Cadbury Pty Ltd v Mercer Investment Nominees Ltd

[2010] NSWSC 385

CITATION:	Cadbury Pty Ltd v Mercer Investment Nominees Ltd [2010] NSWSC 385
HEARING DATE(S):	8 April 2010
JUDGMENT DATE :	4 May 2010
JURISDICTION:	Equity
JUDGMENT OF:	Tamberlin AJ
DECISION:	There should be determination of the separate preliminary questions.
CATCHWORDS:	PRACTICE & PROCEDURE – Uniform Civil Procedure Rules, r 28.2 – separate decision of questions – order for decision – whether questions arising in the proceedings should be determined in advance of proceedings - PRACTICE & PROCEDURE – contract of employment – application for separate determination of questions in proceedings – whether further evidence will assist in determination of clause of contract – determination will save time and cost.
LEGISLATION CITED:	Uniform Civil Procedure Rules 2005 (NSW) r 28.2 Companies Act 1985 (UK)
CATEGORY:	Separate question
CASES CITED:	CBS Productions Pty Ltd v O’Neill (1985) 1 NSWLR 601 Franklins Pty Ltd v Metcash Trading [2009] NSWCA 407 Franklins Pty Ltd v Metcash Trading Pty Ltd [2009] NSWCA 407 IATA v Ansett Aust Holdings Ltd (2008) 234 CLR 151 Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2006] NSWSC 1464 Tepko Pty Ltd v Water Board (2001) 206 CLR 1
PARTIES:	Cadbury Pty Limited (P) Mercer Investment Nominees Limited (D1) Luke Mulkearns (D2) Joe Ferraro (D3) Rodney John McNeil (D4) Michael Keenan (D5) Andrew Nowicki (D6) Patricia Fields (D7) Michael Magee (D8)
FILE NUMBER(S):	SC 2009/290784
COUNSEL:	K Day (P) V Culkoff (D1) No other appearances
SOLICITORS:	Freehills (P) Maddocks (D1) (D2-8) Submitting appearances

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

TAMBERLIN AJ

TUESDAY, 4 MAY 2010

2009/290784 CADBURY PTY LIMITED v MERCER INVESTMENT NOMINEES LIMITED

JUDGMENT

1 HIS HONOUR: This is an application by the plaintiff, Cadbury Pty Limited (“Cadbury”) under the Uniform Civil Procedure Rules 2005 NSW (UCPR), rule 28.2 for an order that questions arising in the proceeding should be determined separately and in advance of other issues in the proceeding.

2 The application is opposed by the first defendant, Mercer Investments Nominees Limited (“Mercer”), and the question is whether there should be an order for determination of separate preliminary questions.

3 At all relevant times the plaintiff was the employer of the second to eighth defendants, who have filed submitting appearances. Mercer is the Trustee of the Cadbury Superannuation Plan in which Cadbury is the participating employer.

4 The preliminary questions concern the construction of provisions of the Superannuation Scheme which is established under a Trust Deed in respect of a Trust known as the Mercer Super Trust. Clause 3.8.3 of the Cadbury Superannuation Plan provides that:

“ If a Senior Executive Member leaves the service of the Employer before the Normal Retirement Date following a Change of Control but not more than 12 months after the Relevant Date there shall be payable from the plan to or in respect of the Member a lump sum benefit …”

5 Clause 3.1.2 defines “Change of Control” as follows:

“‘ Change of Control ’ means where:

(a) Cadbury Schweppes plc ceases to be the Ultimate Holding Company of the Participant [ie the plaintiff];

(b) the shareholding of Cadbury Schweppes plc and any wholly owned subsidiary or wholly owned subsidiaries of Cadbury Schweppes plc in aggregate in the Holding Company falls below 51% of the issued capital of the Holding Company;

(c) at any time on or after 1 April 1987 any person or corporation obtains a Relevant Interest in 35% or more of the issued share capital of Cadbury Schweppes plc;

(d) at any time on or after 1 April 1987 any person or corporation becomes in a position to control the composition of the Board of Directors of Cadbury Schweppes plc; or

(e) having been requested to consider the matter by the Trustee or any Member, the auditor for the time being of the Holding Company determines that as a result of an event or series of events occurring after 1 April 1987, there has been a change of control of the business or affairs of the Holding Company.” (emphasis added)

6 The expression “the Participant” is a reference to Cadbury. Prior to 2 May 2008, the Ultimate Holding Company was Cadbury Schweppes plc, a UK company.

Issues

7 There are three issues raised in this proceeding:

(a) whether there has been a change in control;
(b) whether the employees left the service of the employer “following” the change of control; and
(c) if the answer to (a) and (b) is yes, whether the employees left the employment because of the change of control.

Preliminary Questions

8 The two preliminary questions referred to in the Notice of Motion are:

“1 Was the UK Internal Restructure a “Change of Control” within the meaning of Clauses 3.1.2 and 3.8.3 of the Annexure to the Participation Agreement made on 30 March 2006, between the Plaintiff (as participant) and the First Defendant (as trustee of the Mercer Super Trust) ( the Annexure )?
2 Does the word “following” in Clause 3.8.3 of the Annexure mean “as a result of” or otherwise require a causal connection between a senior executive member leaving the service of the employer, and a “Change of Control”?” (Emphasis added)

Background

9 On 2 May 2008 a new publicly listed holding company, Cadbury plc, became the holding company instead of Cadbury Schweppes plc and the Ultimate Holding Company of the plaintiff, Cadbury Pty Limited, pursuant to a Scheme of Arrangement under the Companies Act 1985 (UK). On that same day the Cadbury Group implemented a two-stage de-merger of its Americas Beverages business from the rest of the Cadbury Group, and in particular from its confectionary business, and the “beverages business” which were, prior to the second stage of the de-merger that occurred on 7 May 2008, the Cadbury Group’s non-alcoholic beverages business in the United States, Mexico, Canada and the Caribbean in soft drinks and other products. The first stage of the de-merger involved an internal restructure in the Cadbury Group of companies in the United Kingdom, effected by way of a Scheme of Arrangement under the Companies Act 1985 (UK).

10 The structure of the affected companies in the Cadbury Group showing the position before and after the change is set out in the diagram below.

11 The second stage of the de-merger involved a reduction in capital of Cadbury plc, to give effect to the de-merger of the Americas Beverages business on 7 May 2008. This involved the former holders of ordinary shares in Cadbury Schweppes plc receiving shares of common stock in Dr Pepper Snapple Group, Inc (which had held the Americas Beverages business) in the same proportion as they had previously held shares in Cadbury Schweppes plc.

12 The plaintiff contends that there has been no “Change in Control” within the meaning of clause 3.8.3 of the Cadbury Superannuation Plan because that expression requires a connection between the change of control and the cessation of employment and that the word “following” as used in clause 3.8.3 requires a causal link between leaving service with the plaintiff and the relevant change of control. The plaintiff submits that these two construction issues raise pure questions of law, while issue (c) (in [7] above) raises complex questions of fact that may need to be negotiated and/or mediated as between the plaintiff and the individual defendants.

13 The plaintiff says that it may never be necessary to determine issue (c) if issues (a) and (b) are given the construction which they advance. The plaintiff submits that separate determinations of these questions will save time and avoid significant expense.

Principles on Preliminary Question

14 It is generally accepted that the resolution of separate questions is desirable where it will have the effect of resolving significant parts of the litigation expeditiously, or narrowing down the area of dispute between the parties: Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2006] NSWSC 1464 at [6] per Brereton J. However, the separate determination of questions is an exceptional course and caution must be exercised to ensure that hearings are only held when their utility, economy and fairness to the parties are beyond question: Tepko Pty Ltd v Water Board (2001) 206 CLR 1 at 55. Courts will determine preliminary questions where the matter is ripe for separate and preliminary determination in that there are central issues in dispute between the parties, the resolution of which will obviate the necessity of litigation altogether, or substantially narrow the field of controversy: CBS Productions Pty Ltd v O’Neill (1985) 1 NSWLR 601 at 606.

Cadbury’s Position

15 The plaintiff submits that the determination of the two preliminary questions will shorten the proceedings by disposing of them on one of the possible outcomes. It is only in the events that there has been a change of control and that the cessation of employment resulted from or was caused by the change of control that it will be necessary to address the third issue, which involves a determination as to whether the second to eighth defendants left Cadbury’s service because of the change of control. The plaintiff contends that hearing the preliminary questions will only take part of a day, whereas a full hearing on all issues will require a number of full days being allocated. The preliminary questions concern common issues, severable from the non-factual issues, as to the reasons of the individual defendants ceasing to be employed by Cadbury. The determination of the preliminary questions will save time and costs. It says that a preliminary determination will not prejudice the first defendant so far as costs are concerned because the plaintiff is paying the costs of the first defendant.

The First Defendant’s Position

16 The first defendant submits that at present there is no evidence before the Court concerning the circumstances leading to the individual defendants leaving the service of the plaintiff and that the matter is not ready for determination of issues (a) and (b). It further disputes the proposition that the determination of the factual question which is issue (c) will have no impact on the determination of questions (a) and (b).

17 The first defendant relies on the principle that the meaning of terms in a contractual document must be considered having regard to the understanding of a reasonable commercial person taking into account the textual context and the surrounding circumstances known to the parties, together with the purpose and object of the transaction: IATA v Ansett Aust Holdings Ltd (2008) 234 CLR 151 at 174. The concept of “purpose and object of the transaction” is a reference to the business or commercial objective of the transaction, and this in turn requires a business commonsense or a business-like construction to be attributed: Franklins Pty Ltd v Metcash Trading [2009] NSWCA 407, per Allsop P at [19].

18 The first defendant submits that the circumstances surrounding the individual defendants’ cessation of service with the plaintiff may be relevant to a consideration of whether the definition of “Change of Control” should be confined to a situation, for example, where the change in the definition is caused by a takeover, rather than by an internal restructure, for example, and regard must be had to whether business commonsense requires that there be a causal link between the cessation of services of the employee and the change of control. It is hypothesised, for example, that if a review of the circumstances of the cessation of employment shows that it was based on an assertion by the plaintiff that there had in fact been a change of control this circumstance would negate a proposition that it would be contrary to commercial commonsense to say that a change of control was not necessary. This could also shed some light on the meaning of the expression “following”. The first defendant submits therefore that the circumstances of the cessation of employment will assist the Court to determine whether a generally worded provision such as the definition of “Change of Control” or the word “following” should be read down to produce a commercially realistic outcome. It submits that because this evidence is not before the Court the preliminary questions posed are not yet “ripe” for determination.

Reasoning

19 The position is that there is no evidence put on by either party to suggest that there is anything in the circumstances of the cessation of employment which could bear on the construction of the expressions in clause 3.8.3. The defendant has not put on any evidence as to these circumstances. Accordingly, in my view, the defendant’s submissions as to the circumstances are matters of speculation only.

20 The plaintiff, correctly, relies on the general principle that the use of subsequent conduct is not permissible to construe a contract. More specifically, the principle is that the subsequent conduct of a party cannot be used to prove what the parties meant by particular terms used in their contract: Franklins Pty Ltd v Metcash Trading Pty Ltd [2009] NSWCA 407 at 327. This principle is relevant in the present circumstances. The defendant, in substance, submits that there could be some post-contractual conduct which could inform the construction of clause 3.8.3. True, in some limited circumstances, evidence of future conduct can be admitted to assist in interpretation: see examples by Campbell JA at [337] and Allsop P at [13]. However, in this case, I am not persuaded that there is any subsequent conduct which could bear on the meaning of the terms under consideration. Therefore, having regard to the cogent reasons advanced by the plaintiff for determination of the preliminary questions, I am satisfied that this is an appropriate case in which an order should be made for separate and preliminary determination of the first two questions referred to in the Notice of Motion.

21 Accordingly, I direct that the first two questions raised in the Notice of Motion be decided separately from any other question, before any hearing in the proceedings. I also order that the first defendant should pay the plaintiff’s costs of this application.

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