Cargill Australia Limited v Viterra Malt Pty Ltd (No 18)
[2018] VSC 772
•12 DECEMBER 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
| AT MELBOURNE COMMERCIAL COURT |
S ECI 2014 000146
| CARGILL AUSTRALIA LIMITED (ACN 004 684 173) | Plaintiff |
| v | |
| VITERRA MALT PTY LTD (ACN 096 519 658) AND OTHERS | Defendants |
| and | |
| CARGILL, INCORPORATED AND OTHERS | Third parties |
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JUDGE: | ELLIOTT J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 4 DECEMBER 2018 |
DATE OF RULING: | 12 DECEMBER 2018 |
CASE MAY BE CITED AS: | CARGILL AUSTRALIA LTD v VITERRA MALT PTY LTD (No 18) |
MEDIUM NEUTRAL CITATION: | [2018] VSC 772 |
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PRACTICE AND PROCEDURE – Pleadings – Application for leave to amend defence during trial – Issues sought to be pleaded the subject of openings and evidence – Expert evidence the subject of objection on the ground of relevance due to issue not arising on the pleadings – No prejudice alleged if leave granted – Leave granted in part, subject to proper particulars – Supreme Court (General Civil Procedure) Rules 2015 (Vic), rr 1.14(1)(b), 36.01 – Civil Procedure Act 2010 (Vic), s 7.
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff and the 1st and 2nd third parties | Ms L Nichols QC Ms K Burke | Gilbert + Tobin |
| For the defendants | Mr A Myers QC Mr S Senathirajah QC Mr S Prendergast Mr O Wolahan | King & Wood Mallesons |
HIS HONOUR:
A. Introduction
On 19 November 2018, industry experts were to be called to give evidence. The plaintiff, Cargill Australia Ltd (“Cargill Australia”), the first third party (“Cargill, Inc”) and the second third party, Joe White Maltings Pty Ltd (“Joe White”)[1] (together, “the Cargill Parties”), and the defendants (“the Viterra Parties”)[2] intended to call 1 industry expert each.
[1]Joe White is now known as Cargill Malt Asia Pacific Pty Ltd.
[2]The Viterra Parties consist of the 3 companies who were the vendors of Joe White, being Viterra Malt Pty Ltd, Viterra Operations Ltd and Viterra Ltd, together with the ultimate holding company of the group, the fourth defendant, Glencore International AG.
Only 2 business days before the experts were to be called, the court was informed of objections made by the Cargill Parties to the Viterra Parties’ expert, including on the ground of relevance.[3] In short, in addition to 8 pages of specific objections, the Cargill Parties submitted the matters sought to be the subject of expert evidence did not arise on the pleadings and therefore the entirety of the expert evidence ought not to be allowed on that basis. The court was also informed for the first time of the Viterra Parties’ objections to the Cargill Parties’ industry expert evidence.
[3]The industry experts’ reports were exchanged between the parties in March and April 2018, and a joint report was prepared in June 2018, before trial. Objections were exchanged between the parties in April 2018, but no notice of them was given to the court.
At the hearing of those objections on 19 November 2018, it was accepted that the issues sought to be raised by way of expert evidence had not been pleaded. The Viterra Parties sought leave to amend their defence. No draft pleading had been prepared for the purposes of the leave application.
Orders were made requiring the Viterra Parties to file the proposed amended defence by 4.00 pm on 20 November 2018. The hearing of the Viterra Parties’ application for leave to amend their defence was listed for 10.00 am on 22 November 2018.
On 22 November 2018, leave was granted with respect to some of the proposed amendments that were not the subject of objection.[4] However, insofar as the application for leave to amend was opposed, the application was refused.[5] In substance, the amendments that were rejected related to alleged practices in the malting industry.
[4]These amendments effectively amounted to admissions, rather than raising any fresh issues.
[5]One proposed amendment was withdrawn by the Viterra Parties.
On that occasion, relevantly, it was held that the pleading did not properly identify the “practices” the subject of allegations, and that it was unclear what was meant by “other malthouses in the industry”. It was further held that there was uncertainty around the meaning of “the industry” and the reference to “most participants in the malting industry”. Furthermore, on the state of the very general language used in the then proposed pleading, I made the observation that it was not satisfactory at this point of the trial (which commenced on 18 June 2018) to allow the amendments on the basis that particulars would be provided in due course.
Upon leave being refused, the Viterra Parties sought, and were given, a further opportunity to seek leave to file a further amended defence. The proposed amended defence was filed, late, on 28 November 2018 (“the Proposed Defence”), causing a delay of the hearing of the application. [6]
[6]Orders made on 22 November 2018 required the Viterra Parties to provide to the court and to the other parties to the proceeding a further proposed amended defence by 10.00 am on 28 November 2018. The Viterra Parties informed the court, at 10.28 am on 28 November 2018, that they were not in a position to comply with that order. The hearing of the application for leave to amend, originally listed on 29 November 2018, was re-listed on 4 December 2018.
For the reasons set out below, leave will be granted to the Viterra Parties to file the Proposed Defence, subject to certain particulars being provided as a condition of leave.
B. Background
B.1 Issues in the case
This proceeding was brought by Cargill Australia against the Viterra Parties following its purchase of Joe White from the Viterra Parties (except the fourth defendant, Glencore International AG (“Glencore”), which is the ultimate holding company of the other defendants). The purchase was completed on 31 October 2013 (“the Acquisition”). Cargill Australia alleges the Viterra Parties failed to disclose certain unlawful practices engaged in by Joe White, to the knowledge of the Viterra Parties (“the Viterra Practices”). The Viterra Practices, as alleged in the fourth further amended statement of claim dated 24 September 2018 (“the Statement of Claim”), are that Joe White “routinely, and without informing customers”:
(1) Supplied malt to customers that did not comply with contractual requirements and specifications.
(2) Supplied certificates of analysis to customers[7] that misstated the results of analytical testing on the malt, so that the certificate reported that the malt complied with contractual requirements and specifications when it did not.
[7]Certificates of analysis accompanied malt supplied by Joe White to its customers and included or purported to include details of testing that had been conducted in respect of the malt supplied.
It is further alleged that the Viterra Practices were recorded and endorsed by certain written policies (“the Viterra Policies”). Cargill Australia claims that it would not have acquired Joe White had it known of the Viterra Practices and the Viterra Policies before it executed the acquisition agreement on 4 August 2013 (“the Acquisition Agreement”).[8]
[8]This is only a cursory account of some of the issues in the case. For a fuller account of the facts, see Cargill Australia Ltd v Viterra Malt Pty Ltd (No 2) [2017] VSC 283, [6]-[9]; Cargill Australia Ltd v Viterra Malt Pty Ltd [2017] VSC 126, [2]-[28] (Daly AsJ).
B.2 The Proposed Defence
In paragraph 27 of the Statement of Claim it is alleged that certain representations were made by all the Viterra Parties, or, alternatively, the Viterra Parties excluding Glencore, or Glencore itself. These representations, described as “the Financial and Operational Performance Representations”, were as follows:
(1)The production, sales and earnings figures stated in the Financial and Operational Information[9] were based upon strict quality control procedures and analysis.
[9]The Statement of Claim defines “Financial and Operational Information” to include Joe White’s financial and operational performance for the financial year 2010 to part of financial year 2013 (including that reported in the financial and operational information disclosed in the Information Memorandum and during due diligence). The “Information Memorandum” is defined as the information memorandum provided by the Viterra Parties to Cargill, Inc in or around May 2013 in connection with the sale of Joe White.
(2)The production, sales and earnings figures stated in the Financial and Operational Information were based upon customer contracts including customer specifications being complied with.
(3)By reason of (1) and (2), the production and sales figures stated in the Financial and Operational Information had been properly and lawfully achieved.
(4)Joe White had not withheld or concealed material information from customers.
(5)The assets of the Business[10] were sufficient for Joe White to sell malt in the volumes and for the return stated in the Financial and Operational Information.
(6)Joe White had low future capital expenditure needs in the short to medium term.
(7)When procuring barley, Joe White gave priority to obtaining barley that best met its customers’ specifications and requirements.
(8)Joe White employed technical analysis and strict quality control measures to ensure that the malt it produced consistently met its customer specifications.
(9)A central reason for Joe White’s ability to achieve the performance described in the Information Memorandum[11] was its ability to produce malt that met its customers’ exact specifications and requirements, and its focus on doing so.
(10)The Undisclosed Matters did not exist.[12]
[10]The Statement of Claim defines “Business” to mean the malt business conducted by the Viterra Parties and Joe White.
[11]See fn 9 above.
[12]The Statement of Claim defines “Undisclosed Matters” to include, whether individually or collectively, the following matters that Cargill Australia allege the Viterra Parties did not disclose, either in the Information Memorandum or during the due diligence process:
(1) The Viterra Practices.
(2) The Viterra Policies.
(3)That the Financial and Operational Information was substantially underpinned by Joe White’s practice of supplying malt to customers pursuant to the Viterra Practices and the Viterra Policies that did not comply with the relevant customer contracts.
(4) That, but for the Viterra Practices, Joe White could not produce and sell malt:
(a)In the volumes and to the specifications required by customers.
(b)In the volumes and for the returns reflected in the Financial and Operational Information.
Further, in paragraph 29 of the Statement of Claim, Cargill Australia alleges that, in reliance upon, amongst other things, the Financial and Operational Performance Representations, Cargill Australia entered into the Acquisition Agreement.
In response to paragraphs 27 and 29 of the Statement of Claim, the Viterra Parties seek leave to allege as follows:
44They deny paragraph 27, and refer to and repeat paragraphs 12, 15 to 21 and 25 to 33 above[13] and say further that the alleged representations were not conveyed because:
[13]It is unnecessary to fully explain the allegations in these paragraphs for the purposes of this application. They relate broadly to certain disclaimers made by the Viterra Parties during the sale process contained in the Information Memorandum, a confidentiality deed executed by Glencore and Cargill, Inc on 13 May 2013, a data room protocol dated 17 June 2013 and certain letters.
(a)prior to 4 August 2013, practices of the following kind were engaged in by other commercial malthouses throughout the world who were in the business of supplying malt to customers (“the Commercial Malting Industry”), not including internal malt production facilities/units within brewing businesses:
(i)practices involving the routine[14] making of adjustments to analytical test results (in a subjective and/or objective manner, such as adjustments within 2 standard-deviation units) due to the inherent variability of malt and testing procedures (including the inability to repeat or reproduce precisely the same result when malt is tested more than once, and to account for anticipated or known differences between the malthouse’s testing results and the customer’s testing results), before reporting the qualities of the malt to customers, which sometimes have the effect of changing the recorded value from outside of the customer’s specification, to within the customer’s specification;
[14]“Routine” (or more specifically “routinely”) is the word used by the Cargill Parties in the Statement of Claim to describe the use of the Viterra Practices: see par 9 above.
(ii)practices involving the supply of malt to customers which was produced from barley varieties other than those specified by the customer, as and when required from time to time in order to achieve the customer’s specifications and requirements for malt, other than the specified barley variety, for example where the specified barley variety was no longer available; and
(iii)practices involving the use of gibberellic acid in breach of customer agreements, as and when required from time to time in order to achieve the customer’s desired performing malt,
(collectively, “Industry Practices”);
(b)the Industry Practices were not ordinarily disclosed to customers; and
(c) the existence of the Industry Practices:
(i)was known to most participants in the Commercial Malting Industry, including Cargill, Inc and Cargill Australia; and
(ii)the [Viterra Parties] (including, in particular and without limitation, the 4 “knowledge” individuals referred to in clause 31.15 of the Acquisition Agreement)[15] did not have any awareness or knowledge of the Industry Practices prior to 22 October 2013.
[15]Clause 31.15 of the Acquisition Agreement is in the following terms:
Where a [warranty or representation set out in schedule 4 of the Acquisition Agreement (“Warranty”)] is given to [either Viterra Malt Pty Ltd, Viterra Operations Ltd or Viterra Ltd (“the Seller”) or all of them (“the Sellers”)]’s awareness or knowledge, including to the best of its knowledge or awareness or so far as the Seller is aware, the Seller will be deemed to know or be aware of a particular fact, matter or circumstance only if one or more of Jason Rees (“Rees”), Damian Fitzgerald (“Fitzgerald”), Matt Mann (“Mann”) or David Mattiske (“Mattiske”) are actually aware of that fact, matter or circumstance on the date the Warranty is given or would have been aware had they made reasonable enquiries on the date the Warranty is given. The individuals referred to in this clause 31.15 are not in any way personally responsible for the accuracy of the Warranties and will not be personally liable for any [allegation, debt, cause of action, liability, claim, proceeding, suit or demand of any nature howsoever arising and whether present or future, fixed or unascertained, actual or contingent, whether at law, in equity, under statute or otherwise].
At the relevant time, Rees was the chief financial officer of Viterra Australia and New Zealand operations and the director of finance for Australia and New Zealand for Viterra Limited. Fitzgerald was the director legal of Viterra and Glencore Grain Pty Ltd in Australia and New Zealand and secretary and company secretary of each of the Viterra Parties, other than Glencore. He was also secretary and company secretary at Joe White. No evidence has been put before the court as to the position held by Mann. Mattiske was the managing director of Glencore Grain Pty Ltd in Australia and New Zealand and a director of each of the Viterra Parties, other than Glencore.
Particulars
The [Viterra Parties] refer to Schedule A.[16]
45 …
46They deny paragraph 29, refer to and repeat paragraphs 12, 15 to 21, 25 to 33, 37, 44 and 45 above[17] and say further that there was no reliance because of the matters pleaded at sub-paragraphs (a)-(c) of paragraph 44 above.
(Emphasis added.)
[16]See annexure “A” below.
[17]See fn 13 above. In addition, certain further terms of the Acquisition Agreement are pleaded.
B.3 Industry practices
Both the Cargill Parties and the Viterra Parties have raised the issue of industry practices repeatedly throughout the trial. In the Viterra Parties’ written opening, it was contended, amongst other things, that:
(1) The Viterra Practices were known in the malting industry.
(2) In particular, it was, and remains, an accepted practice within the industry to adjust malt test results.[18]
[18]It was stated that the practice of adjusting malt test results was sometimes referred to within the industry as “pencilling”.
(3) Cargill, Inc and Cargill Australia were aware of various matters, including that:
(a) Other malting companies within the industry were adding gibberellic acid in the malting process regardless of clients’ formal prohibitions.
(b) The industry recognised that the malt analytes proficiency testing scheme allowed for 2 standard deviations in testing to account for the limitations of analytical equipment and variations in results between different laboratories.
(c) There was a practice in the food and malting industries in which testing results in certificates of analysis were altered.
(4) The Viterra Practices were consistent with standard industry practice or similar to the way that “a number of other malt companies in the industry” carried on business.[19]
(5) The change in approach by the Cargill Parties following the Acquisition with respect to malt production and reporting was not in accordance with general industry practice.[20]
[19]This was expressed to exclude the use of Hindmarsh barley for malt production. The evidence at trial is that Hindmarsh has not been approved as a malt-grade barley in Australia.
[20]This was expressed to exclude ceasing the use of Hindmarsh barley for malt production.
During oral opening, senior counsel for the Cargill Parties made express reference to the allegation by the Viterra Parties that Cargill Australia knew what was happening at Joe White. It was suggested, in substance, the allegations amounted to a position that Cargill Australia had the relevant knowledge because “it knew that at times people in the industry cheated” their customers.
The Cargill Parties’ senior counsel stated the Cargill Parties’ case was that Cargill Australia accepted that some people in the industry did cheat their customers at times, but nothing that Cargill Australia knew or suspected about the behaviour of industry participants from time to time informed it of the “true state of affairs” in Joe White or caused it to conclude that Joe White was in fact cheating its customers, and was doing so systematically. It was further submitted that it “doesn’t matter much” what people in the industry might have done from time to time, because the relevant question was what “Cargill knew or didn’t know about the Joe White business”. Finally, it was contended that, whatever might be said about the industry practices, none of it could amount to “Cargill having a basis to conclude that Joe White was conducting its business in the way that it was”.[21]
[21]For completeness, senior counsel for the Cargill Parties submitted at the hearing of the present application that the Cargill Parties had “only ever engaged in the notion of industry practices in a responsive way”.
Without descending to the detail, during the course of the evidence of various witnesses (both in evidence in chief and in cross-examination), the issues of the nature and extent of practices in the industry akin to the Viterra Practices, and knowledge of them, have been canvassed extensively.
C. The parties’ contentions
The Viterra Parties submitted that the criticisms made of the proposed amended defence provided on the last occasion had been addressed in the Proposed Defence.[22] The Viterra Parties contended that the current criticisms made in respect of the Proposed Defence came “perilously close” to whether the defence raised would succeed at trial, rather than whether the proposed amendments should be allowed.
[22]See par 6 above.
Further, the Viterra Parties contended that no prejudice could be suffered by the Cargill Parties by reason of the Proposed Defence. This was on the basis that the Cargill Parties had been on notice that the issue of Industry Practices would be a matter of evidence from at least 30 March 2018, when the Viterra Parties filed and served the report of their industry expert (“the French Report”).[23] Reliance was also placed upon the fact that the Cargill Parties have filed a responsive expert report.[24] Furthermore, it was contended by the Viterra Parties that, despite providing extensive objections to the French Report, the Cargill Parties did not object on the ground that the issues addressed were not relevant to the issues in this proceeding.[25]
[23]The French Report was amended on 8 November 2018, but the substance of the opinions expressed in the report did not materially change. Following a hearing of the objections to the French Report on 19 November 2018, the Viterra Parties filed a supplementary report of French (“the Supplementary Report”). The Cargill Parties provided objections in respect of the Supplementary Report on 3 December 2018. On the present application, no party sought to be heard in respect of the Supplementary Report.
[24]Cf fn 21 above.
[25]This submission was in writing and was largely historical as it was based on the objections provided to the Viterra Parties on 18 April 2018. The submission is effectively superseded by the fact that the Cargill Parties’ objections to the French Report ultimately included an objection to the entire report on the basis of its “relevance to facts in issue”: see pars 1-3 above.
Conversely, the Viterra Parties submitted they would suffer significant prejudice if leave to amend were refused and the French Report, or parts of it, were consequentially held to be inadmissible. The Viterra Parties also pointed to possible further delay in this proceeding if leave were refused.
In opposing leave, the Cargill Parties’ objection was limited to proposed paragraph 44, on the basis that the remaining proposed amendments would fall away if the objections to paragraph 44 were upheld.[26] The Cargill Parties submitted that the purpose of paragraph 44 was to “lay a foundation for evidence” on which the Viterra Parties would seek to infer, from the existence of conduct engaged in generally by other participants in the commercial malting industry, that Cargill Australia knew of the Viterra Practices prior to the Acquisition. It was submitted that it would require “quantum leaps” to infer from general knowledge within the industry as to the existence of the Industry Practices, first, that Cargill Australia knew of the existence of the Industry Practices, and, secondly, that it knew or ought to have known that Joe White engaged in such practices.
[26]The third parties consented to the proposed amendments.
Further, the Cargill Parties submitted that the terminology used was so vague so as not to be meaningful.[27] In particular, objection was taken to 5 aspects of the Proposed Defence.
[27]Cf par 6 above.
First, objection was taken to the use of the phrase “the Commercial Malting Industry” in the absence of any substantively meaningful and precise definition. In the Viterra Parties defining “the Commercial Malting Industry” to include other commercial malthouses throughout the world who were in the business of supplying malt to customers, other than internal malt production facilities within brewing businesses, the Cargill Parties contended this definition was “completely at large”, “essentially content free” and “astonishingly broad” in geographical reach. Further, it was argued that the definition provided was unsatisfactory in that it referred generally to “other commercial malthouses” without identifying them by name, location or otherwise. Furthermore, it was argued that the reference to Industry Practices became “circular” when it was defined by reference to the Commercial Malting Industry, which itself was not properly defined. The Cargill Parties stated that, if the Viterra Parties were to “grasp the nettle” and list the participants said to constitute the Commercial Malting Industry, they would have no objection to that aspect of the Proposed Defence because “the problem would be solved”.
Secondly, the Cargill Parties submitted the use of the phrase “as and when required from time to time” in paragraph 44(a)(ii) and (iii) was unclear. They stated they read this phrase as not indicating the Industry Practices were systemic or routine, because these 2 subparagraphs could be contrasted with the language in paragraph 44(a)(i). The Cargill Parties invited the Viterra Parties to make the position clear.
Thirdly, the Cargill Parties opposed the inclusion of an allegation that the Industry Practices were “not ordinarily disclosed to customers” (emphasis added). It was contended that it was not apparent what was meant by “ordinarily”, or whether this indicated that the Industry Practices were disclosed to customers in some circumstances, which circumstances were not identified.
Fourthly, the Cargill Parties objected to the allegation that the Industry Practices were “known to most participants in the commercial malting industry” (emphasis added). They argued that the allegation could not be tested because the Commercial Malting Industry had not been sufficiently identified, and the term “most” was not quantified in the sense of being expressed as a proportion. The Cargill Parties stated that they did not object to that part of the pleading in which it was stated that Cargill, Inc and Cargill Australia knew of the existence of the Industry Practices, so long as that allegation was not founded on knowledge of the Industry Practices by participants in an undefined industry.
Finally, the Cargill Parties objected to the reference in Schedule A of the Proposed Defence to the knowledge of “industry participants generally”[28] as being incapable of supporting any allegation of knowledge on the part of Cargill Australia or Cargill, Inc. In this regard, it was also submitted the evidence referred to in the particulars in Schedule A was not probative and could not support the allegation.
[28]See annexure “A” below. The Cargill Parties stated there was no objection to Schedule A to the extent it contained particulars of what it is alleged “Cargill is said to have known about Joe White”.
In reply, the Viterra Parties’ senior counsel reiterated his submission that much of the Cargill Parties’ submissions were concerned with proof, rather than whether or not something was properly pleaded.[29]
[29]See par 18 above.
On the question of particulars, the Viterra Parties submitted there was no need for the court to require them to “further fiddle” with the Proposed Defence to identify the industry participants. Further, it was submitted that the relevant information was already in evidence in documents that went to the “various boards” of Cargill, Inc at various stages of the decision-making process. It was suggested that the industry participants were about 20 in number, and their share of the market at the relevant times was identified in documents of Cargill, Inc tendered during the trial.
Furthermore, it was submitted it was not a question of identifying particular people in particular places, but rather a question of industry practice, which would be proved as a matter of fact by an industry expert.[30] It was submitted that the proof of such matters was not concerned with a statistical approach. Lastly, the Viterra Parties submitted the Cargill Parties’ submissions insisting on further particulars was “at best nitpicking and at worst misguided”.
[30]See par 19 above.
D. Legal principles
The principles relating to the granting or refusal of leave to amend pleadings are well established.[31] Rule 36.01(1)(a) of the Supreme Court (General Civil Procedure) Rules2015 (Vic) empowers the court to grant leave to any party to amend any document for the purpose of “determining the real question in controversy between the parties to any proceeding”. Leave may be granted at any stage of the proceeding.
[31]The relevant principles have been set out previously in Cargill Australia Ltd v Viterra Malt Pty Ltd (No 10) [2018] VSC 439, [16]-[18]. They are repeated here for convenience.
In deciding whether to grant leave to a party to amend its pleadings, the court must consider whether the proposed amendments facilitate the identification of the real issues in dispute and the just resolution of the proceeding.[32]
[32]AON Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175, 204-205 [69] (Gummow, Hayne, Crennan, Kiefel and Bell JJ). See also ABL Nominees Pty Ltd v Mackenzie (No 2) [2014] VSCA 529, [17] (Derham AsJ).
The power to grant leave to a party to amend its pleading to raise an arguable issue is a discretionary power. There is no right or entitlement for a party to amend its pleading subject to the payment of costs referable to the amendment.[33] The nature and importance of the proposed amendments must be considered.[34] This factor must be weighed against case management considerations such as cost, delay and the potential for unfair prejudice to other parties to the proceeding, the court and other litigants that might arise if the proposed amendments are allowed.[35]
[33]AON Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175, 212 [96], 213 [98]‑[99], 217 [111].
[34]Ibid, 214 [102].
[35]Ibid, 213 [98]-[99], 214-215 [102], 217 [111]; Civil Procedure Act 2010 (Vic), s 7.
Further, in exercising the power to grant leave, the court may give any direction or impose any term or condition it thinks fit.[36]
[36]Supreme Court Rules, r 1.14(1)(b).
E. Ruling
Despite not being directly raised on the pleadings to date, the issue of industry practices of the kind of, or similar to, the Viterra Practices is relevant to several aspects of this proceeding.[37] In particular, the proposed amendments seek to set out more fully the Viterra Parties’ defence to the allegations of misleading or deceptive conduct and are relevant to the issues of whether certain representations were conveyed, whether the Cargill Parties relied on those representations, and, accordingly, whether those representations gave rise to a cause of action based on misleading or deceptive conduct in trade or commerce. The amendments may also be relevant to the Viterra Parties’ allegation that each of Cargill, Inc and Cargill Australia failed to take reasonable care in the events leading up to the Acquisition. Further, the Proposed Defence seeks to raise an arguable issue that has been a significant and prevalent aspect of this proceeding since the parties made opening submissions in June 2018,[38] if not before.[39] In summary, by allowing the Viterra Parties to amend, the court will be facilitating the Viterra Parties identifying the real questions for determination in the proceeding.
[37]The Cargill Parties suggested in oral submissions certain aspects of the amendments may not be relevant.
[38]See pars 14-17 above.
[39]See par 19 above.
However, there is considerable force in some of the Cargill Parties’ submissions as to the lack of specificity in the proposed amendments under consideration.[40] Notwithstanding my ruling on the previous occasion regarding the provision of particulars at this late stage of the trial,[41] the matters listed below to be the subject of further particulars are straightforward.[42]
[40]The French Report does not provide such a level of detail.
[41]See par 6 above.
[42]See par 29 above.
Accordingly, leave will be granted to the Viterra Parties to file and serve the Proposed Defence conditional on particulars being provided in respect of the following matters:
(1) The identity, by name, location, or other relevant matter, of the malthouses comprising “the Commercial Malting Industry”. To be clear, those particulars should clarify the reference in proposed paragraph 44(a) to the “other commercial malthouses” that are said to have engaged in the Industry Practices, at least to the extent that the Viterra Parties are able to identify them.
(2) The meaning of “most participants” in proposed paragraph 44(c)(i) in the context of those malthouses who knew of the Industry Practices, in terms of a proportion or approximate proportion.
On the other hand, I consider that the use of the term “ordinarily” in proposed paragraph 44(b), in the context of whether the Industry Practices were disclosed to customers,[43] does not require clarification by way of further particulars. The word “ordinarily” is a common word and is readily understood. It is undoubtedly intended to convey “customarily” or “normally” or “usually”. Although different in meaning, it is not unlike the term “routinely” in its function in this case, which term has been used by the Cargill Parties throughout the trial, including in the Statement of Claim.[44] Equally, it is not necessary to provide particulars of the out-of-the-ordinary in order for the word “ordinarily” to be understood.
[43]See par 25 above.
[44]See fn 14 above.
Further, there is no real difficulty with the use of the words “as and when required from time to time” in paragraph 44(a)(ii) and (iii) of the Proposed Defence.[45] With respect to the use of barley, an example of when the conduct identified might be engaged in is already given.[46] The gravamen of the allegations is that the industry participants engaged in such conduct when it was considered necessary to achieve certain results. Furthermore, in circumstances where the allegations are concerned with the industry participants, rather than specific allegations concerning Joe White, it is unnecessary, and would be unduly burdensome, to require particulars of each such matter.[47]
[45]The Cargill Parties’ senior counsel stated she did not complain about the way in which the Industry Practices “have been defined as such”.
[46]See par 13 above, Proposed Defence, par 44(a)(ii).
[47]See also annexure “A” below, pars (51)-(60).
With respect to the submissions concerning “industry participants generally” the matters relied upon are set out in the French Report. The Cargill Parties have had the first version of this report since 30 March 2018 and have had ample opportunity to address the issues raised.[48] Whether or not the evidence relied upon is admissible is a separate question which will be addressed in due course. The admissibility or otherwise of this evidence should not govern whether the particular allegations may be made at all.[49] To take such an approach would be to conflate 2 quite distinct exercises. Further, the probative value, or otherwise, of Douglas Stewart’s evidence[50] is a matter that can be dealt with by the Cargill Parties as a matter of closing submissions. For similar reasons, any outcome in that regard is not determinative of the issue of whether leave to amend ought to be granted.
[48]See fn 23 above.
[49]Noting that other witnesses in the case have already given evidence touching on this issue: see par 17 above.
[50]See annexure “A” below, second paragraph.
In deciding to grant conditional leave, I have considered the fact that this proceeding is well advanced, the trial having commenced on 18 June 2018. However, I accept the Viterra Parties’ submission that no party would suffer any real prejudice by reason of the amendments (the Cargill Parties did not make any submissions on this issue). Given the trial still has some way to proceed and the issues relating to the proposed amendments have already been canvassed extensively during the trial, it appears highly unlikely that any inconvenience or disruption to the Cargill Parties could not be properly addressed. It is significant in this context that the issue of industry practices was raised at a much earlier stage of this proceeding and there has been no substantive objection by the Cargill Parties to the Viterra Parties adopting this course.
F. Conclusion
For these reasons, leave will be granted to the Viterra Parties to file and serve the Proposed Defence on the condition that particulars are provided as set out above.[51] The parties will be invited to agree, alternatively make submissions, upon the timing of this.
[51]See also fn 58 below.
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ANNEXURE A
SCHEDULE A
Particulars of sub-paragraphs (a)-(c) of paragraph 44
In relation to the knowledge of industry participants generally, the [Viterra Parties] refer to paragraphs [9] to [61] of the [French Report].[52]
[52]Paragraphs 9–46 of the French Report address the question of the extent to which the Viterra Practices or the Viterra Policies were similar to practices adopted by other malthouses prior to the parties entering into the Acquisition Agreement. Paragraphs 47–61 of the French Report address the extent to which practices such as, or similar to, the Viterra Practices were engaged in by malthouses such that participants in the malt industry would likely have been aware of them prior to the parties entering into the Acquisition Agreement.
Further, Dr Stewart[53] had worked in the malting industry since January 2000. Prior to working at Joe White, he had worked at Adelaide Malting Co Pty Ltd. The practice of altering certificates of analysis (which he referred to as “pencilling”)[54] was a long standing practice at Adelaide Malting, which pre-dated the ownership of Joe White by the [Viterra Parties]. Dr Stewart also understood based on his experience and conversations with individuals within the industry that the practice of pencilling was “a long standing position … in the malting industry in general” and was a “common industry practice”.
[53]Douglas Stewart is the sixth third party to this proceeding. At the relevant time, he was employed by Joe White as general manager technical – malt.
[54]See fn 18 above.
Cargill Inc and Cargill Australia’s knowledge, for the purposes of the allegation at sub‑paragraph (c) that Cargill Inc and Cargill Australia knew of the existence of the Industry Practices, is to be established by or from the following facts:
Cargill’s history and status in the industry
(1) Cargill Inc had been a significant participant in the malting industry since 1979.
(2) In 2013, prior to acquiring Joe White, Cargill Inc was the third or fourth largest maltster in the world. It had malthouses in 12 locations throughout Europe, North America and South America and customers in Europe, North America, South America and Japan.
(3) Upon acquisition of Joe White on 31 October 2013, Cargill Inc became the largest maltster in the world, and remains in this position today.
The practices generally
(4) Mr Eden[55] understood that there were very few people in the business world who ran their business the way Cargill did.
[55]Doug Eden was, at the relevant time, the president, business unit leader, malt of Cargill, Inc. He was 1 of the key executives involved in the Acquisition.
(5) Prior to October 2013, a former employee of Cargill (David Cooke) told Dr Stewart that “Cargill did business quite differently to the rest of the malting world”.
(6) In January or February 2014, Mr Evers[56] told Dr Stewart that Cargill appreciated that other maltsters engaged in practices such as adjusting certificates of analysis, that Cargill did business differently to others in the global malting industry, that he thought that Cargill’s competitors were getting a “free hit” and that it was difficult within the Cargill rules to be able to participate in the same market because it wasn’t a level playing field effectively.
[56]Matthew Evers joined the malt division of Cargill, Inc in October 2011 as a reliability excellence leader.
(7) Mr Viers[57] was told that in the 1990s Cargill Malt[58] had acquired 1 or more malt businesses that had engaged in similar practices to the practices the Joe White executives told Mr Viers and Mr De Samblanx[59] about on 15 October 2013.
[57]Marc Viers was, at the relevant time, the global commercial manager of Cargill Malt. He was 1 of the key executives involved in the Acquisition.
[58]The term “Cargill Malt” is not defined in the Proposed Defence. Although no point was taken, it ought to be defined so there is no uncertainty as to its meaning.
[59]Steven De Samblanx was, at the relevant time, the head of malt operations manager Europe, Cargill Malt. He was 1 of the key executives involved in the Acquisition.
(8) On 12 September 2013, Cargill prepared a Project Charter in relation to the Joe White acquisition which included:
(a) The following critical assumption: “Avoid disruptions to malting operations - The [Joe White] production facilities operated with limited storage capacity. Upon close, we will need to retain key production management and maintain the production volume with a product that meets customer specifications based on Cargill standards”;
(b) The following risk that was factored into a discount rate of 10% for the deal model: “There is some risk around supplying malt within customer specifications without a large amount of storage at the [Joe White] facilities”.
(9) The meeting on 15 October 2013 between the Joe White executives, Mr Viers and Mr De Samblanx was instigated at the request of Cargill.
(10) Mr Hughes’[60] notes of the 15 October 2013 meeting include the following note: “Issue of [certificates of analysis] and barley suitability raised on several occasions by Cargill. They noted they understood where industry practise sat in this area but that this was not the Cargill way and wanted to get a handle on it [as soon as possible]”.
[60]Gary Hughes is the third third party to this proceeding. At the relevant time, he was employed as the executive manager and a director of Joe White, and a director of each of the Viterra Parties, other than Glencore.
(11) On 15 October 2013, in a section of notes referring to the practices alleged to have been taking place at Joe White, Ms Tina Savona[61] wrote the words “We had same issue + we had to stop this” and “general practice with all maltsters”.
[61]Tina Savona was, at the relevant time, legal counsel at Cargill Australia.
(12) On 16 October 2013, Mr Eden sent an email to Christopher Okoroegbe,[62] Frank van Lierde[63] and other senior Cargill business executives stating “We have concerns that certain process/analytical practices at [Joe White] may breach our Guiding Principles. We know from previous experience that this is expensive to correct”.
[62]Christopher Okoroegbe was a Cargill, Inc attorney based in Minneapolis.
[63]Frank van Lierde was, at the relevant time, the executive vice president at Cargill, Inc. He was 1 of the key executives involved in the Acquisition.
(13) On 21 October 2013, Brenda Arndt[64] sent an email to Tina Savona and Marcus Clark[65] stating that Paul Conway[66] and other Cargill executives “feel that we’d rather just get control and manage the problem the right way rather than see what Glencore does”.
[64]Brenda Arndt was, at the relevant time, a senior lawyer at Cargill, Inc.
[65]Marcus Clark was, at the relevant time, a senior lawyer at Allens who provided legal advice to Cargill Australia in connection with the Acquisition.
[66]Paul Conway was, at the relevant time, the corporate vice president at Cargill, Inc.
(14) By 22 October 2013 Philippa Purser[67] had been told that prior to entry into the Acquisition Agreement Cargill Malt was concerned that there was a potential that Joe White was engaging in the following practices:
[67]Philippa Purser was, at the relevant time, the managing director of Cargill Australia. She was 1 of the key executives involved in the Acquisition.
(a) issuing certificates of analysis to customers which represented that malt supplied to the customers met with particular specifications where the malt supplied did not meet those specifications;
(b) supplying malt to customers which had not been produced from the specific barley varieties required by those customers; and
(c) supplying malt to customers which had been produced from a malting process that involved the addition of gibberellic acid where those customers required that gibberellic acid not be used in the production of malt supplied to them.
(15) On 23 October 2013, Robert Wicks[68] informed Kate Lindner[69] of the following exchange he was involved in with Cargill representatives on 15 October 2013, which she recorded in a file note: “Cargill are the exception. Industry operates like this. Gary [Hughes] asked Marc Viers is that what you thought? He said prob[ably] worse than expected. Everyone agreed we should work out the how to do things the Cargill way & the cost”.
[68]Robert Wicks is the fifth third party to this proceeding. At the relevant time, he was employed by Joe White as the general manager – commercial.
[69]Kate Lindner is a solicitor at King + Wood Mallesons who was acting for the Viterra Parties leading up to the Acquisition.
(16) On 21 November 2013, Mr Viers sent an email to Mr Eden referring to the practices alleged to have been taking place at Joe White and stating “We know with a very high level of confidence that [Malteurop] and Grain Corp doing the same things here in Aust[ralia]”.
The practice of adjusting analytical results
(17) The practice of “smoothing” (being another term for “pencilling”) had been found by Cargill in all malting businesses Cargill had acquired prior to Joe White, including Schreier Malting in China and Ladish Malting in the United States.
(18) Cargill had itself engaged in the practice of smoothing/pencilling in the United States until at least 2000 and never disclosed the practice to its customers.
(19) Cargill Malt’s Blending/Certificate of Analysis Procedure, in effect between at least 2011 and 2013:
(a) stated that Cargill Malt’s preferred approach was to use mathematical calculations known as “theoretical blends” to identify the analytical characteristics of the batches of malt delivered to customers, rather than physically analysing the final blend, and that the majority of Cargill Malt’s deliveries were based on this theoretical blend process;
(b) stated that if there was a proven and documented structural deviation between a Cargill Malt laboratory and a customer’s laboratory, then Cargill Malt’s analysis could be adjusted to take that deviation into account;
(c) stated that:
(i) if the analysis for a particular specification was not available at the time of blending, then a sample would be made according to the theoretical blend and tested only for the missing specification, prior to the final blend being loaded;
(ii) if it was not possible to undertake this analysis prior to loading the final blend then the analysis would be conducted on the delivery sample, however this was not recommended;
(iii) physically analysing parameters of a delivery sample was the least recommended option;
(d) did not recommend undertaking analysis on the delivery sample because that could have resulted in a finding that specifications were not within a customer’s requirements;
(e) provided that periodic accuracy checks consisting of physical analysis of blends were undertaken after malt was delivered to test its analytical processes and blending equipment, however the results of these tests were not included on certificates of analysis.
(20) Cargill Malt’s Blending/Certificate of Analysis Procedure, in effect from November 2013, provided that if a plant production department did not like a set of test results the results could be re-tested up to 4 times to attempt to achieve a test result consistent with a customer’s specifications.
(21) Mr De Samblanx was aware that there was a persistent problem in the malting industry that customer specifications assume a precision which analytical capabilities cannot deliver.
(22) Mr De Samblanx was aware that in the malting industry, the analytical capability of the testing methods does not allow (at least to some extent) statistical confidence within specification for colour, moisture or soluble protein analysis results.
(23) Either prior to or during the due diligence into Joe White, Mr De Samblanx was aware of the expression “pencilling” which he understood to refer to the practice of changing figures on certificates of analysis.
(24) In 2001 in its plant located at Mechelen, Belgium, Cargill Malt was adjusting the reported results of analytical testing in respect of the Kolback index to bring those results into the specification of the malt which was to be shipped to the customer.
(25) Mr Eden believed that Schreier Malting had been “cheating on certificates of analysis in a way that” he “never even could have imagined”.
(26) Mr Viers was aware that, many years before he joined Cargill Malt, Cargill Malt had acquired malt businesses that had been manipulating test results in some way.
(27) Prior to 2013, Cargill had acquired a malting company in the [United States of America] which engaged in a practice of altering documentation in ways which were incompatible with Cargill’s business practices.
(28) When Mr Viers was on the board of directors of Prairie Malt prior to 4 August 2013, he received information that another maltster called Rahr (that operated in Canada and the [United States of America]) was performing better than Prairie Malt, and Mr Viers considered that Rahr might be changing the results of its analyses in order to make it appear that a customer’s specification had been complied with.
(29) In Mr Viers’ experience, about once or twice a year Cargill Malt would be informed of the performance of a competitor such that they would wonder if the competitor was changing the results of its analyses in order to make it appear that a customer’s specification had been complied with.
(30) Mr Eden believed that Cargill were holding themselves to a higher standard than their competitors in relation to practices dealing with analytical variability of malt.
(31) On 30 August 2012, Mr Eden suggested to other representatives of Cargill that Cargill adopt a practice which would only require a derogation to be requested from the customer if the actual analysis is outside the standard deviation of the analytical equipment.
(32) Mr Eden was aware that other maltsters recorded figures on certificates of analysis to 2 standard deviations of the analytical test results, or similar.
(33) While participating in the due diligence in 2013, Mr Viers suspected that some of Cargill Malt’s competitors were not always reporting the results of their analyses of malt accurately because on an intermittent basis, some of Cargill Malt’s customers would ask Cargill Malt why it asked for so many derogations and the customers said that their other suppliers did not seem to have the same level of problems meeting specifications.
(34) Mr Eden accepted that the [malt analytes proficiency testing scheme] document that was disclosed in the Joe White data room would alert one to an analytical approach that was being taken [by Joe White] relating to 2 standard deviations.
(35) Mr Eden did not ask about the certificate analysis policy of Joe White prior to 4 August 2013, because he had been told previously that Joe White were on a plus or minus 2 standard deviation policy and reported actual results.
(36) Mr Eden considered that reporting results within 2 standard deviations was reporting actual results.
(37) Mr De Samblanx was aware of the potential at Joe White for practices involving alterations to certificates of analysis.
(38) Mr De Samblanx was aware that there was a risk that Joe White might be reporting test results differently in order to allow for systematic deviations between Joe White’s testing and the customer’s testing.
(39) In the course of his due diligence into Joe White, Mr De Samblanx thought that it was possible that Joe White was making “corrections” to certificates of analysis.
(40) For the purpose of conducting due diligence into the purchase of Joe White, Mr Ruud Hermus, who was the lead of Cargill’s Food Safety and Quality Assurance (FSQA) division, was responsible for:
(a) identifying the resources and capabilities for risk management for food safety (phase IIa Feasibility);
(b) eliminating/mitigating compliance risks – including capital expenditure needs (phase III);
(c) understanding customer needs, product specifications and analytical testing procedures (phase III); and
(d) ensuring that customer needs can be met (phase IVa).
(41) Mr Hermus had raised queries with other Cargill representatives as to whether Joe White had a code of conduct which applied to certificates of analysis.
(42) In early July 2013, Mr De Samblanx prepared a spreadsheet in relation to the Joe White business which included the following words in the “Executive Summary”: “The limited storage capacity for malt in combination with the local ‘non independent’ laboratories is the biggest concern related to integrity ([certificates of analysis]). If [Joe White] would not follow the [certificate of analysis] rules as Cargill does, additional storage cost are to be expected” and objectives that were described as “ensure [certificate of analysis] is reflecting reality” and “ensure high level of quality analysis”.
(43) In early July 2013, Mr De Samblanx had doubts about the integrity of how Joe White’s certificates of analysis were issued.
(44) On 9 July 2013, Mr De Samblanx sent an email to Mr Viers, Mr Eden and Mr Ryan Engle[70] which included the following comment: “Silo capacity: in view of the minimal storage at sites, could be we need to invest in some capacity to make sure we are aligned with [certificate of analysis] policy”.
[70]Ryan Engle is, and was at the relevant time, the assistant vice president, strategy & business development at Cargill, Inc. He was 1 of the key executives involved in the Acquisition.
(45) Mr De Samblanx raised the issue of Cargill’s approach to certificates of analysis reporting with Mr Youil[71] on the evening of 10 October 2013.
[71]Peter Youil is the fourth third party to this proceeding. At the relevant time, he was employed by Joe White as general manager operations malt of Viterra Limited.
(46) On 15 October 2013, after Dr Stewart had described to Mr De Samblanx and Mr Viers the manner in which Joe White prepared certificates of analysis, Mr De Samblanx said that he was not surprised that Joe White was pencilling certificates of analysis and that the practices which Dr Stewart had described were “about what [h]e had thought”.
(47) Mr Hughes’ notes of the 15 October 2013 meeting include the following note: “Talked about how repeatability and reproducibility created challenges in malt analysis and confirmed how we manage that using [malt analytes proficiency testing scheme] information. They discussed their own way of handling this by using [theoretical] blending results to avoid result conflict. We challenged this as less accurate but they said it was OK as long as customers were on board, we discussed that we would be surprised if our customers would permit this. They confirmed it would be a nonnegotiable under Cargill. Also discussed customer variances and how we created inter-laboratory variance graphs to manage this, they commented they also had a comparable system for managing this. Then discussed a couple of customers examples of this practically, this is not priority information, specifications of customers are available to the industry and openly discussed within the malt industry. They confirmed similar experiences and went into some detail around their system for managing this variance ”.
(48) Boon Rawd, a customer of Joe White, informed Joe White in or around February 2014 that its understanding was that maltsters “modified” certificates of analysis, and for this reason Boon Rawd insisted on maintaining tight specifications.
(49) Email from Matthew Evers dated 1 February 2014 attaching Cargill PowerPoint presentation entitled Analytical Variability and Customer Expectations, 17 January 2014.
(50) The [Viterra Parties] also refer to and repeat the matters pleaded in paragraph 31A(b) above.
The practice of supplying malt to customers which was produced from barley varieties other than those specified by the customer
(51) In June 2013, a Cargill malthouse in Bahia Blanca, Argentina, was blending up to 5% of old crop malt into malt deliveries and not reporting this on the customer’s certificate of analysis, such that Cargill was concerned that its Guiding Principles were being compromised.
(52) The [Viterra Parties] also refer to and repeat the matters pleaded in paragraph 31A(c) above.
The practice of using [gibberellic acid] in breach of customer agreements
(53) The data room for the sale of Joe White contained a chemical register which identified the use of gibberellic acid by Joe White.
(54) In around July 2013, Ruud Hermus provided a spreadsheet to Mr De Samblanx in relation to Joe White which included the following words “According [to] chemical register gibberellic [sic] acid and beta-glucanase are stored and used in production. These processing aids/additives are normally not allowed by most of international brewers. Here is some potential risk that Cargill Guiding Principles are compromised”.
(55) During due diligence for the Joe White acquisition, Mr Hermus had raised queries with other Cargill representatives as to whether gibberellic acid was only used when it was allowed to be used.
(56) In around July 2013, Mr De Samblanx and Mr Hermus discussed that the fact that Joe White was mostly using 4 day germination in its processing might mean a process non-conformance.
(57) In July 2013, Mr Hermus formulated questions relating to gibberellic acid use at Joe White, which were not subsequently submitted to Viterra or Glencore for the purpose of the due diligence including “What is the scale of use of gibberellic acid … during production expressed in % of total volume produced”.
(58) Mr De Samblanx identified the presence of gibberellic acid in Joe White’s chemical register as a potential risk.
(59) On 10 December 2013, Mr Eden suggested to Cargill and Joe White representatives a practice that, if implemented, would have involved not disclosing to customers the use of gibberellic acid on “the new crop” at least for “the first few months”.
(60) The [Viterra Parties] also refer to and repeat the matters pleaded in paragraph 31A(a) above.
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