1 of the notice of general meeting of members of the defendant dated 13 November 2015) as passed on 8 December 2015 was oppressive to, unfairly prejudicial to, or unfairly discriminatory against, the plaintiff, as a member of the defendant, within the meaning of s 232(e) of the Corporations Act 2001 (Cth).
THE COURT ORDERS THAT:
3. In the event that the parties are unable to agree on the form of orders, the proceeding be listed for mention at 9.30 am on 11 February 2016.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
1 The plaintiff, Wilmar Sugar Australia Limited, seeks relief under s 233(1) of the Corporations Act 2001 (Cth) (the Act) in relation to conduct which it alleges is oppressive to, unfairly prejudicial to, or unfairly discriminatory against, it in its capacity as a member of the defendant, Queensland Sugar Limited. The conduct concerns certain amendments to the defendant’s Constitution which were made pursuant to a resolution of members on 8 December 2015: see - below.
2 Section 232 of the Act relevantly provides:
232 Grounds for Court order
The Court may make an order under section 233 if:
(a) the conduct of a company’s affairs; or
(c) a resolution … of members or a class of members of a company;
(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
3 Section 233(1) of the Act relevantly provides:
233 Orders the Court can make
(1) The Court can make any order under this section that it considers appropriate in relation to the company, including an order:
(b) that the company’s existing constitution be modified or repealed;
4 The plaintiff owns and operates eight sugar mills. The mills are located in the Herbert, Burdekin, Proserpine and Plane Creek cane growing regions of North Queensland. The mills produce raw sugar, bagasse and molasses. The plaintiff is the largest producer in Australia of raw sugar. It produces approximately 2.2 million tonnes of raw sugar each year and supplies two million tonnes of this production to the defendant for on-sale in the export market.
5 On 8 November 2010, the Federal Treasurer gave approval under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) to Wilmar International Limited (Wilmar International) to acquire, through its Australian subsidiary Wilmar Australia Pty Limited (Wilmar Australia), full ownership from CSR Limited (CSR) of the plaintiff’s issued shares. At that time, the plaintiff was called Sucrogen Limited (Sucrogen). The approval was subject to certain conditions imposed under s 25(1A) of the FATA. On 22 December 2010, the plaintiff’s issued shares were purchased by Wilmar Australia. On 20 May 2013, the plaintiff changed its name from Sucrogen to its present name.
6 It is also convenient to note here that Wilmar International, through another subsidiary Wilmar Sugar Pte Limited (WSPL), operates a sugar trading business which has trading desks in Paris, Sao Paulo and Singapore.
7 The defendant is a public company limited by guarantee.
8 In evidence, the defendant’s Chief Executive Officer and Managing Director, Gregory John Beashel, described the defendant as the present incarnation of what was once the Queensland Sugar Board. The Queensland Sugar Board was a government entity established in 1923 which marketed sugar on behalf of the Queensland sugar industry. In 1991, the Queensland Sugar Board was replaced by the Queensland Sugar Corporation (QSC), a then newly-established statutory authority. In 1999, the defendant was incorporated to replace the QSC and to take over its (QSC’s) contractual arrangements for export marketing.
9 The defendant is independent of government and receives no government funding. It is a not-for-profit company. Its members are drawn from the Queensland sugar industry and comprise:
(a) sugar cane growers;
(b) sugar cane grower representative bodies; and
(c) owners of sugar cane mills.
10 At the present time, the defendant has 30 members, comprising:
(a) seven Mill Owner Members (which together own 21 mills) being:
(i) the plaintiff;
(ii) Bundaberg Sugar Limited (Bundaberg);
(iii) Isis Central Sugar Mill Company Limited (Isis);
(iv) Mackay Sugar Limited (Mackay);
(v) MSF Sugar Limited (MSF);
(vi) Tully Sugar Limited (Tully); and
(vii) WH Heck & Sons Pty Ltd (Heck), which supplies all of its raw sugar to domestic markets but has a raw sugar supplier agreement with the defendant covering any exports it may have in the future; and
(b) 23 Grower Representative Members comprising:
(i) one person appointed by the Australian Cane Farmers Association Limited (ACFA). ACFA is an Australian voluntary lobby organisation which promotes the interests of its sugar cane grower members in Northern New South Wales to Far North Queensland;
(ii) one person appointed by the Queensland Cane Growers Organisation Limited (called, simply, Canegrowers), which is the peak body for Australian sugar cane growers, representing approximately 80% of such growers; and
(iii) 21 “Elected Holders” under Article 8A of the defendant’s Constitution. These individuals are sugar cane growers who either own or lease sugar cane farms in each of the defendant’s 21 designated mill areas. They are elected by growers in their region/mill area. There are approximately 4,000 growers.
11 The defendant’s objects are stated in Article 6 of its Constitution:
(a) The principal object of the company … is to promote the development of the sugar industry, assisted by the following objects:
(i) to enhance the efficiency and competitiveness of the Queensland sugar industry;
(ii) to provide access to markets for the Queensland sugar industry or the sugar industry elsewhere;
(iii) to enhance the long term economy of the Queensland sugar industry and the benefits flowing from it to Growers and Mill Owners;
(iv) to encourage initiative, innovation and value adding within the Queensland sugar industry or the sugar industry elsewhere and downstream processing of sugar;
(v) to provide timely and relevant sugar market information to Growers and Mill Owners;
(vi) to market raw sugar in the best interests of Growers and Mill Owners; and
(vii) to act commercially in the discharge of its functions.
(b) In carrying out its objects … the company will seek to pursue the matters provided in the Charter.
12 The defendant’s Charter states:
Queensland Sugar Limited’s Charter
The company will seek to maximise the net returns in dollars per tonne of sugar to milling companies supplying it with sugar for export, and through such milling companies to their growers.
To achieve this the company will seek to:
• enter into rolling long term supply agreements to ensure continuing access to sugar for export;
• minimise supply chain costs through economies of scale, operational efficiency and without duplicated management functions;
• optimise the returns for export sugar to suppliers through the use of physical sales and derivative instruments;
• optimise the net regional premium achieved each season;
• provide flexible, innovative, transparent and/or independent pricing mechanisms for suppliers based on effective close out mechanisms for derivative instruments;
• ensure long term access (by lease or other arrangements), and manage and operate the bulk sugar terminals;
• operate in the forward freight market with a view to providing certainty of shipping availability for annual export programs and achieve preferential logistics arrangements and costs; and
• foster export market relationships with refinery buyers and the international trade.
The charter is intended to reflect the current view of the company’s Members as to how the company’s objects can best be achieved, and can be amended by an ordinary resolution of Members in general meeting under Article 19(a) if that view changes over time.
13 The defendant provides its members with financing, pricing, marketing and logistics services. It conducts its marketing and sale of raw sugar on a “pass through” basis by deducting its costs from the proceeds of its sales and passing on the net proceeds to mill owners under its supply agreements with them. In this way, 100% of the defendant’s net sale proceeds are returned to mill owners and growers.
14 The defendant currently handles approximately 85% of Australia’s total raw sugar exports (with about 95% of Australia’s raw sugar exports produced in Queensland). In recent years, this represents more than three million tonnes of raw sugar and approximately $1.7 billion in yearly revenue.
15 QSC owned six bulk sugar terminals (BSTs) in Queensland from which raw sugar was exported to overseas customers. When the defendant was established, ownership of the terminals was moved to Sugar Terminals Limited (STL), a company then listed on the Newcastle Stock Exchange (now called the National Stock Exchange).
16 The defendant is the operator and lessee of each of the six BSTs pursuant to a sublease at a cost of about $48 million per year. The defendant stores and loads raw sugar at, and from, the BSTs. The current term of the sublease is five years commencing from 1 January 2014 and expiring on 31 December 2018. It is a term of the sublease that if the defendant’s tonnage falls below a minimum amount, STL is entitled to terminate the sublease.
Raw Sugar Supply Agreements
17 Mill owners supply raw sugar to the defendant under Raw Sugar Supply Agreements (RSSAs).
18 Historically, pursuant to the Sugar Industry Act 1999 (Qld), growers in the vicinity of a particular mill were required to have a supply contract with that mill. Typically, the grower supplied 100% of that grower’s crop to the mill. Title in the cane passed to the mill owner. The mills crushed the cane and, pursuant to supply contracts with the defendant, typically supplied 100% of the manufactured raw sugar to the defendant for marketing and sale to overseas customers. Title in the raw sugar passed to the defendant at the BST weighbridge. The defendant sold the raw sugar and, as noted above, returned the net sale proceeds to the mills. Each mill owner deducted a percentage of the proceeds received from the defendant and passed on the balance to its growers.
19 Under the current RSSAs, the growers supply sugar cane to the mills, and the mill owners supply raw sugar to the defendant, as described above. The defendant markets the majority of the raw sugar to export markets. The defendant does this under a pooling arrangement where sales revenues and the associated costs and risks are allocated on a shared basis between the mill owners. Within the framework of that pooling arrangement, a mill owner may elect to market “Supplier Economic Interest Sugar” (SEIS). This is an amount of raw sugar calculated in accordance with a formula contained in the RSSAs. If a mill owner nominates an amount of SEIS, the defendant supplies the nominated amount back to the mill owner who is then entitled to sell that raw sugar for itself. The net proceeds of the sugar sold by the defendant are returned to the mill owner. The supply agreement between the mill owner and grower typically provides that, in exchange for milling, the mill owner will keep approximately one-third of the net sale proceeds and pass on the balance to its growers, subject to certain adjustments which need not be considered for present purposes.
20 The plaintiff’s evidence is that it entered into its current RSSA with the defendant on 14 March 2012. According to the plaintiff, the RSSA was amended by a 1st Deed of Amendment entered into in about December 2014. The defendant’s evidence is that the plaintiff’s current RSSA with the defendant was entered into on 23 December 2013 and amended by the 1st Deed of Amendment on 29 January 2015. These discrepancies in the evidence as to time have not been explained. However, the parties adopted the position that, for present purposes, nothing turned on them. There is no dispute about the terms of the RSSA between the plaintiff and the defendant.
21 The raw sugar that the plaintiff supplies to the defendant under its current RSSA is approximately 54% to 60% of the defendant’s total receipts each year of raw sugar for export. The plaintiff has nominated an amount of SEIS. This is approximately 700,000 to 800,000 tonnes of raw sugar each year, which is supplied by the defendant to WSPL. This sugar is marketed and sold internationally. MSF, Tully, Isis and Mackay have also nominated an amount of SEIS under their respective RSSAs with the defendant. To this extent, these mill owners, like the plaintiff, are competing with the defendant in relation to the marketing and export sale of raw sugar.
22 The plaintiff’s RSSA is expressed to apply for the 2012, 2013 and 2014 seasons. It operates on a rolling term of three years. The term is automatically extended for a further 12 months on 30 June each year until either party gives the other written notice advising that it no longer wants a further 12 month extension period to apply.
23 On 21 May 2014, the plaintiff gave notice to the defendant under clause 3.2 of its RSSA that it would not be extending the RSSA to include the 2017 season. The effect of the plaintiff’s notice is that its RSSA with the defendant will terminate following the 2016 season on 30 June 2017.
24 Two other mill owners, MSF and Tully, have also served notices of termination pursuant to clause 3.2 of their respective RSSAs. The effect of the notices of termination is that these RSSAs will also terminate following the 2016 season on 30 June 2017. MSF owns four sugar mills. Tully owns one sugar mill.
25 On 29 June 2015, the defendant sent an email notifying its members that it was extending the rollover period under its current RSSAs by six months from 30 June 2015 to 15 December 2015. The remaining mill owner members, including Bundaberg, Isis and Mackay, which have been called the BIM mills, have not issued notices of termination.
26 But for the development which I discuss in the next paragraph of these reasons, the effect of these events would have been that, from 1 July 2017, the plaintiff, MSF and Tully would have been able to market and sell all their raw sugar output independently of the defendant. On the other hand, the BIM mills would have continued to supply 100% of their raw sugar to the defendant in accordance with existing arrangements, including the nomination by them of SEIS to be marketed and sold independently of, and in competition with, the defendant.
27 On 2 December 2015, the Sugar Industry (Real Choice in Marketing) Amendment Bill 2015 (Qld) was passed by the Queensland Parliament. This legislation is referred to locally as “Growers Choice” (the Growers Choice legislation). The Growers Choice legislation received the royal assent on 17 December 2015. The effect of this legislation, for present purposes, is that a supply contract for cane between a grower and a mill owner must contain certain terms unless the grower is a related body corporate of the mill owner or, in some cases, unless the grower and mill owner otherwise agree. In this latter connection, unless otherwise agreed, the supply contract between the grower and mill owner must contain a term providing for the proportion, if any, of the on-supply sugar for which the grower must bear the sale price exposure, called “Grower Economic Interest Sugar” (GEIS), and the proportion of the on-supply sugar for which the mill owner must bear the sale price exposure. The grower can nominate a trader to whom the mill owner must sell the GEIS. This trader could be the defendant or any other trader, including, for example, the plaintiff or any other mill owner that is not tied to the defendant. It could also be, for example, one of the large international trading houses.
28 Thus, from 1 July 2017, the plaintiff, MSF and Tully will be able to market and sell their raw sugar to export customers subject to their growers nominating GEIS to be placed with another trader. Similarly, the BIM mills will continue to supply 100% of their raw sugar to the defendant subject to their growers nominating GEIS to be placed with another trader and subject also to the ability of each BIM mill to nominate an SEIS which it can also market and sell independently of, and in competition with, the defendant.
29 Mr Beashel said that the defendant currently handles approximately 3.5 million tonnes of raw sugar annually of which approximately:
(a) 2 million tonnes has been supplied by the plaintiff;
(b) 850,000 tonnes have been supplied by MSF and Tully; and
(c) 650,000 tonnes have been supplied by the BIM mills.
30 Approximately one-third of the quantity supplied by each of the plaintiff, MSF, Tully, Isis and Mackay is currently SEIS.
31 The price of sugar over any given year is very volatile. On any given day, the defendant can make a decision to lock in a price for a certain amount or amounts of its future export sugar through hedging on the futures market or OTC (“over the counter”) off-market transactions with financial institutions. It can do so for up to five years’ production in advance.
32 Mr Beashel gave evidence that the defendant’s board of directors is considering strategies and taking steps now:
(a) to be in a position to directly compete with the plaintiff, MSF and Tully in respect of the 2017 season and beyond;
(b) to sell its sugar supply produced in the 2017 season and beyond; and
(c) to be in a position to compete with the plaintiff, MSF and Tully for GEIS from now on in respect of the 2017 season and beyond.
33 Mr Beashel said that, in particular, the defendant was now:
(a) devising plans to commence marketing its services to growers in a bid to have growers nominate it as their marketing entity in respect of the 2017 season as opposed to another entity such as the plaintiff, MSF or Tully;
(b) considering which customers it will target in respect of the 2017 season and beyond, the tonnages it will supply and the pricing levels it will target;
(c) making decisions about locking in prices in respect of the next five years through futures market hedging or OTC off-market transactions;
(d) considering whether it may not be able to supply the market or a specific customer’s requirements for a type of sugar in a particular period; and
(e) considering what its freight costs are likely to be for future years and potentially locking in freight arrangements, including optional freight arrangements with ship owners.
34 Mr Beashel expressed certain concerns should the plaintiff, MSF or Tully be privy to this information, particularly the competitive advantage they might gain and corresponding competitive detriment the defendant might suffer. Mr Beashel said that the competition presented by the plaintiff, MSF and Tully would directly affect the returns to the BIM mills and the growers who supply those mills, who all depend on the defendant to achieve the best net price it can for the BIM mills’ raw sugar.
35 The defendant’s members fall into two broad classes—Grower Representative Members and Mill Owner Members: Article 8; see also  above. The plaintiff has been a Mill Owner Member since 28 July 2000. It has always been the defendant’s largest supplier of raw sugar.
36 The defendant’s directors fall into three broad classes—Independent Directors, Grower Directors and Mill Owner Directors. The Grower Directors and the Mill Owner Directors are referred to as Industry Directors. The Chief Executive Officer of the defendant is also a director, and its Managing Director.
37 Until recently (see  below), there could be up to four, but no less than three, Independent Directors. The Grower Representative Members could elect four Grower Directors. The Mill Owner Members could elect four Mill Owner Directors.
38 In March 2008, there were 12 directors on the defendant’s board, including four Grower Directors and four Mill Owner Directors. Mr Beashel gave evidence that, in mid-2008, there was a general view that the defendant’s board would be more effective and more commercial if it were smaller and consisted of Independent Directors only. He said that “[c]onflict issues had plagued the larger Board”.
39 On 19 May 2008, a resolution was put to a special general meeting of the defendant to amend the Constitution to delete Articles 30 (providing for Grower Directors) and 31 (providing for Mill Owner Directors). The plaintiff voted in favour of the motion. However, at the time, ACFA and Canegrowers each had a “golden” vote under Article 19(b) in respect of changes to Article 30. Mr Beashel said that ACFA voted against the motion, with the consequence that the proposed amendment was defeated. Mr Beashel did not say how Canegrowers voted on the resolution. The defendant has been unable to locate the minutes of the special general meeting, but no issue was raised at the hearing concerning Mr Beashel’s recollection.
Amendments in June 2008
40 On 25 June 2008, the defendant’s members amended the Constitution in various respects. It is only necessary to refer to some of the amendments.
41 Article 29 was replaced. The new Article 29 provided for the establishment of a Board Selection Committee which would be responsible for selecting Independent Directors. It provided that the Board Selection Committee would consist of four members—two members elected by the Mill Owner Members and two members elected by the Grower Representative Members.
42 Article 29A was added to provide for Independent Director vacancies and the role that the Board Selection Committee was to play in selecting and appointing Independent Directors.
43 Further, Article 29B was added to provide for Industry Director vacancies:
29B Industry Director Vacancies
(a) When a vacancy in the company’s Grower Directors exists a panel shall not be appointed to elect a Grower Director in relation to that vacancy unless a majority of Grower Representative Members vote in favour of doing so. On such a vote, each Grower Representative shall have 1 vote.
(b) When a vacancy in the company’s Mill Owner Directors exists a nomination shall not be made by any Mill Owner Member to fill that vacancy unless Mill Owner Members vote in favour of considering the nomination. On such a vote, each Mill Owner Member shall have that number of votes calculated in accordance with the formula contained in Article 31(b)(ii).
44 Because of the tonnages of raw sugar it supplies to the defendant, the plaintiff has had the prevailing voting power for the Mill Owner Members. It has been able to veto the appointment of Mill Owner Directors. Mr Beashel gave evidence that this provision was consistent with his recollection that the plaintiff, when under CSR’s ownership, did not want Industry Directors and wished only to have an “independent [b]oard”.
45 By 31 December 2008, all twelve directors of the defendant had resigned, including the eight Industry Directors. In 2009, four Independent Directors were appointed. Since that time, the defendant has been operating with an “independent” board of five directors comprising four Independent Directors and the defendant’s Chief Executive Officer.
Amendments in November 2010
46 As a condition of the approval given to Wilmar International in relation to the acquisition of the plaintiff’s issued shares from CSR (see  above), the plaintiff was required to enter into a Deed under which it irrevocably agreed to vote in favour of certain proposed amendments to the Constitution. These included amendments to Article 22 dealing with representation and voting at meetings of members or classes of members.
47 Article 22(e) is of particular significance for the present case. It provides:
(e) A Mill Owner Member which has a current agreement to supply raw sugar to the company for sale to export markets in respect of which a Notice to Terminate has been given, is not entitled to vote (and will not be included within the calculations of ‘A’ or ‘B’ for the purposes of paragraph (b)) on any resolution except a resolution which, if passed, would result in the company:
(i) materially contravening the agreement under which the Mill Owner Member supplies raw sugar to the company for sale to export markets;
(ii) engaging in conduct which is not in accordance with the normal and efficient operation of the company and which will cause direct financial detriment to that Mill Owner Member;
(iii) acting other than in accordance with this Constitution; or
(iv) amending Article 6 or Schedule 1 of this Constitution.
48 Article 29, dealing with the Board Selection Committee, was also amended by adding Article 29(h):
(h) Despite any other provision of this Article 29
(i) a Mill Owner Member to which Article 22(e) applies will not be entitled to vote in the election of the members of the Board Selection Committee to be elected by Mill Owner Members; and
(ii) any members of the Board Selection Committee elected by Mill Owner Members must not be connected to a Mill Owner Member to which Article 22(e) applies.
49 On 16 November 2010, the resolution to amend the Constitution was passed unanimously by the Mill Owner Members and the Grower Representative Members (the 2010 amendments).
50 These events occurred before the actual purchase of the plaintiff’s issued shares by Wilmar Australia: see  above. It is common ground between the parties that, under Wilmar International’s ultimate ownership, the plaintiff has not sought to appoint Industry Directors.
Amendments in December 2015
51 At the Annual General Meeting of the defendant on 23 October 2015, members were informed that the defendant’s board was supportive of Industry Directors coming onto the board “as a priority”.
52 On 13 November 2015, notice was given of a general meeting of members to be held on 8 December 2015 to consider various proposed amendments to the defendant’s Constitution, specifically Articles 29A, 29B, 30, 31, 33, 35 and 36, and the inclusion of certain new definitions. The proposals involved, amongst other things, a change in the number of Grower Directors and Mill Owner Directors from four to a maximum of four. It was also proposed that the requirement for a minimum of three Independent Directors be removed. The Explanatory Notes accompanying the notice of meeting stated:
This change has been introduced to provide some flexibility in the future composition of the QSL Board, so that depending on the business environment in which QSL operates in the future, there is more flexibility around what is the most appropriate Board size and mix of skills on the QSL Board.
53 On 8 December 2015, the resolution to amend the Constitution was passed (the 2015 amendments). The plaintiff and the other Mill Owner Members who had given notice of termination under their respective RSSAs with the defendant were not eligible to vote on the resolution having regard to the operation of Article 22(e). I will not detail all the amendments. It is necessary, however, to concentrate on the amendments to Article 31.
54 Prior to the passing of the resolution on 8 December 2015, Article 31 provided that the Mill Owner Members could: elect four Mill Owner Directors; remove any Mill Owner Director; and elect a person to be a Mill Owner Director where a vacancy in office had occurred. The Mill Owner Directors were elected or removed according to a specified procedure. When a vote was required, each Mill Owner Member had a number of votes calculated by a formula contained in Article 31(b)(ii). This formula was based on the tonnes of raw sugar supplied by the Mill Owner Member to the defendant in respect of the three complete crushing seasons preceding the calendar year in which the vote was held. It is convenient to note at this point that Article 22, in respect of meetings of members or classes of members, also provided a formula for determining the number of votes that a Mill Owner Member could exercise. But the formula provided in Article 22, although largely based on the amount of raw sugar supplied by the Mill Owner Member, was not the same as the formula provided in Article 31(b)(ii).
55 The changes to Article 31 effected by the resolution of 8 December 2015 were substantial. Article 31 now places the power of appointment of Mill Owner Directors in the hands of the BIM mills.
56 In this connection, Article 31 now refers to Continuing Mill Owners, Continuing Mill Owner Members and Original Continuing Mill Owner Members. A Continuing Mill Owner Member is a Continuing Mill Owner who has an agreement to supply raw sugar to the defendant for sale to export markets and in respect of whom Article 22(e) does not apply. The Original Continuing Mill Owner Members are defined as the BIM mills. Each Original Continuing Mill Owner Member is given: the right to appoint one Mill Owner Director; the right to remove any Mill Owner Director appointed by that Original Continuing Mill Owner Member; and the right to appoint a person to be a Mill Owner Director in the place of a Mill Owner Director appointed by that Original Continuing Mill Owner Director when a vacancy in office arises.
57 Any additional Mill Owner Director must be appointed in accordance with new provisions in Article 31. To be eligible for appointment, a Mill Owner Director must be a person nominated by a Continuing Mill Owner. If that person is an employee or officer of a Continuing Mill Owner, then he or she must continue to be an employee or officer of that Continuing Mill Owner.
58 I will leave to one side the right to appoint a Mill Owner Director due to a vacancy arising on the board (as defined in Article 36). Article 31(c)(ii) provides that the Original Continuing Mill Owners (ie the BIM mills) can determine that an additional Mill Owner Director is to be appointed following one or more other Mill Owner Members becoming Continuing Mill Owner Members. On such a vote, each Original Continuing Mill Owner Member has one vote, which must be exercised in accordance with Article 31(e), which now provides:
(e) In determining whether to vote in favour of an additional Mill Owner Director being appointed, the Original Continuing Mill Owner Members must act reasonably and in the interests of the company, having regard to:
(i) the volume of raw sugar the new Continuing Mill Owner Member or Members have committed to supply to the company;
(ii) the duration of any commitment by the new Continuing Mill Owner Member or Members to supply raw sugar to the company; and
(iii) the benefits to the company and the Queensland Sugar Industry of having the new Continuing Mill Owner Member or Members as a Continuing Mill Owner Member.
59 If the Original Continuing Mill Owners determine that an additional Mill Owner Director is to be appointed, then each Continuing Mill Owner Member who has not appointed a current Mill Owner Director may nominate a candidate for the position. If there are more nominees for Mill Owner Directors than there are vacancies to be filled, then the Continuing Mill Owner Members must vote to select the nominees to be appointed as a Mill Owner Director. The number of votes for each Continuing Mill Owner Member is determined by a formula in Article 31(d).
60 The Explanatory Notes accompanying the notice of meeting describe the significance of the appointment of an additional Mill Owner Director as follows:
These proposed changes mean that if a mill owner member which has given a notice to terminate their raw sugar supply agreement with QSL, decides to re-commence supplying export raw sugar to QSL by entering a new raw sugar supply arrangement with QSL, then that mill owner member would then be able to vote on the additional Mill Owner Director appointment in the manner described above.
61 The Explanatory Notes described the change from the existing Article 31 as follows:
• Under the existing clause 31 of QSL’s constitution, the process regarding the appointment of Mill Owner Directors is different, with the key differences being as follows:
° Existing clause 31 provides that 4 Mill Owner Directors must be appointed (not a lesser number);
° Existing clause 31 provides that all mill owner members (including the mill owner members who have given a notice to terminate their agreements to supply raw sugar to QSL for sale to export markets), have the right to vote for the appointment of Mill Owner Directors to the Board;
° Existing clause 31 provides that, if there are more candidates than vacancies, a voting process will take place, with votes being based on the amount of raw sugar supplied to QSL for export by the mill owner member over the last 3 complete crushing seasons. All mill owner members can vote on this, including the exiting mill owner members who have given a notice to terminate.
° The proposed changes to clause 31 would therefore result in only those Mill Owner Members which have not given a notice to terminate their raw sugar supply agreement (as at the date of this notice, Mackay Sugar, Bundaberg Sugar, Isis Sugar and WH Heck & Sons) retaining voting rights in relation to appointment of Mill Owner Directors. This change is considered appropriate when QSL’s Board is shaping QSL’s strategy in an environment where a number of mill owner members have chosen to cease their raw sugar supply arrangements with QSL.
(Emphasis in original.)
62 Put simply, the amendments to Article 31 mean that the plaintiff no longer has a role in the appointment and removal of Mill Owner Directors, notwithstanding that it remains a Mill Owner Member and that, at least until 30 June 2017, it has a continuing contractual obligation to supply, substantially, 100% of its production of raw sugar to the defendant. The same applies to the other Mill Owner Members who have given notice of termination under their RSSAs.
63 The notice of meeting was also accompanied by a document entitled “Key Issues in relation to Proposed Changes to the QSL Constitution – Industry Directors” which addressed the removal of the requirement for a minimum of three Independent Directors and the control provided to the BIM mills as to whether to allow an additional (fourth) Mill Owner Director. In respect of the last-mentioned matter, the document included the following:
BIM control over any future additional Mill Owner Director
The proposed changes to the mill owner director appointment process also give BIM the ongoing right to appoint one (1) director each to the QSL Board. As the maximum number of mill owner directors is four (4), this leaves one (1) additional seat on the QSL Board for another future mill owner director. If an exiting mill owner member decides at a later date to recommence supplying export raw sugar to QSL, the proposed changes will give BIM control over the decision as to whether the returning mill owner is entitled to a seat on the QSL Board. Our concern here is that this may hinder the prospects of a mill owner member returning to the QSL marketing system because they are unable to get a seat on the QSL Board.
Again, we have raised these concerns with those members proposing the changes. BIM has advised that it is not their intention to prevent returning mill owner members from getting a position on the QSL Board, provided they are making a significant commitment to QSL, for example, by way of substantial tonnage. BIM have said that they do not want a returning mill owner member to automatically get a seat on the QSL Board if there is not this level of commitment from them. To mitigate this concern, wording has been included in the proposed constitutional amendments requiring … BIM to act in the interests of QSL and act reasonably in determining whether to approve the appointment of a 4th mill owner director, having [regard] to the commitment made by the returning mill (by volume and duration) and the importance to QSL and the industry of them returning.
Again, having considered this, the independent directors support the proposed changes that will give BIM control over the decision as to whether a returning mill owner is entitled to a seat on the QSL Board, with the additional protection set out in the QSL constitution that will require BIM to act in the interests of QSL and act reasonably in determining whether to approve the appointment of a 4th mill owner director.
In summary, it is the view of the independent directors that we have received sufficient assurances to support the proposed changes to the QSL constitution and we therefore recommend that members vote in favour of these changes.
(Emphasis in original.)
64 The document also noted the possibility of conflicts of interest arising in relation to the appointment of Mill Owner Directors under Article 31:
As noted above, the proposal to change QSL’s constitution will result in some of our mill owner members, who compete with QSL in relation to the marketing of raw sugar, having representatives on the QSL Board. It will therefore be very important to manage the potential competition law risks and conflicts of interest issues that arise from this, as described below.
Given that QSL is the operator of the bulk sugar terminals (BSTs), it is the intention of the current Board, to address these governance and conflicts issues, that a separate Board subcommittee be set up, which will have the primary responsibility to review and monitor matters relating to the operation of the BSTs. This Board subcommittee will consist only of independent directors and those industry directors who are not conflicted. The QSL Board believes that the potential conflicts around management of the BST’s can be effectively and transparently managed.
In addition, the current Trading Risk Board subcommittee, which has the primary responsibility to review and monitor matters relating to QSL’s marketing and trading risk activities, will similarly consist only of independent directors and industry directors who are not conflicted, in order to manage potential competition law risk and conflict issues.
65 I mention this matter because, as I will come to explain, the defendant raises the prospect of conflicts of interest as a justification for amending Article 31 in the way it was amended by the 2015 amendments. On the other hand, the above passage recognises that the amended Article 31 might introduce conflicts of interest which, according to the defendant, can be managed.
The position of the parties
66 The plaintiff’s case is that the 2015 amendments—specifically those reflected in Article 31—have had two consequences. First, it has lost its right under the Constitution to participate in the management of the defendant through the appointment of Mill Owner Directors in the period during which it remains a Mill Owner Member while its RSSA is in force. Secondly, in the event that it enters into a new supply agreement with the defendant in the future, including by reason of a grower nomination in accordance with the Growers Choice legislation, the 2015 amendments result in the plaintiff having no right to participate in the appointment of Mill Owner Directors other than through the BIM mills determining that an additional Mill Owner Director is to be appointed. The plaintiff says that, in each of these ways, the conduct of the defendant’s affairs (s 232(a)) or the resolution passed on 8 December 2015 (s 232(c)) is oppressive to, unfairly prejudicial to, or unfairly discriminatory against, the plaintiff in its capacity as a member (s 232(e)).
67 The defendant’s case is that the 2015 amendments did not have the effect of causing the plaintiff to lose its right to participate in the management of the defendant through the appointment of Mill Owner Directors up to 30 June 2017. The defendant says that, by virtue of Article 22(e), the plaintiff lost its right on 21 May 2014 when it gave its notice of termination to the defendant. The defendant admits that, in the event that the plaintiff enters into a new supply agreement with the defendant, the 2015 amendments do result in the plaintiff having no right to participate in the appointment of Mill Owner Directors other than through the BIM mills determining that an additional Mill Owner Director should be appointed. However, the defendant says that the BIM mills are required to act reasonably and in the interests of the defendant as a whole, having regard to the matters identified in new Article 31(e).
68 Further, the defendant says that the 2015 amendments are not oppressive to, unfairly prejudicial to or unfairly discriminatory against, the plaintiff, whether or not they had the effect of causing the plaintiff to lose its right to participate in the management of the defendant through the appointment of Mill Owner Directors. The defendant says that the plaintiff will be a competitor of the defendant in the marketing and supply of raw sugar produced in the 2017 season and following seasons and is not under any obligation to supply any raw sugar to the defendant from 1 July 2017. The defendant says that even if, under the Growers Choice legislation, the plaintiff might be directed by growers to supply GEIS to the defendant, the plaintiff will not have an economic interest in the price obtained for the sale of that sugar. The defendant says that the competitive environment in the sugar industry in which the defendant operates has changed; the defendant’s board is currently planning how to conduct the defendant’s business in the new competitive environment (including how to compete with the plaintiff and the other Mill Owner Members who have given notice of termination); and that a director of the defendant appointed by the plaintiff (or by one of the other Mill Owner Members who have given notice of termination) would have a fundamental conflict of interest in the discharge of his or her duties to the defendant.
69 It can be seen that there is a threshold question whether the 2015 amendments had the consequence of removing from the plaintiff a right to participate in the appointment of Mill Owner Directors. The defendant says they did not. However, even if such a right was removed, the defendant argues that the amendments, considered in the new competitive environment, were not unfair. On the other hand, the plaintiff says that the 2015 amendments did remove its right to participate in the appointment of Mill Owner Directors. But it also says that, if no such right was removed, the amendments are nevertheless oppressive to, unfairly prejudicial to or unfairly discriminatory against, it, given that its future capacity to vote on the appointment of Mill Owner Directors, should it enter into, or be required to enter into, new supply arrangements with the defendant, would be subordinated to the will of the BIM mills, notwithstanding Article 31(e).
Did the 2015 amendments remove a right?
70 It is convenient to approach this question by reference to the defendant’s submissions, which can be summarised as follows.
71 Speaking immediately prior to the 2015 amendments, Article 31(b)(ii) required Mill Owner Directors to be appointed by a vote of Mill Owner Members. Mill Owner Members constitute a class of members. Pursuant to Article 22(e), once a Mill Owner Member had given a notice of termination, that member was precluded from voting on any resolution, either at a meeting of members or at a meeting of a class of members (subject to certain exceptions which can be put to one side for relevant purposes). A meeting of Mill Owner Members is a meeting of a class of members. The defendant submits, therefore, that after 21 May 2014, when the plaintiff gave its notice of termination, the plaintiff was precluded from voting on the appointment of Mill Owner Directors.
72 The defendant submits that the same reasoning applies to Article 29B(b) (see  above). Article 29B(b) requires Mill Owner Members to vote in favour of filling a vacancy for a Mill Owner Director, once again in accordance with the formula provided in Article 31(b)(ii). But, because of Article 22(e), a Mill Owner Member who has given notice of termination is unable to vote on whether a vacancy for a Mill Owner Director should be filled.
73 The defendant acknowledges that neither Article 29B(b) nor Article 31, immediately prior to the 2015 amendments, contained a qualification matching the qualification provided by Article 22(e). It argues, however, that it was unnecessary to make that qualification because Article 22(e) “trumps” Article 29B(b) and Article 31. In this connection, the defendant submits that Article 22 was introduced in its entirety by the 2010 amendments (see - above), after Article 29B(b) and Article 31 had been introduced. According to the defendant, Article 22(e), introduced at that time, displaced any entitlement to vote at a general meeting or at a meeting of a class of members that the Constitution would otherwise confer.
74 The defendant also argues that Article 22(e) is a specific provision, whereas Article 29B(b) and Article 31 are general provisions.
75 The defendant submits that its interpretation of the reach of Article 22(e) is confirmed by the following considerations. First, Article 29(h) (also introduced by the 2010 amendments) (see  above) precluded a Mill Owner Member who had given notice of termination from voting in the election of members of the Board Selection Committee. The defendant argues that it would be inconsistent to preclude a Mill Owner Member from this participation in relation to the appointment of Independent Directors and yet allow the same member to directly participate in the appointment of Mill Owner Directors.
76 Secondly, Article 13(c) of the Constitution provides that a Mill Owner Member who has given notice of termination is not entitled to requisition a general meeting of members, unless certain requirements are satisfied. However, under Article 13(a), any director may convene a general meeting whenever the director thinks fit. The defendant argues that the object of Article 13(c) would be defeated if a Mill Owner Member, who had given a notice of termination, could secure the appointment of a Mill Owner Director who, in turn, could convene a general meeting as of right under Article 13(a).
77 The defendant submits that, from an objective perspective, the 2010 amendments were intended to achieve the effect that a Mill Owner Member, who had given notice of termination, would cease to be able to influence decisions of the defendant. The defendant submits that the reach of Article 22(e) for which it contends accords with that object.
78 The defendant also argues that, to so construe the Constitution, immediately before the 2015 amendments, would give the Constitution an interpretation that “achieves reasonable business efficacy”.
79 I am not persuaded that Article 22(e) of the Constitution, considered immediately before the 2015 amendments, had the reach or effect for which the defendant contends.
80 Article 22 is a general, but not an all-encompassing, provision on the subject of voting by members. Although it may be accepted that a meeting of Mill Owner Members is a meeting of a class of members, Article 22 is expressed to be “Subject to this Constitution …”. As a general rule, the words “subject to” signify that where conflict exists with another provision, the qualified provision is to be read as subordinate or subservient to the unqualified provision: Adrenaline Pty Ltd v Bathurst Regional Council (2015) 322 ALR 180;  NSWCA 123 at ; see also Newcrest Mining (WA) Limited v The Commonwealth of Australia (1997) 190 CLR 513 at 580-581. I cannot but think that these opening words in Article 22 were chosen advisedly to provide a demarcation between the general position which obtains under Article 22 and specific occasions when members are called upon to vote. Two such occasions are when the Constitution provides for specific procedures when Grower Directors are elected or removed (Article 30) and when Mill Owner Directors are elected or removed (Article 31). Other occasions are when Grower Representative Members are called upon by Article 29B(a) to decide whether a vacancy in Grower Directors should be filled and when Mill Owner Members are called upon by Article 29B(b) to decide whether a vacancy in Mill Owner Directors should be filled.
81 Contrary to the defendant’s submission, I do not accept that there is any warrant for giving the words “Subject to this Constitution …” some altered meaning that is dependent on when Article 22(e) was introduced. A company’s constitution is to be construed as any other commercial document: Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1;  FCAFC 144 at  and the cases there cited. This requires the Constitution to be construed as a whole, not in some selective or piecemeal fashion according to a chronological regime. Moreover, the relevant time for construing the document is immediately before the 2015 amendments. As a matter of ordinary construction, there is nothing to suggest that the words “Subject to this Constitution …” were intended to have some qualified or more limited meaning than their ambit would otherwise suggest. Indeed, if that had been the intention, it would have been a simple matter to have so provided, expressly, at the time that Article 22(e) was introduced.
82 Contrary to the defendant’s submission, I do not accept that Article 22(e) is a specific provision which prevails over Article 29B(b) or Article 31 (or, for that matter, Article 29B(a) or Article 30). The position is otherwise. Article 22 (and hence Article 22(e)) must be read subject to Articles 29B, 30 and 31. Further, it seems to me that, when the Constitution seeks to extend Article 22(e), it does so expressly. Article 29(h) does this in the case of the Board Selection Committee convened to appoint the Independent Directors. Contrary to the defendant’s submission (see  above), I do not see any inconsistency in retaining a Mill Owner Member’s right to vote in relation to the appointment or removal of Mill Owner Directors even though, by giving a notice of termination to the defendant, the Mill Owner Member may not retain a general right to vote at meetings of members or classes of members or, specifically, to participate in the appointment of Independent Directors.
83 In my view, to construe the Constitution in this way is to give the chosen language its natural and intended meaning. Resort to notions of “business efficacy” does not require a different interpretation. The Constitution will not lack business efficacy by adopting the interpretation I have found. Similarly, I do not accept that there is an evident purpose in the chosen language of the Constitution to disentitle Mill Owner Members who have given notice of termination from voting in relation to Mill Owner Directors. Apart from anything else, upon giving notice of termination, the Mill Owner Member concerned will remain contractually bound to supply the defendant with 100% of its production of raw sugar for export (subject to the resupply of SEIS) for a not insignificant period. It may be thought that, in these circumstances, a Mill Owner Member should retain some say in the management of the defendant through its right to vote in relation to the appointment or removal of Mill Owner Directors but not, say, in the appointment of Independent Directors. Indeed, this is an aspect of unfairness about which the plaintiff relies.
84 There is no necessary correlation between Mill Owner Members voting in respect of the appointment and removal of Mill Owner Directors, and Mill Owner Members voting on other occasions. This is illustrated by the fact that different voting entitlements exist under Article 22 compared to Article 31. In my view, this distinction serves to confirm that voting in respect of the appointment and removal of Mill Owner Directors was regarded under the Constitution as being distinct from general matters on which all members might be called upon to vote.
85 A further matter of significance is that, if the defendant is correct in its contention concerning the reach of Article 22(e), then there was no need for the 2015 amendments to remove the entitlement of Mill Owner Members, who had given notice of termination, to vote in respect of the appointment or removal of Mill Owner Directors under Article 31 as it then existed. Similarly, there was no need to introduce Article 29(h) in the 2010 amendments.
86 This aspect of the defendant’s case also sits uncomfortably with the position adopted in the Explanatory Notes accompanying the notice of meeting at which the 2015 amendments were proposed. The Explanatory Notes, quoted at  above, take pains to draw attention to “key differences” between the then existing, and then proposed, Article 31. One of the key differences noted is that, under the then existing Article 31, all Mill Owner Members, including those who had given notice of termination, had the right to vote for the appointment of Mill Owner Directors. In oral argument, the defendant correctly submitted that this statement in the Explanatory Notes cannot rule the day on the question of construction. Nevertheless, in my view, the Explanatory Notes proceed, in that regard, on a correct interpretation of the then existing Article 31 and confirm my view, independently arrived at, that the extended operation of Article 22(e) now advanced by the defendant should not be accepted.
87 For these reasons, I accept the plaintiff’s submission that, by the 2015 amendments to Article 31, it was immediately disenfranchised from voting on the appointment and removal of Mill Owner Directors.
has there been oppression?
Relevant principles: the parties’ submissions
88 As used in s 232(e), the words “oppressive to, unfairly prejudicial to, or unfairly discriminatory against” must be looked at “as a composite whole”; the individual elements of the collocation should be considered “merely as different aspects of the essential criterion, namely commercial unfairness”: Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704 (Morgan).
89 In Catalano v Managing Australia Destinations Pty Ltd (2014) 314 ALR 62;  FCAFC 55 at , the Full Court saw “unfairness” in this context to be concerned with the “ordinary standards of reasonableness and fair dealing”, relying principally on the observations of Brennan J in Wayde v New South Wales Rugby League Limited (1985) 180 CLR 459 at 472 . At , the Full Court said:
The test of unfairness requires an objective assessment of the conduct in question with regard to the particular context in which the conduct occurs. The question is whether objectively in the eyes of the commercial bystander there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the conduct or decision fair. As the test is objective, whether or not the conduct is oppressive will not depend upon the motives for what was done. It is the effect of the acts that is material …
90 The second sentence of this quote is taken from a passage in Morgan at 704. The parties agree that, in the present case, the reference to “reasonable directors who consider the matter” should be understood as “reasonable members/shareholders who consider the matter”.
91 The plaintiff referred to Australian Fixed Trusts Pty Ltd v Clyde Industries Ltd  SR(NSW) 33 and Shears v Phosphate Co-operative Co of Aust Ltd (1988) 14 ACLR 747 (Shears) as examples of the application of the relevant principles (or closely analogous principles) where alterations or proposed alterations to a company’s constitution affecting members’ voting rights were struck down. In Shears, this was so even though the trial judge had found that the directors and members of the defendant company honestly believed that the amendment—which limited voting rights to overcome a stratagem employed by the plaintiff to avoid share ownership restrictions and voting restrictions in the company’s articles of association—was in the best interests of the company. Notwithstanding this belief, the amendment was found to have been unfairly prejudicial and discriminatory in the circumstances. This conclusion can be seen as an example of the objective determination of whether particular conduct is, in the circumstances, oppressive, unfairly prejudicial or unfairly discriminatory. Oppressive conduct may exist even though the oppressor thinks he or she is acting rightly: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304;  HCA 25 at .
92 The plaintiff’s case was advanced from the vantage of s 232(a) and s 232(c). Its case is most directly approached from s 232(c), namely that the 2015 amendments were the product of a resolution of members that was oppressive to, unfairly prejudicial to, or unfairly discriminatory against, it as a member. The plaintiff also said that the provisions of a company’s constitution that are related to its management are within the purview of the words “conduct of the company’s affairs” as used in s 232(a). In Sutherland v National Roads and Motorists’ Association Ltd (2003) 47 ACSR 428;  NSWSC 829 at , Campbell J said:
The meaning of “a company’s affairs” is explained to some extent by an inclusive definition contained in s 53 of [the Act]. Section 53 provides that for the purposes of, amongst other things, ss 232 and 233, the affairs of a body corporate include “(c) the internal management and proceedings of the body”. “A company’s affairs” includes the manner in which it goes about electing directors.
93 For its part, the defendant noted the general proposition that conduct that excludes a member from management of a company can amount to oppression. However, relying on the observations of the Victorian Court of Appeal in Joint v Stephens  VSCA 210 at -, the defendant stressed that this is not so in every case. The defendant submitted that the assessment of commercial unfairness may well involve a balancing exercise between competing considerations, so that even if conduct is prejudicial, it might not be unfairly so. As will be seen, this proposition is central to the defendant’s case.
94 The defendant sought to illustrate this proposition by reference to the case of the treatment of director/shareholders who, as a matter choice, exit companies that are run as quasi-partnerships: see, for example, Phoenix Office Supplies Limited v Larvin  EWCA Civ 1740.
95 Perhaps more relevantly, the defendant referred to Sidebottom v Kershaw, Leese & Company, Limited  1 Ch 154 which concerned the validity of a resolution passed by the defendant company to alter its articles of association by providing, amongst other things, that the directors, who held the majority of shares, should have power to require members who carried on business in competition with the company to transfer their shares, at their fair value, to nominees of the directors. In that case, the validity of the resolution was upheld. Lord Sterndale MR said (at 165-166):
In my opinion, the whole of this case comes down to rather a narrow question of fact, which is this: When the directors of this company introduced this alteration giving power to buy up the shares of members who were in competing businesses did they do it bona fide for the benefit of the company or not? It seems to me to quite clear that it may be very much to the benefit of the company to get rid of members who are in competing businesses … I think there can be no doubt that a member of a competing business or an owner of a competing business who is a member of the company has a much better chance of knowing what is going on in the business of the company, and of thereby helping his own competition with it, than if he were a non-member; and looking at it broadly, I cannot have any doubt that in a small private company like this the exclusion of members who are carrying on competing businesses may very well be of great benefit to the company. That seems to me to be precisely a point which ought to be decided by the voices of the business men who understand the business and understand the nature of competition, and whether such a position is or is not for the benefit of the company. I think, looking at the alteration broadly, that it is for the benefit of the company that they should not be obliged to have amongst them as members persons who are competing with them in business, and who may get knowledge from their membership which would enable them to compete better.
96 The defendant also referred to Bundaberg Sugar Limited v Isis Central Sugar Mill Company Limited  2 Qd R 214;  QSC 358 at  for the general proposition that the power to amend a company’s constitution will have been properly exercised if the company reasonably apprehends that the continued shareholding of a minority would be detrimental to the interest of the other shareholders generally.
97 In that case, the articles of association of the defendant sugar miller provided that if any member should cease to be a supplier of sugar cane to it, the directors might give the member a notice requiring the member to dispose of shares registered in that member’s name, failing which the shares would be forfeited. The defendant was a co-operative company that enjoyed significant tax advantages under the Income Tax Assessment Act 1936 (Cth). The continued shareholding by persons who did not supply sugar cane to the defendant threatened that status and would be detrimental to the company’s affairs (i.e. there would be a loss to the company of valuable tax deductions). At -, Chesterman J reasoned that the power to appropriate shares was not objectionable. It only became objectionable if the forfeiture was without compensation. Thus, his Honour held that it was only when forfeited shares were disposed of other than by sale (where there would be no compensation to the expropriated shareholder) that there could be oppression.
98 Finally, the defendant submitted that the test of fairness must be applied by reference to what was known at the time of the impugned conduct (here, 8 December 2015), not by reference to what subsequently transpires: Chase Corporation (Australia) Pty Ltd v North Sydney Brick & Tile Co Ltd (1994) 35 NSWLR 1 at 26.
99 As I have noted, the plaintiff claims that the 2015 amendments to Article 31 immediately disenfranchised it from its right under that article to participate in the management of the defendant through the appointment of Mill Owner Directors and that its future position as a Mill Owner Member has been subordinated to the will of the BIM mills whose position in the appointment of Mill Owner Directors has been entrenched as a de facto majority.
100 The defendant accepts that the 2015 amendments to Article 31 were discriminatory in that they discriminate between different Mill Owner Members. But, the defendant says, these amendments were not unfair.
101 I have briefly referred to the defendant’s position that the 2015 amendments to Article 31 were justified because of the new competitive environment in which the defendant finds itself: see  above. The defendant developed this contention in the following way.
102 Notwithstanding the provision of SEIS, under the RSSAs, the bulk of each Mill Owner Member’s sugar is marketed by the defendant. Thus, each Mill Owner Member has, at the present time, a continuing dominant economic interest in the defendant marketing its sugar for the best possible return, in accordance with the defendant’s Charter: see  above. The provision of SEIS does not create a problem for the defendant’s board, because, at the present time, all the board members are Independent Directors.
103 However, the competitive landscape has changed. This change was brought about by the plaintiff giving its notice of termination in May 2014 and by MSF and Tully giving their notices of termination in June 2014. The practical consequence is that these Mill Owner Members will, from July 2017, be directly competing with the defendant in the export market. These Mill Owner Members currently supply approximately 2.85 million tonnes of the approximately 3.5 million tonnes of raw sugar now handled by the defendant. The defendant submits that, from 1 July 2017, it will be in “full blooded competition” with the plaintiff, MSF and Tully in selling Queensland sugar in the export market.
104 This scenario is subject, of course, to how grower nominations might play out under the Growers Choice legislation. At the present time, it is not known what tonnages of GEIS the growers may require the plaintiff, MSF and Tully to place with the defendant. But, assuming growers require significant tonnages to be placed with the defendant, the plaintiff, MSF and Tully will not have an economic interest in the return that the defendant achieves for that sugar.
105 The defendant argues that it must now plan for how it will effectively market the raw sugar that continues to be supplied to it in what it says will be a very different commercial setting from the end of the 2016 season. This includes how to best manage the BSTs it now leases, given what it anticipates will be a dramatically lower quantity of raw sugar to be supplied to it from 1 July 2017 onwards.
106 The defendant argues that the plaintiff, MSF and Tully unilaterally decided to end their respective supplier arrangements with the defendant and to compete with it. This competition now includes competition for GEIS. In short, the plaintiff says that the changed circumstances in the Queensland sugar market have resulted, substantially, from the actions taken by the plaintiff, MSF and Tully in giving their notices of termination in 2014.
107 The defendant’s evidence is that this competition is already underway. Over the next 18 months, the defendant will be competing against the plaintiff, MSF and Tully for forward sales, locking in freight arrangements, and seeking grower nominations for GEIS: see - above. From 1 July 2017 onwards, the defendant is likely to be, by tonnage, the second or third ranked seller of Queensland sugar in the export market.
108 The defendant submits that, in the eyes of a commercial bystander, it would not be unfair that a Mill Owner Member who has chosen to sell in competition with the defendant, rather than through the defendant, should not be able to participate in the management of the defendant by nominating and appointing directors. The defendant submits that fairness, in a business context, does not require that the prospective first and second rank sellers should have nominees on the defendant’s board, while the defendant plans and implements strategies to deal with the new market circumstances, including how it will compete against these sellers. The defendant submits that it was not unfair for members to advance the object of maximising the return for millers and growers, in accordance with the defendant’s Charter, in a way which involves discriminating against members who have decided that their best economic interests lie in selling in opposition to the defendant.
109 The defendant argues that the present case is not one in which the plaintiff could have had a legitimate expectation that the status quo would continue once it gave its notice of termination. The 2010 amendments, particularly Article 22, addressed the circumstance that a Mill Owner Member might give notice of termination, and opened the way for the defendant’s Constitution to be amended without that member’s vote. The defendant submits that this forms part of the overall commercial context in which fairness should be assessed.
110 In any event, the defendant submits, this is not a case in which the plaintiff has sought to participate in the management of the defendant by appointing Mill Owner Directors, despite having the right to do so. Thus, the defendant argues, the present case is not one where a party which has been actively participating in management has been actively excluded from that participation.
111 Further, the defendant submits that the 2015 amendments were supported by the Independent Directors who obviously considered that the amendments were in the best interests of the defendant.
112 With regard to the plaintiff’s complaint concerning the entrenchment of the BIM mills as a de facto majority in the appointment of Mill Owner Directors, the defendant submits (as I have noted at  above) that the question of fairness must be determined by what was known at the time of the 2015 amendments, not by reference to what subsequently happens.
113 Accordingly, the defendant submits that, as at 8 December 2015, the prospect of the plaintiff, MSF or Tully coming back to the defendant for fresh supply agreements in the future was uncertain. In submissions, the defendant canvassed various possibilities. However, its central argument was that, assessed as at 8 December 2015, it was impossible to know which eventuality would occur, with the result that it was impossible to foresee both the duration of any such agreement or the tonnages of raw sugar that might be supplied under it.
114 The defendant submits that, in these circumstances, a commercial bystander might consider it not unfair to provide a mechanism in the Constitution which would enable the BIM mills to decide at a future time, based on the circumstances then existing, whether it was appropriate to have an additional Mill Owner Director under the procedures provided in the new Article 31. According to the defendant, much would depend on the circumstances, having regard to the requirements of Article 31(e): see  above. The defendant put the matter in the following way:
Assessed as at 8 December it could have been seen that the question of whether “returning” mill owner members should be able to nominate and have a say in the appointment of mill owner directors was best left to a future decision. Further, that it would be appropriate to build into the constitution a control mechanism which would allow that decision to be made from time to time in the future, depending upon the circumstances then prevailing. The mechanism of leaving the question to a determination of the original continuing mill owner members, who are obliged to act reasonably and in the interests of QSL (having regard to the volume and duration of any sugar commitment and the benefits to QSL and the Queensland Sugar Industry) was a course that reasonable members considering the matter might not have thought unfair.
115 Thus, the defendant submits, the future operation of Article 31 should not be held to be oppressive.
116 There are two particular matters to which the defendant draws attention concerning the operation of the new Article 31.
117 First, although the BIM mills are designated as the Original Continuing Mill Owner Members, the defendant submits that it is conceivable that one or more of them might also give notice of termination. I should note here that there is no evidence before me that there is a real prospect in the foreseeable future of any such notice being given. Indeed, the evidence points persuasively to the contrary. The plaintiff, MSF and Tully gave their notices of termination in May/June 2014. As I noted in  above, the defendant sent an email to members extending the rollover period under the current RSSAs by six months to 15 December 2015. None of the BIM mills have given notices of termination. Thus, this argument by the defendant is advanced on what could be described as a theoretical basis. Be that as it may, the defendant submits that if one of the BIM mills were to give notice of termination then it would no longer be a Continuing Mill Owner Member and a vacancy for a Mill Owner Director (originally appointed by it) would arise by operation of new Article 36(f)(i). It is thus conceivable that, in the future, there may be a vacancy for more than one Mill Owner Director (ie apart from the additional Mill Owner Director specifically contemplated by the new Article 31), depending on who remains as a Continuing Mill Owner Member.
118 Secondly, although the possibility of the additional (fourth) Mill Owner Director being appointed depends on the will of the BIM mills (albeit subject to the requirements of new Article 31(e)), the defendant submits that this would also change if one of the BIM mills gives notice of termination. Once again, there is no evidence before me that there is a real prospect in the foreseeable future of that happening. But, if it did happen, the mill giving notice would no longer be a Continuing Mill Owner Member and would no longer have a vote on whether the additional Mill Owner Director should be appointed.
119 I am unable to accept the defendant’s submission that the discrimination amongst members brought about by the 2015 amendments to Article 31 was not unfair. In my view, the defendant’s submissions fail to have due regard to a number of important circumstances.
120 First and foremost, the plaintiff continues to be a Mill Owner Member with an existing RSSA with the defendant which will continue in full force and effect until 30 June 2017. Until that time, the plaintiff remains obliged, along with MSF, Tully and the BIM mills, to supply 100% of its production of raw sugar for export to the defendant. Its economic interest in the defendant marketing that sugar for the best economic return is no less now than it was in respect of its raw sugar supply in previous years. The same can be said, of course, for MSF and Tully even though they, too, have given notices of termination. The plaintiff has a very real and significant continuing commercial interest in the way in which the defendant’s affairs are conducted. The 2015 amendments have extinguished its right under Article 31 to participate in the conduct of the defendant’s affairs.
121 Secondly, although placing competition concerns at the forefront of its case, the defendant does not give due acknowledgement to the competition which has existed, and continues to exist, in respect of SEIS. As I have noted, approximately one-third of the raw sugar supplied by the plaintiff, MSF, Tully, Isis and Mackay is SEIS. The tonnages are not insignificant. Further, the plaintiff’s SEIS alone is greater than the production of raw sugar (including SEIS) supplied by the BIM mills to the defendant.
122 The defendant appears to acknowledge that the competitive marketing of SEIS has not provided difficulties for it in terms of its internal management. It attributes this lack of difficulty to the existence of an independent board. The 2015 amendments changed this, largely because of the favoured position given to the BIM mills in the appointment and removal of Mill Owner Directors. This, too, appears to be acknowledged by the defendant, although it has taken the view that the conflicts that might arise through competition concerns can be appropriately managed: see the measures discussed in the document quoted at  above. It is difficult to understand why any conflicts that might arise having regard to the plaintiff’s future position or, indeed, the future position of MSF and Tully, cannot be similarly managed.
123 Thirdly, and relatedly, it is no answer for the defendant to say, as it does, that the plaintiff has not sought, in the past, to exercise its right to appoint Mill Owner Directors. The defendant’s submissions have the appearance of characterising this as a failure by the plaintiff to participate in the defendant’s management. But this is clearly not so. As I have recorded, the plaintiff, even under CSR’s control, has preferred to have the defendant’s board composed of Independent Directors, rather than Industry Directors, precisely because issues of conflict, arising from competition concerns, can be avoided. The fact that Mill Owner Directors have not been appointed since 2008 is not because of the failure on the part of the plaintiff to participate in management. Rather, it is a reflection of the influence of the plaintiff’s potential voting power and the fact that its preferred position is that no Mill Owner Directors should be appointed.
124 Fourthly, even if, under Article 31 prior to the 2015 amendments, the plaintiff, contrary to its historically preferred position (even after giving its notice of termination in 2014), should exercise its voting power to appoint Mill Owner Directors, those directors, so appointed, would have fiduciary and statutory duties to the defendant, not the plaintiff. The defendant’s submissions fail to acknowledge this important fact. Indeed, the defendants’ submissions, and certain parts of Mr Beashel’s evidence, appear to make the unwarranted assumption that such directors would not adhere to the duties imposed on them which the law requires.
125 Fifthly, the defendant’s submissions do not seem to appreciate the significance of the entrenched dominant position given to the BIM mills in the appointment and removal of Mill Owner Directors. Whilst it is true that new Article 31(e) requires the BIM-appointed Mill Owner Directors to act reasonably in the interests of the defendant when determining whether to vote in favour of the appointment of an additional (fourth) Mill Owner Director, there is considerable latitude given to them in forming the judgment that is required on that question, particularly as to their assessment of the benefits to the defendant and the Queensland sugar industry of having the new Continuing Mill Owner Member. This is so in circumstances where, because of a grower’s nomination in respect of GEIS, the plaintiff may well continue to have a significant commercial involvement with the defendant. While it is true that the grower, and not the plaintiff, will bear the sales price exposure resulting from that nomination, I do not accept that it necessarily follows that the plaintiff will have no continuing interest, as a member, in the manner in which the defendant’s affairs are to be conducted, which is genuine and real.
126 I accept that, by giving notice of termination, the plaintiff (and MSF and Tully) changed the competitive environment in which raw sugar produced by Queensland mills is to be marketed and sold in the export market. But those changes are not new, they were evident from the middle of 2014. Even though the competitive environment changed at that time, I am satisfied that, when considered objectively in the eyes of a commercial bystander having regard to the matters I have discussed at - above, the 2015 amendments to Article 31 are such that reasonable members would not have thought the amendments to be fair. Indeed, objectively assessed, reasonable members would regard them as unfair.
127 I am satisfied, therefore, that the 2015 amendments to Article 31 were oppressive to, unfairly prejudicial to, or unfairly discriminatory against, the plaintiff within the meaning of s 232(e) of the Act. It makes no difference whether the matter is approached from either para (a) or (c) of s 232.
128 I am satisfied that is it appropriate to grant declaratory relief.
129 I am also satisfied that it is appropriate that the Constitution be modified pursuant to s 233(1)(b) of the Act so as to remove the oppression and unfairness that has been caused. The plaintiff’s concern has been with respect to Article 31, although the amendments to Article 31 and the other amendments comprising the 2015 amendments were passed by a single resolution. One course open might be to order that Article 31 should be removed and replaced by Article 31 in its form before the 2015 amendments. However, it is not clear to me what effect that might have for other amendments which have been made. I am prepared to hear the parties further on the form of relief that should be granted in this regard. Hopefully they will be able to agree on the appropriate form of the order.
130 Apart from this matter, costs should follow the event.
131 For the sake of good order, an interlocutory application filed by the defendant for a change in venue for the hearing was not proceeded with. I can see no reason why that interlocutory application should not be dismissed, with costs.
132 At the present time, I will grant declaratory relief and order that the parties bring in agreed orders otherwise giving effect to these reasons. In the event that the parties are unable to agree on the appropriate form of orders in that regard, the proceeding should be listed for mention.