Cargill Australia Ltd v Viterra Malt Pty Ltd
[2017] VSC 126
•30 March 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2014 00146
BETWEEN
| CARGILL AUSTRALIA LIMITED | Plaintiff |
| v | |
| VITERRA MALT PTY LTD (ACN 096 519 658) AND OTHERS (according to the attached schedule) | Defendants |
| CARGILL, INCORPORATED AND OTHERS (according to the attached schedule) | Third Parties |
| VITERRA MALT PTY LTD (ACN 096 519 658) AND OTHERS (according to the attached schedule) | Plaintiffs by counterclaim |
| CARGILL AUSTRALIA LIMITED (ACN 004 684 173) | Defendant by counterclaim |
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JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 27, 28 February and 1 March 2017 |
DATE OF RULING: | 30 March 2017 |
CASE MAY BE CITED AS: | Cargill Australia Ltd v Viterra Malt Pty Ltd and ors |
MEDIUM NEUTRAL CITATION: | [2017] VSC 126 Revised 29 August 2017 |
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EVIDENCE – Section 122 of the Evidence Act 2008 (Vic) - Challenges to claims for legal professional privilege – Issue waiver by reason of pleadings in third party notice – Waiver by reason of reference to internal lawyer in commercial contract – Waiver by reason of disclosure of substance of privileged communications – Waiver by reason of disclosure of selective documents – Whether vendor’s privilege in documents handed over upon completion of a sale of a business without any express reservation of privilege capable of being maintained – Whether s 126 can be used to compel the production of documents related to documents already produced.
EVIDENCE – Section 117 and s 118 of the Evidence Act 2008 (Vic) - Challenge to claims for legal professional privilege – Whether internal lawyer had requisite independence – Whether the author or recipients of privileged documents entitled to access after they ceased employment with privilege holder.
EVIDENCE – Section 125 of the Evidence Act 2008 (Vic) – Whether documents produced in furtherance of a fraud – Meaning of ‘fraud’ within s 125 of the Evidence Act 2008 (Vic).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr K J A Lyons QC with Mr D Ternovski | Gilbert + Tobin Lawyers |
| For the Defendants | Mr A J Myers AC QC with Mr S H Parmenter and Mr O Wolahan | King&Wood Mallesons |
| For the Fourth, Fifth and Seventhnamed third parties | Mr A J McClelland QC with Mr O Ciolek | Brian Ward & Partners Pty Ltd |
| For the Sixthnamed third party | Mr C M Archibald | HWL Ebsworth Lawyers |
| For the Thirdnamed third party | Mr S B Rosewarne | Maddocks |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Background to the proceeding........................................................................................................ 1
The Applications.............................................................................................................................. 21
The Evidence..................................................................................................................................... 24
Submissions...................................................................................................................................... 43
Issue waiver – pleadings........................................................................................................... 43
Issue waiver - clause 31.15......................................................................................................... 55
Disclosure waiver....................................................................................................................... 56
Independence issue.................................................................................................................... 59
Third party issue......................................................................................................................... 70
Findings............................................................................................................................................. 72
Issue waiver – pleadings........................................................................................................... 72
Issue Waiver – conduct.............................................................................................................. 78
Disclosure Waiver....................................................................................................................... 79
Independence issue.................................................................................................................... 81
Section 125 Issue.......................................................................................................................... 84
Third party issues............................................................................................................................. 96
Proposed Orders............................................................................................................................... 97
HER HONOUR:
Introduction
The plaintiff (‘Cargill’) and the third parties in this proceeding (together, the ‘applicants’) have issued four summonses seeking production of documents by the defendants which are subject to claims by the defendants for immunity from disclosure by reason of legal professional privilege under s 118 or s 119 of the Evidence Act 2008 (Vic) (‘Act’). In the proceeding, the defendants claim legal professional privilege over approximately 16,700 documents.[1] As a result of a non-binding process agreed between the parties and the managing judge,[2] approximately 4,900 documents have been reviewed by an independent senior counsel (‘independent counsel’) in order to assess whether the documents appeared, on their face, to be privileged. This part of the process is now complete. The applications before me do not seek to go behind the preliminary determinations made by independent counsel. Conversely, independent counsel did not consider any issues of ‘principle’ concerning the claims for legal professional privilege: these are the subject of the current applications.
Background to the proceeding[3]
[1]YWA parties’ ‘Relevant Background’ Submissions, para 5.
[2]Orders of Elliott J, made on 23 November 2016 and 14 December 2016.
[3]Source, Cargill and YWA Submissions.
Cargill is the Australian subsidiary of Cargill Inc, a major international food, agricultural, financial and industrial products and services business. The first to third defendants (‘Viterra parties’) up until 31 October 2013 owned and operated a malting business, Joe White Maltings (‘JWM business’). The JWM business was owned by Joe White Maltings Pty Ltd (‘JWM’). The first defendant, Viterra Malt Pty Ltd, owned all of the shares in JWM. The second and third defendants, Viterra Operations Pty Ltd and Viterra Pty Ltd, owned certain assets used by JWM Pty Ltd to operate the JWM business. The fourth defendant, Glencore International AG (‘Glencore’), which is incorporated in Switzerland, is the ultimate holding company of the Viterra parties.
The various third parties were joined by the defendants to the proceeding on or about 4 February 2015. The first third party, Cargill Inc, is incorporated in the United States, and is the ultimate holding company of Cargill. The second third party is JWM. Since 31 October 2013, it has been a wholly owned subsidiary of Cargill. The sale of the JWM business is the subject of this proceeding.
The third to seventh third parties were at all material times senior managers of JWM (‘JWM executives’). The third third party, Mr Gary Hughes, was the Executive Manager of JWM, and between December 2011 and December 2012 a director of JWM. The fourth third party, Mr Peter Youil, was the General Manager – Operations of JWM. The fifth third party, Mr Robert Wicks, was the General Manager – Commercial of JWM. The sixth third party, Dr Douglas Stewart, was the General Manager – Technical of JWM. The seventh third party, Mr Scott Argent, was the Financial Controller of JWM. Messrs Youil, Wicks and Argent (‘YWA parties’) are represented by the same solicitors and counsel, while Mr Hughes and Dr Stewart are separately represented.
As noted above, this proceeding arose out of the sale of the JWM business by the Viterra parties to Cargill in 2013. The defendants, with the assistance of their sale advisor, Merrill Lynch Markets (Australia) Pty Ltd, invited bids for the JWM business in May 2013. Cargill was provided with an Information Memorandum, and the Viterra parties provided further financial and operational information concerning the JWM business via an online data room between 14 June 2013 and 3 August 2013.
The sale of the JWM business was effected pursuant to an agreement dated 4 August 2013 (‘Acquisition Agreement’). The sale price was $420 million. The Acquisition Agreement contained a number of warranties concerning, among other things, JWM’s records, JWM’s compliance with its contracts and applicable laws, and the accuracy and the materiality of the information in the Information Memorandum and the online data room (‘Warranties’). Certain Warranties were qualified as being ‘to Viterra’s knowledge and awareness’. Relevantly, clause 31.15 of the Acquisition Agreement provided that:
Where a warranty is given to a Seller’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 circumstances only if one or more of Jason Rees, Damian Fitzgerald, Matt Mann or David Mattiske are actually aware of that fact, matter or circumstances 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 claim.
Clause 13.1 of the Acquisition Agreement provides as follows:
The Sellers represent and warrant to the Buyer that each Warranty is correct and not misleading on the date of this agreement and will be correct and not misleading on the Completion Date as if made on and as at each of those dates except where otherwise provided in the Warranty.
The applicants contend that the effect of this clause is that the Warranties were ongoing up to and including the completion date, being 31 October 2013. The defendants do not appear to dispute this.
The proceeding concerns the alleged failure of the defendants to disclose to Cargill, prior to the completion date of 31 October 2013, the existence of what are described as the ‘Viterra Practices’ and the ‘Viterra Policies’. The substance of Cargill’s allegations concerning the Viterra Practices and the Viterra Policies are conveniently summarised in the YWA parties’ ‘Relevant Background’ submissions, as follows:
The plaintiff alleges that the ‘Viterra Practices’ were that JWM routinely, and without informing customers:
(a)supplied malt to customers that did not comply with contractual requirements and specifications; and
(b)supplied certificates of analysis to customers 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.
The plaintiff alleges that the Viterra Practices were recorded in and endorsed by written policies entitled ‘Viterra Malt Certificate of Analysis Generation Procedure’ and ‘Malt Blend Parameters Procedure’, which it collectively defines in the FASOC as the ‘Viterra Policies’. The Viterra Policies are exhibited to the Phillips Affidavit as SMP2 and SMP3, and, significantly, bear the ‘Viterra’ logo.
In essence, the plaintiff alleges that as a consequence of the Viterra Practices and the Viterra Policies, JWM was deliberately selling malt to customers which did not meet the specifications required by those customers’ supply contracts, and was deliberately falsifying certificates of analysis which it provided to those customers so as mislead those customers as to whether the malt met those contractual specifications. Moreover, the plaintiff alleges that these practices were the formal policy of JWM, rather than being undertaken by JWM on an ad hoc basis.
The claims made by Cargill in its Further Amended Statement of Claim (‘FASOC’) are based upon the defendants’ failure to disclose the Viterra Practices and Viterra Policies to Cargill, and are summarised in paragraph 12 of the amended statement of claim on third party notice of the defendants dated 6 June 2015 (‘third party notice’), as follows:[4]
[4]Omitting references to paragraphs in the FASOC. The claims concerning the CBH Representations are not relevant to the issues in these applications.
In the statement of claim, Cargill Australia alleges, amongst other things, that:
(a)Glencore and/or Viterra engaged in misleading or deceptive conduct in contravention of s. 18 of the ACL (the Misleading or Deceptive Conduct Claims);
(aa)Glencore and/or Viterra engaged in conduct amounting to deceit (the Deceit Claims);
(b)Viterra breached the Acquisition Agreement (the Contract Claims);
(c)Glencore and/or Viterra engaged in conduct amounting to negligent misrepresentation (the Negligence Claims, with the Misleading or Deceptive Conduct Claims, the Deceit Claims, the Contract Claims and Negligence Claims defined collectively as Cargill Australia’s Claims);
(d)the Misleading or Deceptive Conduct Claims, the Deceit Claims, and the Negligence Claims arise from representations made by Glencore and/or Viterra, namely the Representations and (in the case of the Misleading or Deceptive Conduct Claims and the Negligence Claims) the CBH Representations;
(e) the Representations comprise:
(i)the Financial and Operational Performance Representations conveyed by Glencore and/or Viterra;
(ii)the Warranty Representations conveyed by Viterra (paragraphs 28) and
(iii)the Pre-Completion Representations conveyed by Glencore and/or Viterra;
(f)the Financial and Operational Performance Representations were conveyed by Glencore and/or Viterra;
(i)making the Information Memorandum Statements;
(ii)disclosing the Financial and Operational Information;
(iii) making the 18 July 2013 Statements;
(iv) making the 19 July 2013 Statements;
(v) failing to disclose the Undisclosed Matters;
(g)the Warranty Representations were conveyed by Viterra providing the Warranties;
(h)the Pre-Completion Representations were conveyed by Glencore and/or Viterra providing the October 2013 Responses;
(i)the CBH Representations were conveyed as alleged in paragraph 67 of the statement of claim;
(j)in reliance on:
(i)the Financial and Operational Performance Representations, the Warranty Representations and the CBH Representation, it entered into the Acquisition Agreement; and
(ii)the Pre-Completion Representations, it completed the Acquisition Agreement; and
(k)the Representations and the CBH Representations were false.
The 18 and 19 July 2013 statements were said to have been made in telephone calls between one or more of the JWM executives and representatives of Cargill and its advisors. The pre-completion representations were said to have been made in October 2013, in circumstances of significant relevance to the current applications.
As noted above, Cargill alleges that the failure of the defendants to disclose any information and documents concerning the Viterra Practices and the Viterra Policies during the due diligence period caused the defendants to breach the Warranties, and amounted to misleading and deceptive conduct. Further, the pre-completion representations concern statements made by the Viterra parties during the course of what the parties describe as the ‘October 2013 investigations’. These investigations came about as a result of an ‘integration’ meeting between representatives of Cargill and managers of the JWM business on 15 October 2013, during which some disclosures were made concerning the Viterra Practices. On 22 October 2013, Cargill sent the following letter (‘22 October letter’) to Mr Damian Fitzgerald, who, among other things, was the company secretary of each of the Viterra parties:
As part of our agreed-upon transition process for the acquisition of the Joe White Maltings business, an integration meeting was held on 15 October between Cargill executives (Mark Viers and Steven De Samblanx) and Joe White executives (Gary Hughes, Rob Wicks, Peter Youil and Doug Stewart). At the meeting, the Joe White executives disclosed that the Joe White Maltings business had engaged in the following practices:
1issuing certificates of analysis to customers which represent that malt supplied to the customers met with particular specifications where the malt supplied did not meet those specifications;
2supplying malt to customers which had not been produced from the specific barley varieties required by those customers; and
3supplying malt to customers which had been produced from a malting process that involved the addition of gibberellic acid (GA3), where those customers require that GA3 not to be used in the production of malt supplied to them.
Our discussion with the Joe White Maltings team regarding these practices was limited and we have not determined whether these practices have occurred and, if they have occurred, whether they have been sporadic or widespread, which customers are affected and whether the practices are ongoing. However, the potential ramifications of these practices, should they have occurred, may be significant in terms of business operations and the rights and obligations of the parties.
Bearing in mind that completion is currently scheduled for 31 October 2013, we need your cooperation in investigating and remedying the matters raised in this letter prior to our taking control. Hopefully, we can work together to minimise any potential adverse impact. In particular, please let us know whether one or more of these practices has occurred and, in that event, the respective frequency of each. And if you identify that any of the practices are ongoing please describe:
·the measure that you propose to ensure that the business is conducted in accordance with all applicable laws and all customer requirements; and
·what impact any such corrective measures are likely to have on the ability of the business to satisfy its supply obligations to customers in terms of both production output and customer malt specifications.
As you appreciate, to the extent necessary, we reserve all our rights in relation to these matters.
Following certain enquiries, the following response was sent by the Viterra parties on 25 October 2013:
I refer to your letter dated 22 October 2013 and our subsequent discussions on 23 October 2013 and 24 October 2013. As discussed, Glencore was surprised by your letter and had no knowledge of Joe White Maltings (JWM) engaging in the practices referred to. Glencore has since made enquiries of JWM management and can advise as follows:
1.Issuing certificates of analysis to customers which represent that malt supplied to the customers met with particular specifications where the malt supplied did not meet those specifications.
We understand that you are concerned that the plant is not sufficient to meet the specifications set out in customer contracts. This concern is unfounded. We have confirmed that the plants are adequate to deliver malt that meets customer specifications and have been audited and approved by customers as required.
JWM issues certificates of analysis in compliance with its ISO accredited quality system and is a documented procedure. It is well understood within the industry that significant variations exist between laboratories and also arise when the same sample is repeatedly tested within the same laboratory.
2.Supplying malt to customers which has not been produced from the specific barley varieties required by those customers.
There have been instances where barley other than that specified in a particular contract has been used. However, the malt delivered has, as far as we are aware, always met the technical needs of the customer. We are not aware of any complaints or claims from customers about this.
3.Supplying of malt to customers which had been produced from a malting process that involves the addition of gibberellic acid (GA3), where those customers require that GA3 not be used in the production of malt supplied to them.
There has been non-compliance with customer requirements around GA3. However, we are not aware of any complaints or claims in relation to this and JWM management has confirmed that they are able to produce the specification of malt required to meet customer demands without adding GA3 although modified production conditions may be required.
JWM manages each customer’s expectations carefully and as far as we are aware no customer has ever rejected malt due to the issues raised in your letter. The senior managers of JWM have made it clear that they operate within parameters that are consistent with industry practice.
Cargill was not satisfied with this response, and sent another letter on 29 October 2013. An extract of the response follows:
We are concerned that Viterra Ltd (Viterra) has not addressed adequately the matters raised in our letter dated 22 October 2013 with the result that the impact or potential impact of those matters on Joe White Maltings’ business (JWM) remains uncertain. In particular:
1.We questioned whether JWM has and/or had a practice of issuing certificates of analysis to customers (that may or may not have been provided to others) which represent that the malts supplied to customers met with particular specifications where the malt supplied did not meet those specifications. Our question was focused not only on differences in analysis outcomes that may result from tests undertaken at different times but whether the certificates themselves did not reflect accurately the outcomes of the tests on which each certificate reports. If this practice has occurred:
·What is the frequency of such occurrence and what percentage of JWM’s contracts is affected? Also detail how many customers may have received inaccurate certificates and the total annual volume those customers represent.
·Have affected customers been informed and have they consented in writing to such activity?
·Have the certificates of analysis or any inaccurate data found on such certificates of analysis been provided to any further parties, including by JWM, its agents or its customers?
2.You concede that there have been instances where barley, other than that specified in a particular contract, has been used. You state that the malt delivered has, however, always met the ‘technical needs’ of the customer and that you are not aware of any complaints or claims from customers about this practice. However, in the absence of disclosure to the customer, a lack of complaints would seem not to be an answer. Further, it is not evident from your response how widespread this practice is or has been. Have affected customers have [sic] been informed of and consented to this practice? Please quantify the number of customers that may have been impacted and outline their total volume and the remaining term of the relevant agreement(s).
3.Related to paragraph 2, we are concerned that the barley varieties required by some of JWM’s customers may not be presently available on commercial terms. Should this be the case, we understand that JWM is not in a position to supply malt in compliance with those affected customer contracts. Is this the case? If so, what percentage (by volume and by total value) of JWM’s contracts are affected?
4.You concede that there has been ‘non-compliance with customer requirements around GA3’ but JWM is able to produce the specification of malt required to meet customer demands save that modified production conditions may be required. Again, you state that you are not aware of any customer complaints or claims in relation to this practice. Your letter does not address how widespread this practice is or has been and the percentage of JWM’s contracts that are affected. With respect to the absence of any consumer complaints or claims, is it the case that full disclosure has been made to affected customers and agreed by them? Last, your letter does not address the volume of product in inventory which is not compliant or the costs arising from any necessary modifications to production conditions to produce the required contract compliant malt.
We would be grateful if you would let us have your response concerning these questions as a matter of urgency.
You will appreciate that we are particularly concerned about the impact these practices may have on our ability to conduct JWM’s business operations immediately after completion in compliance with JWM’s customer contracts and all applicable laws. As such, please ensure that adequate measures are put into place before completion to ensure that:
·to the extent that affected customers are aware of the practices and have previously agreed (expressly or impliedly) to accept malt which does not comply with those customers’ formal contractual requirements, those customers’ express written agreement to these variations is obtained;
·all product shipped to customers and all inventory on hand is compliant with the specifications of customer contracts (as varied by written agreement, if applicable), including in relation to the use of GA3, varieties of barley required by particular customers, and the accuracy of certificates of analysis; and
·JWM’s business is conducted in accordance with all applicable laws.
Please inform us prior to completion of the measures you take to secure these ends.
On 30 October 2013, Mr Mattiske of the Viterra parties replied to Cargill. An extract of the reply follows:
I refer to Philippa Purser’s letter dated 29 October 2013 and my letter in reply to her dated 25 October 2013. As noted in my letter to Philippa, Glencore had no knowledge of Joe White Maltings (JWM) engaging in the practices referred to by Philippa in her letter. As such, we have had limited time to explore the matters raised by Philippa with JWM management. Having said that, we have made further enquiries and can advise as follows:
1.Issuing certificates of analysis to customers which represent that malt supplied to the customers met with particular specifications where the malt supplied did not meet those specifications
Certificates of analysis have been issued in compliance with JWM’s ISO accredited quality system and JWM’s documented procedures.
2.Supplying malt to customers which has not been produced from the specific barley varieties required by those customers
It is common knowledge within the industry that there is a short term shortage of certain barley varieties. JWM management are currently considering how to manage this shortage.
3.Supplying malt to customers which had been produced from a malting process that involves the addition of gibberellic acid (GA3), where those customers require that GA3 not be used in the production of malt supplied to them
JWM management have taken steps to ensure that going forward no GA3 is added to malt where customers require that it not be used in production.
I disagree that JWM and Cargill will suffer significant loss and damages [sic] from the above practices and the remedial measures required to correct and otherwise address them.
The sale of the JWM business was completed the following day, on 31 October 2013.
On 23 April 2014, Cargill issued a notice under clause 15.1 of the Acquisition Agreement (‘Notice’), which provides for notification of claims arising under the sale transaction, including breach of any Warranties. The Notice claimed that the Viterra parties had, by engaging in the Viterra Practices and the Viterra Policies, breached various Warranties, and, to the extent that the Warranties were made ‘to the best of Viterra’s knowledge’, the relevant officers of the Viterra parties knew or ought to have known of the Viterra Practices and the Viterra Policies. Further, in relation to the October 2013 investigations, the Viterra parties were said to have engaged in misleading and deceptive conduct, being the pre‑completion representations, upon which Cargill relied in completing the acquisition of the JWM malting business on 31 October 2013.
The FASOC expands upon, but largely mirrors the allegations in the Notice. In particular, in respect of the allegations that the Viterra parties knew of the Viterra Practices and the Viterra Policies from around early 2010, or alternatively, as a result of the October 2013 investigations, Cargill relied upon, among other things, documents concerning the JWM business handed over by the Viterra parties to Cargill at around the time of completion (‘Schedule D documents’).[5]
[5]The Schedule D documents came into Cargill’s possession upon completion of the sale of the JWM business, and are relied upon as evidencing the knowledge of the Viterra parties of the Viterra Practices and the Viterra Policies, and as such, in support of Cargill’s claims in deceit.
Cargill claims, among other things, the following loss and damage, being:
(a) the difference between the purchase price paid by Cargill and the true value of the JWM business, or alternatively, the difference between the purchase price and the price Cargill would have offered to pay had it known of the Viterra Practices and the Viterra policies; or
(b) the ongoing losses suffered by JWM by reason of lost production and additional costs incurred in order to comply with JWM’s contractual obligations to its customers. Cargill may be able to offset those losses by embarking upon substantial capital expenditure, in the order of $30 million.
In their defence to the FASOC and amended counterclaim dated 5 May 2015 (‘defence’) the defendants, relevantly for the purpose of the current applications:
(a) denied that the Information Memorandum contained misrepresentations, and referred to various disclaimers and confidentiality obligations contained in the Information Memorandum and other documents associated with the sale process (‘sale process disclaimers’);
(b) referred to the terms upon which Cargill engaged in the due diligence process;
(c) referred to telephone discussions between personnel of Cargill Inc, its advisor Goldman Sachs, and senior executives of JWM on 18 and 19 July 2013;
(d) complained that the allegations in the FASOC concerning the alleged non‑disclosure of the Viterra Practices and the Viterra Policies, and the impact upon the financial performance of the JWM business were inadequately particularised, and, under cover of that objection, said that if these allegations were correct, by reason of the sale process disclaimers, there was no requirement for disclosure of any of these matters to Cargill, or any consequences of non‑disclosure, and no requirement to withdraw or qualify statements made in the Information Memorandum during the course of the due diligence process;
(e) they referred at some length to the terms of the Acquisition Agreement, including terms qualifying the Warranties, certain acknowledgements made by Cargill, and terms capping the liability of the Viterra parties and excluding liability for indirect losses arising out of any breach of the Acquisition Agreement;
(f) in relation to the October 2013 investigations, they repeat their assertions regarding the effect of the sale process disclaimers and the terms of the Acquisition Agreement;
(g) they do not admit that Viterra knew of the Viterra Practices and Viterra Policies, and deny that any of the persons referred to in clause 31.15 of the Acquisition Agreement knew of the Viterra Practices or the Viterra Policies prior to 22 October 2013, and do not admit that they knew of these matters after 22 October 2013;
(h) deny that they have breached any of the relevant Warranties, or engaged in negligent misrepresentation;
(i) alternatively, if the Viterra parties have engaged in conduct which contravened s 18 of the Australian Consumer Law (‘ACL’), then Cargill suffered any loss or damage partly as a result of Cargill’s failure to take reasonable care; and
(j) further, if the Viterra parties are found liable for any economic loss under s 18 of the ACL, each of JWM, Gary Hughes, Peter Youil, and/or Cargill Inc are concurrent wrongdoers within the meaning of s 87CB(3) of the ACL.
On 2 June 2015, the defendants filed the third party notice against Cargill Inc, JWM, and the JWM Executives. The claims against Cargill Inc are not relevant to the current applications. However, the claims against JWM and the JWM executives are of particular significance to the current applications, and as such are reproduced in full below:
44Further or alternatively, for the purposes of this third party statement of claim only, Glencore and Viterra refer to and repeat the matters pleaded in the statement of claim, and say further as set out in paragraphs 45 to 51 below.
45JWM represented to Glencore and Viterra that:
(a)all Information Memorandum Statements were true and correct;
(b)the Financial and Operational Information was true and correct;
(c)the 18 July 2013 Statements were true and correct;
(d)the 19 July 2013 Statements were true and correct;
(e)the Undisclosed Matters did not exist; and
(f)the Warranties were true and correct,
(collectively, the JWM Representations).
Particulars
(i)Hughes and Argent participated in the preparation of the Information Memorandum and, on or about 23 and 24 April 2013, prior to the finalisation of the Information Memorandum, Hughes and Argent informed Glencore and Viterra that the Information Memorandum Statements were accurate, including by:
(A)Argent sending an email to Saurabh Thaper and Thomas Nicholls of Merrill Lynch, copied to Hughes, on 23 April 2013 at 1:35pm which attached Hughes’ and Argent’s comments on a draft of the Information Memorandum; and
(B)Hughes and Argent signing a document entitled ‘Verification Table for Information Memorandum’ on or about 24 April 2013.
(ii)In relation to the Financial and Operational Information:
(A)Hughes and Argent participated in the preparation of the Information Memorandum and, on or about 23 and 24 April 2013, prior to the finalisation of the Information Memorandum, Hughes and Argent informed Glencore and Viterra that the Financial and Operational Information was accurate, including by taking the steps referred to in sub-paragraph (i) above; and
(B)Hughes and Argent were responsible for providing, and provided, the Financial and Operational Information to Glencore and Viterra for disclosure during Due Diligence.
(iii)On 18 July 2013, Hughes and/or Youil made the 18 July 2013 Statements, and a note of the discussion during which the 18 July 2013 Statements were made was verified by Hughes and Youil on or about 26 July 2013, prior to the finalisation of the Acquisition Agreement. The note of the discussion was subsequently included as part of Annexure E to the Acquisition Agreement.
(iv)On 19 July 2013, Hughes made the 19 July 2013 Statements, and a note of the discussion during which the 19 July 2013 Statements were made was verified by Hughes and Argent on or about 1 August 2013, prior to the finalisation of the Acquisition Agreement. The note of the discussion was subsequently included as part of Annexure E to the Acquisition Agreement.
(v)Prior to about 22 October 2013, none of Hughes, Youil, Wicks, Stewart or Argent disclosed to Glencore or Viterra the Undisclosed Matters.
(vi)In relation to the Warranties:
(A)between about 31 July and 3 August 2013, prior to the finalisation of the Acquisition Agreement, one or more of Hughes, Youil, Wicks, Stewart and Argent informed Glencore and Viterra that each of the Warranties the subject of the statement of claim was accurate by verifying the accuracy of it; and
(B)prior to Completion, none of Hughes, Youil, Wicks, Stewart or Argent informed Glencore or Viterra that any of the Warranties was not accurate despite having been requested to do so if any of the Warranties was not accurate.
46The JWM Representations were made in trade or commerce within the meaning of s 18 of the ACL.
47In reliance upon the JWM Representations:
(a)Glencore and Viterra made the Representations; and
(b)Viterra gave the Warranties.
48If, contrary to Glencore and Viterra’s case, this Honourable Court finds that:
(a)Glencore and/or Viterra engaged in misleading or deceptive conduct in contravention of s 18 of the ACL;
(aa)Glencore and/or Viterra engaged in conduct amounting to deceit;
(b)Viterra breached the Acquisition Agreement; and/or
(c)Glencore and/or Viterra engaged in conduct amounting to negligent misrepresentation,
then the JWM Representations were misleading or deceptive or likely to mislead or deceive.
49By reason of the matters pleaded in paragraphs 44 to 48 above, JWM has engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 18 of the ACL.
50By reason of the matters pleaded in paragraph 49 above, Glencore and Viterra have suffered, or will suffer, loss or damage.
Particulars
Any liability for damages and costs which, contrary to Glencore and Viterra’s case, Glencore and Viterra are held to have to Cargill Australia in respect of the Representations or Warranties, and Glencore and Viterra’s costs of this proceeding.
51By reason of the matters pleaded in paragraph 50 above, Glencore and Viterra claim:
(a)damages pursuant to s 236 of the ACL; alternatively
(b)orders under s 237 of the ACL to compensate Glencore and Viterra for the loss or damage suffered or to prevent Glencore and Viterra from suffering that loss or damage.
Glencore and Viterra’s claims against the JWM Executives
52Further or alternatively, for the purposes of this third party statement of claim only, Glencore and Viterra refer to and repeat the matters pleaded in the statement of claim, and say further as set out in paragraphs 53 to 64 below.
53Hughes represented to Glencore and Viterra that:
(a)the Information Memorandum Statements were true and correct;
(b)the Financial and Operational Information was true and correct;
(c)the 18 July 2013 Statements were true and correct;
(d)the 19 July 2013 Statements were true and correct;
(e)the Undisclosed Matters did not exist; and
(f)the Warranties were true and correct,
(collectively, the Hughes Representations).
Particulars
Glencore and Viterra refer to and repeat the particulars to paragraph 45 above.
54Further or alternatively, Youil represented to Glencore and Viterra that:
(a)the 18 July 2013 Statements were true and correct;
(b)the Undisclosed Matters did not exist; and
(c)the Warranties were true and correct,
(collectively, the Youil Representations).
Particulars
Glencore and Viterra refer to and repeat the particulars to paragraph 45 above.
55Further or alternatively, Wicks represented to Glencore and Viterra that:
(a)the Undisclosed Matters did not exist; and
(b)the Warranties were true and correct,
(collectively, the Wicks Representations).
Particulars
Glencore and Viterra refer to and repeat the particulars to paragraph 45 above.
56Further or alternatively, Stewart represented to Glencore and Viterra that:
(a)the Undisclosed Matters did not exist; and
(b)the Warranties were true and correct,
(collectively, the Stewart Representations).
Particulars
Glencore and Viterra refer to and repeat the particulars to paragraph 45 above.
57Further or alternatively, Argent represented to Glencore and Viterra that:
(a)the Information Memorandum Statements were true and correct;
(b)the Financial and Operational Information was true and correct;
(c)the 19 July Statements were true and correct;
(d)the Undisclosed Matters did not exist; and
(e)the Warranties were true and correct,
(collectively, the Argent Representations).
Particulars
Glencore and Viterra refer to and repeat the particulars to paragraph 45 above.
58The Hughes Representations, the Youil Representations the Wicks Representations, the Stewart Representations and the Argent Representations (collectively, the JWM Executives’ Representations) were made in trade or commerce within the meaning of s 18 of the ACL.
59In reliance upon the JWM Executives’ Representations:
(a)Glencore and Viterra made the Representations; and
(b)Viterra gave the Warranties.
60If, contrary to Glencore and Viterra’s case, this Honourable Court finds that:
(a)Glencore and/or Viterra engaged in misleading or deceptive conduct in contravention of s 18 of the ACL;
(aa)Glencore and/or Viterra engaged in conduct amounting to deceit;
(b)Viterra breached the Acquisition Agreement; and/or
(c)Glencore and/or Viterra engaged in conduct amounting to negligent misrepresentations,
then the JWM Executives’ Representations were misleading or deceptive or likely to mislead or deceive.
61By reason of the matters pleaded in paragraphs 52 to 60 above, each of Hughes, Youil, Wicks, Stewart and Argent (collectively the JWM Executives) has engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 18 of the ACL.
62Further or alternatively, each of the JWM Executives was involved within the meaning of s 2(1) of the ACL in JWM’s misleading or deceptive conduct pleaded in paragraph 49 above.
Particulars
Glencore and Viterra refer to and repeat the particulars to paragraph 45 above.
63By reason of the matters pleaded in paragraphs 61 and/or 62 above, Glencore and Viterra have suffered, or will suffer, loss or damage.
In their amended defence to the third party notice dated 14 September 2015, the YWA parties:
(a) deny that JWM made the JWM Representations to the Viterra parties;
(b) deny that the JWM Executives made the representations alleged in the third party notice;
(c) alleged that from at least September 2009, when the Viterra Parties acquired the JWM business, JWM had a practice of, on an ad-hoc basis, buying off‑grade barley and blending it with first grade barley, and documenting the entire lot as first grade barley, and supplying certificates of analysis that differed, in minor respects, from the specifications generated from JWM’s laboratory testing;
(d) alleged that the Viterra parties knew and approved of the practices referred to in (c) above by reason of, among other things, Mr Hughes’ knowledge of these practices, the Malt Cost Review component of the Transformation Project, the development of the ‘Viterra Malt Certificate of Analysis Procedure’ in February 2011, and the October 2013 Investigations; and
(e) the Viterra parties did not rely upon the YWA parties, or any of them, to inform them of the existence of the Viterra Practices or the Viterra Policies.
The defences filed by Mr Hughes and Dr Stewart were, for the purposes of the current application, similar in all material respects to the defences of the YWA parties.
In its reply to the amended defence and defence to the amended counterclaim, Cargill relevantly alleged that:
(a) the binding offer submitted by Cargill to purchase the JWM business expressly stated that the offer was based upon the information provided by the defendants during the sale process;
(b) the financial and operational information concerning the JWM business was solely within the control and possession of the defendants;
(c) Cargill relied upon the accuracy of the financial and operational information provided in the sale process, and this was known to the defendants;
(d) to the extent that the sale process disclaimers purport to entitle the defendants to engage in misleading and deceptive conduct in contravention of the ACL, they are void and unenforceable;
(e) to the extent that the terms of the Acquisition Agreement entitle the defendants to engage in misleading and deceptive conduct, they are void and unenforceable; and
(f) the pre-completion representations did not fall within the terms of the sale process disclaimers or the terms of the Acquisition Agreement relied upon by the defendants.
The ‘Transformation Project’ referred to in paragraph 22(d) above was a project launched by the Viterra parties in May 2010 with the objectives of increasing the profitability of the JWM business. The Malt Cost Review was a component of the Transformation Project. While the purpose and outcomes of the Transformation Project and Malt Cost Review are ultimately a matter for trial, it appears that one cost saving measure adopted by the JWM business was an increased use of ‘off-specification’ barley in the malting process, that is, the use of cheaper varieties of barley, regardless of customer specifications.
The ‘Viterra Malt Certificate of Analysis Procedure’ referred to in paragraph 22(d) above refers to a document setting out a procedure for modifying test results from the JWM laboratories on the Certificates of Analysis provided to customers. Cargill contends that this practice was engaged in in order to disguise the use of ‘off specification’ barley and prohibited additives from customers.
Further detail concerning the Transformation Project, the Malt Cost Review, and the Viterra Certificate of Analysis Procedure is contained in the appendix to the Cargill Parties’ written outline of submissions. The appendix also refers to documents relied upon to support the Cargill parties’ contentions that, as a result of the Transformation Project and the Malt Cost Review, which was initiated by the Viterra parties in order to improve the profitability of the JWM business, JWM:
(a) adopted a policy of using ‘off-specification’ barley in the malting process;
(b) adopted (and documented) a policy for modifying the test results in the Certificate of Analysis provided to customers, and implemented this policy on a widespread basis;
(c) was aware of employee objections to the adoption of this policy; and
(d) took active steps to conceal the existence of these practices and policies from customers and auditors;
The appendix also refers to the October 2013 investigations, and documents said to evidence Cargill’s contention that the pre-completion representations were made in circumstances where the Viterra parties must have known the pre-completion representations were false.
The Applications
In their summons filed 14 February 2017, Cargill and JWM (‘Cargill parties’) seek the following categories of documents:[6]
[6]The summonses have been edited by me for greater ease of reading.
(a)All documents constituting, evidencing or recording the existence and/or extent of the Viterra Practices and the Viterra Policies, and/or the accuracy of the Warranties, including but not limited to:
i.the existence and extent of any customer complaints about the variety and/or quality of the malt provided by JWM;
ii.the sufficiency of malt storage capacity at JWM plants to meet JWM’s contractual obligations;
iii. the Transformation Project; and
iv.[documents concerning the October 2013 investigations and the October 2013 responses.][7]
[7]Being the letters sent by the Viterra parties to Cargill on 25 October 2013 and 30 October 2013.
(b)All documents created by or sent to or from Damian Fitzgerald, Jason Reece and/or David Mattiske from 1 January 2010 until 31 October 2013 constituting, evidencing or recording the existence and/or extent of the Viterra Practices and the Viterra Policies, and/or the accuracy of the Warranties, including but not limited to:
i.the existence and extent of any customer complaints about the variety and/or quality of the malt provided by JWM;
ii.the sufficiency of malt storage capacity at JWM plants to meet JWM’s contractual obligations;
iii.the Transformation Project; and
iv.[documents concerning the October 2013 investigations and the October 2013 responses].
(c)All documents created by or sent to or from Damian Fitzgerald, Jason Reece and/or David Mattiske after 31 October 2013 constituting, evidencing or recording the knowledge of any of them as at 31 October 2013 of existence and/or extent of the Viterra Practices and the Viterra Policies, and/or the accuracy of the Warranties, including but not limited to:
i.the existence and extent of any customer complaints about the variety and/or quality of the malt provided by JWM;
ii.the sufficiency of malt storage capacity at JWM plants to meet JWM’s contractual obligations; and
iii.the Transformation Project.
(d)All documents constituting, evidencing or recording communications from Hughes, Stewart, Argent, Youil, or Wicks to other officers or employees of any of the defendants from 1 January 2010 until 31 October 2013 evidencing or recording the existence and/or extent of the Viterra Practices and the Viterra Policies, and/or the accuracy of the Warranties, including but not limited to [documents concerning the October 2013 investigations and the October 2013 responses.]
(e)…
(f)All documents from 1 January 2010 to 31 October 2013 where the asserted basis of privilege is that the document was created for the dominant purpose of Damian Fitzgerald giving legal advice.
(g)All documents constituting evidencing or recording the financial and operational performance of JWM created or provided for the purposes of preparing the Information Memorandum, and/or of determining and considering the documents to be included in the Data Room and the Due Diligence Disclosures, …
The YWA parties seek the following categories of documents:
(a)all documents brought into existence before completion of the Acquisition Agreement and which concern:
(i)the transformation project referred to in paragraph 54C of the [YWA Parties] amended defence;
(ii)the Viterra Practices referred to in paragraph 19(a) of the further amended statement of claim;
(iii)the Viterra Policies referred to in paragraph 19(b) of the further amended statement of claim;
(iv)the accuracy or otherwise of the Warranties referred to in paragraph 22 of the further amended statement of claim;
(b)all documents [concerning the October 2013 investigations and the October 2013 responses.]
(c) [as above]:
The third party (Mr Hughes) seeks the following categories of documents:
a. documents which Hughes was the author, sender, or recipient of;
b.documents relating to the Viterra Parties’ knowledge of the matters the subject of the Information Memorandum Statements … the Financial and Operational Information … the 18 July 2013 Statements … the 19 July 2013 Statements … the Undisclosed Matters … and the Warranties … ;
c.further or alternatively, documents relating to the Viterra Parties’ knowledge of the Viterra Practices (as defined at paragraph 19(a) of the FASOC) and the Viterra Policies (as defined at paragraph 19(b) of the FASOC);
d.further or alternatively, documents relating to the Viterra Parties’ knowledge of the results and recommendations made by the “Malt Cost Review Steering Committee” as part of the “Viterra ANZ Transformation Project”;
e.further or alternatively, documents relating to the Viterra Parties’ knowledge of the use of off-grade or off-specification barley within the malt business trading as “Joe White Maltings” and/or within the malt industry generally; and
f.further or alternatively, documents [concerning the October 2013 investigations and the October 2013 responses.]
The sixth third party (Dr Stewart) seeks the following categories of documents:
(a)all records of communications of which [he]is author or recipient; and
(b) all documents relevant to:
(i) the existence of the [Viterra Practices and the Viterra Policies];
(ii) falsity of any Warranties; and
(iii)the Defendants' reliance on the alleged conduct of the Third Parties in deciding to make the Representations and give the Warranties to the Plaintiff.
As can be seen from the above, there is considerable overlap between the categories of documents, and indeed, the arguments advanced by the applicants in support of their applications. For convenience, the issues in the applications can be grouped under the headings utilised by the defendants in their written outline of submissions, as follows:
(a) issue waiver by reason of the allegations made by the defendants in the third party notice (‘Issue Waiver-Pleadings’);
(b) issue waiver by reason of the terms of clause 31.15 of the Acquisition Agreement (‘Issue waiver: clause 31.15’);
(c) disclosure waiver by reason of the provision by the Viterra parties to Cargill documents at completion (being the Schedule D documents), and disclosure waiver by reason of the Viterra parties having disclosed the substance of legal advice by the reason of the October 2013 responses (‘disclosure waiver’);[8]
[8]The October 2013 responses were the communications in which the Viterra parties are said to have made the pre‑completion representations.
(d) whether Mr Damian Fitzgerald (in house legal counsel for the Viterra parties) held the requisite degree of independence from the Viterra parties such as to keep confidential legal advice provided by him to the Viterra parties (‘independence issue’);
(e) documents which are asserted to have come into existence for the furtherance of a fraud (‘s 125 issue’); and
(f) documents where Mr Hughes and Dr Stewart, when in the employ of the Viterra parties, was an author or recipient of an otherwise privileged communication (‘third party issue’).
The Evidence
The Cargill parties relied upon the evidence of the solicitor with the conduct of this proceeding on their behalf, Ms Janet Whiting, sworn on 14 February 2017. This affidavit exhibited a substantial amount of transactional documents, such as the Acquisition Agreement, documents concerning the Viterra Practices and the Viterra Policies, and documents said to be relevant to the Viterra parties’ knowledge of the Viterra Practices and the Viterra Policies. Some portions of this affidavit were objected to by the defendants on the basis that the commentary upon some of the documents amounted to submissions and/or conclusions rather than evidence. I agreed, and have disregarded these portions of the affidavit.
In her affidavit, Ms Whiting deposed, in summary, as follows:
(a) she deposed as to the background to the proceeding and the applications;
(b) she deposed, at a summary level, as to the malting process, and the different varieties and grades of barley used in the malting process;
(c) she deposed as to the process for the sale of the JWM business, and the information provided by the Viterra parties to Cargill during the sale process;
(d) she deposed as to the relevant terms of the Acquisition Agreement;
(e) she deposed as to the allegations made by the defendants in the third party notice;
(f) she deposed as to the circumstances in which Cargill came into possession of the Schedule D documents, and the reference made to the Schedule D documents in the Notice and the FASOC, and the absence of any objection by the defendants to Cargill’s reference to these documents;
(g) she deposed as to documents she has reviewed which supported her contentions concerning Mr Fitzgerald’s involvement in the business of the Viterra parties and the JWM business;
(h) she deposed, based upon her review of certain documents, as to the history of the Transformation Project and the development of the Viterra Practices and the Viterra Policies;
(i) she deposed as to Cargill’s contention that the existence of the Viterra Practices and the Viterra Policies was not disclosed to Cargill during the sale process;
(j) she deposed as to her knowledge of the October 2013 investigations; and
(k) she deposed as to the privilege claims made by the defendants in this proceeding, and the process undertaken by the parties to deal with the defendants’ privilege claims.
The JWA parties relied upon the affidavit sworn by their solicitor, Ms Susan Phillips. This affidavit summarised the steps undertaken by the parties with respect to the defendants’ claims for privilege, exhibited a spreadsheet summarising the documents for which a claim for privilege is made, and disaggregating the list into fifteen subject matter categories. Category 13 is described as comprising ‘Advice on responses to October correspondence (‘pre-completion’). Ms Phillips referred to a letter from the solicitors for the defendants which further described the claims for privilege in category 13, as follows:
Upon receipt of Cargill’s letter dated 22 October 2013 informing Viterra and Glencore of the alleged Viterra Practices, and reserving their rights regarding the matters raised in the letter, Viterra and Glencore anticipated a legal dispute and associated proceedings.
Ms Phillips also referred to the existence of documents evidencing the October 2013 investigations, and Mr Fitzgerald’s involvement in these investigations.
The defendants relied upon the following affidavits:
(a) an affidavit of Monique Carroll, a solicitor with King & Wood Mallesons (‘KWM’), the solicitors for the defendants, affirmed on 16 February 2017;
(b) an affidavit sworn by Joshua Wilson-Smith, a senior legal counsel employed by the second defendant, Viterra Operations Pty Ltd;
(c) an affidavit sworn by Victoria Oh, another solicitor with KWM, on 21 February 2017;
(d) an affidavit of Damian Fitzgerald, General Counsel of the second defendant, sworn 21 February 2017; and
(e) an affidavit of Bryce Williams, another solicitor of KWM, sworn 24 February 2017.
Ms Carroll’s affidavit largely concerned the process by which the parties had dealt with the defendants’ privilege claims, including the determination of the privilege claims by independent counsel, who has upheld the privilege claims in 98 per cent of the documents reviewed by her. Ms Carroll deposed that some of the documents exhibited to Ms Whiting’s affidavit were documents over which the defendants claim privilege, and that Cargill and the defendants are in dispute over the appropriate treatment of these documents.
Mr Wilson-Smith’s affidavit concerned the handover of certain documents by the first defendant, Viterra Malt Pty Ltd to Cargill upon completion pursuant to the terms of the Acquisition Agreement. He deposed as to the relevant terms of the Acquisition Agreement, the entry by Viterra Ltd and Cargill into a Transition Services Agreement on 4 August 2013, pursuant to which Viterra Ltd would continue to provide certain services to Cargill after the completion date.
Mr Wilson-Smith also gave evidence about the handover process and his role within it. He deposed, in summary, as follows:
(a) he liaised with Ms Tina Savona, Cargill’s legal counsel, regarding the handover of the legal files. He arranged for all hard copy legal files concerning the JWM business to be placed in a locked cupboard in an area allocated for use by Cargill under the Transition Services Agreement. A CD of all electronic legal files relating to the JWM business was placed in the same cupboard;
(b) all other hard copy records of JWM that had not been archived were left at JWM’s premises, or Viterra’s premises, at the direction of Cargill’s legal advisors. The account at the archives was transferred to JWM. All electronic files at JWM were placed on a USB and provided to Cargill at completion; and
(c) further electronic and hard copy records were transferred to Cargill in April 2015, July 2015 and November 2015.
Mr Wilson-Smith deposed as to the provenance of a document referred to in Ms Whiting’s affidavit, being the ‘Cargill Customer Review’, which Ms Whiting believed came into existence from at least July 2013. Mr Wilson-Smith deposed that based upon his searches of the electronic discovery data base, different versions of this document existed from at least 2012, ‘which documents were not related to the sale of JWM to Cargill’.
Mr Fitzgerald deposed, in summary, as follows:
(a) he holds a Bachelor of Laws, and was admitted to practice in September 1997. He has held a practising certificate since that time; and
(b) between 1 January 2010 and 10 March 2010 he had been employed by Viterra Ltd as a commercial contracts manager. On 10 March 2010 he was promoted to the position of Director-Legal, the equivalent of a general counsel role. His title changed to General Counsel on or about 1 March 2016.
Mr Fitzgerald deposed as follows:
In this position, my responsibilities included:
(a)being the lead lawyer for Viterra (which includes Viterra Limited and its subsidiaries, as well as other operating companies), supervising the legal team including, at the relevant time, Joshua Wilson-Smith and Alicia Burgemeister and paralegals/law clerks and providing legal review and input into the legal services provided by them to the business;
(b)managing Viterra’s Legal Panel of external law firms, including reviewing and determining what matters should be briefed, the nature of the legal service required, the provision of instructions and the advice or other legal service ultimately provided;
(c)managing all legal expenditure, including setting the annual legal budget and approving all invoices from external firms;
(d)advising on and leading legal aspects of transactions, including mergers and acquisitions, joint ventures and other partnerships with external companies;
(e)providing legal advice on regulatory, governance and compliance matters, including foreign investment regulation and competition law issues;
(f)setting legal policies for Viterra and providing training in respect of those policies;
(g)advising traders in relation to contract disputes with customers;
(h)advising on litigation, mediation and settlement negotiations arising from operational and employment contract claims;
(i)advising the human resources department on investigations into employee issues, including bullying and harassment, fraud, work health and safety;
(j)advising the business on contract negotiations and interpretation issues;
(k)preparing submissions for regulatory inquiries into the grain industry at Commonwealth and State levels;
(l)advising the Executives on legal issues … in particular, their Directors’ and Officers’ duties and their obligations under WH&S and Chain of Responsibility legislation; and
(m)supervising Viterra’s corporate governance, including preparing agendas and ensuring the correct materials were tabled before Executive meetings, and attending Executive meetings.
Mr Fitzgerald deposed as to his reporting arrangements. Until December 2012, he reported to the General Counsel of Viterra Inc in Canada. After the acquisition of Viterra Inc by Glencore in December 2012, he reported to Mr David Mattiske, the country manager of the Viterra parties.
He deposed as follows:
In performing the roles and carrying out the responsibilities to which I have referred in paragraphs 9 to 15 above, I acted as an independent legal advisor. On no occasion did I alter my legal advice at the request of the business. The legal advice that I provided to the business was not subject to vetting or amendment by any other person.
Mr Fitzgerald also deposed as follows:
As was standard for employees across Viterra, part of my annual bonus was linked to the performance of the Viterra business more generally. I was not offered any financial incentive or bonus linked with the sale of JWM. At the end of the 2013 financial year (ending December 31), I received an unexpected discretionary bonus for my contribution to the restructuring of Viterra, including the sale of JWM, and two other large divestments which occurred in that financial year.
The hard copy and electronic files of the legal team I managed at Viterra were at all times protected and separated from the remainder of the Viterra business, and access was limited to the legal team and its administrative support team (including IT support). The legal team was located in offices on level 4 of the Viterra headquarters in South Australia, separated from the other parts of the Viterra business located at the headquarters.
Mr Fitzgerald also deposed as to his role as company secretary for a number of entities within the Viterra group, including JWM, between 10 March 2010 and 31 October 2013.
He deposed that he was involved in the sale of JWM solely in his role as Director-Legal of Viterra Ltd. This included his membership of a working group established by Glencore for the purpose of the sale process, as the Viterra legal team was going to be involved in reviewing and compiling information for the data room and running the Q & A process for the sale. He sought advice from KWM as to what information could be provided to bidders in the sale process, and confidentiality issues in the sale process. He was also the Viterra contact point for the various regulatory approvals connected with the sale. He deposed as follows:
In my participation in the sale process for JWM, I acted as an independent legal advisor. On no occasion did I alter my legal advice at the request of the business. The legal advice that I provided to the business was not subject to vetting or amendment by any other person.
Mr Fitzgerald deposed as to his role in the executive team at Viterra. He deposed as follows:
I did not actively participate in any operational or financial discussions at these meetings, but was able to offer legal advice on issues such as potential litigation or disputes, contracts, competition and regulatory issues. I was also given 15-20 minutes to speak about matters of note in the legal department.
I consulted with the CEO and other Executive member around setting the dates of the meetings, about the contents of the agenda, and then distributed a consolidated bundle of documents that were relevant to the meeting such as safety reports, financial reports and documents concerning any other issues or topics considered relevant. I was generally the point of contact for any documents that needed to be distributed.
Mr Fitzgerald deposed as to his role in the Transformation Project (which is alleged by the Cargill parties to be the genesis of the Viterra Practices). He was the nominated legal expert on the storage and handling steering committee, which did not deal with issues raised in this proceeding. He was not involved in the Malt Cost review.
Finally, as for his role in the October 2013 investigations, Mr Fitzgerald deposed as follows:
Upon receipt of Cargill’s letter dated 22 October 2013 informing Viterra of the alleged Viterra Practices, and reserving Cargill’s rights regarding the matters raised in the letter, I anticipated a legal dispute and associated proceedings.
That same day, I instructed KWM to represent Viterra and Glencore in relation to the anticipated dispute.
Communications within Viterra and Glencore took place regarding this letter and subsequent correspondence in order to provide information and instructions to enable the legal teams at Viterra, Glencore and KWM to advise on:
(a) how to respond to the correspondence;
(b) the substance of claims made; and
(c) strategy in respect of the anticipated legal proceedings.
Mr Fitzgerald was cross-examined by senior counsel for the Cargill parties on matters relevant to the question of whether he held the requisite independence from the Viterra parties, such that any advice provided by him to the Viterra parties would not be subject to a valid claim for legal professional privilege. Mr Fitzgerald gave evidence, in summary, concerning the following matters:
(a) his attendance at board meetings of the Viterra parties during the course of 2012;
(b) his reporting arrangements, including the performance review process. Prior to Glencore purchasing the Viterra parties in December 2012, his performance review was conducted by the General Counsel for Viterra Inc, and from that time, by Mr Mattiske, although the process was not as diligently followed as it is now;
(c) he agreed that his contract of employment with the Viterra parties did not contain any special terms referable to his general counsel role, but said that his ‘obligations of professional responsibility and independence’ were ‘covered off’ in documents he described as ‘Performance Development Reviews’;
(d) he described the location of the legal team, and explained the ways in which the in-house legal team would provide advice to the Viterra parties. He would not always open a file, although the legal team would open hundreds of files, usually electronic files, each year;
(e) he stated ‘if we provided advice it would be clear that was advice we were providing to the business’,[9] as indicated by the reference to his title in the signature block on his emails. However, he conceded that he would use that signature block on all of his communications, save for when he was formally acting as company secretary, regardless of whether the communication contained legal advice;
[9]T 21, 3-5.
(f) when questioned about a clause in his employment contract concerning incentive payments, he agreed that the payment of incentive bonuses (up to 25 per cent of his annual remuneration) were partly based upon his personal performance, and partly based upon the financial performance of the Viterra parties;
(g) when questioned about a long term incentive plan referred to in his employment contract,[10] Mr Fitzgerald stated that ‘they were never really paid’. However, he did get benefits under the employee share plan, which ‘crystallised’ when Glencore purchased Viterra.[11] The shares were shares in Viterra Inc, and he could not recall how many he had, or their value;
[10]Exhibit ‘A’.
[11]I understand this evidence to mean that his shares were somehow purchased from him when Glencore purchased the Viterra parties in December 2012.
(h) he confirmed he has received a bonus each year since he has been general counsel, including an amount equivalent to 25 per cent of his remuneration in 2011. He could not recall how much he was paid in 2013 (the year Cargill purchased the JWM business), but thought it was more than 25 per cent (it was subsequently confirmed to be nearly 50 per cent);
(i) he was taken to a bundle of Performance Development Review documents, one of which referred to the sale of (an unrelated) business as one of his performance objectives. He agreed that one of his performance objectives was to ensure that the sale went through ‘properly and legally’, and as a result, the Viterra parties’ business would benefit;
(j) he agreed that the outcome of his performance review was partly relevant to the bonus payable to him;
(k) he was taken to references to examples of ‘entrepreneurial spirit’, where he had stated he had assisted in pursuing new business opportunities, and gave evidence that he had met a potential new supplier and referred them to someone in the business, stating ’of course I want the business to succeed’;
(l) he gave evidence that he was involved in the business of the Viterra parties, but did not comment upon financial matters, and did not work in the operational side of the business. He would attend meetings and provide legal input, not commercial input. He agreed that as a lawyer he would learn about commercial matters and express views upon them, but in meetings where he was assisting the commercial people negotiate contracts, he would let the commercial people talk about the commercial side of the business, he would defer to the experts;
(m)he agreed that he may have expressed views to the commercial people to the effect that ‘are you sure you are being realistic’. However, he understood the distinction between legal and commercial matters;
(n) he was taken to an email referring to discussions concerning Mr Fitzgerald and Mr Argent providing lists of companies importing malt into South Korea. Mr Fitzgerald said he was involved in the conversation because he was the ‘point person’ for regulatory approvals required as a consequence of the sale of the JWM business to Cargill. He said he left it to others, in this case Scott Argent, to respond to requests for financial information;
(o) he was involved in the process of the sale of the JWM business, including preparation of the information memorandum, due diligence disclosures, and data room disclosures. He agreed that some of the information referred to legal matters, but other information was financial in nature. He was a member of the work group established by Glencore to oversee the sale process, along with Mr Mattiske and Mr Hughes;
(p) turning again to his role within the business of the Viterra parties, he gave evidence that he has always been part of the executive team, as the Viterra parties were in a very heavily regulated industry. He would comment on non‑legal matters if he thought it was in the best interests of the Viterra parties to do so, and would voice concern if he thought something was ‘out of order’;
(q) the Acquisition Agreement was prepared by KWM, although he was involved in its drafting, and was probably also involved in its execution. He was aware of the terms of clause 31.15 of the Acquisition Agreement;
(r) he agreed that he led the October 2013 investigations. Upon receipt of the 22 October letter, he immediately contacted KWM, as he believed the letter signalled pending litigation. He was responsible for compiling information for KWM, he sought advice from KWM, and he also provided advice concerning the Viterra parties’ response to the 22 October letter;
(s) when queried about his nomination in clause 31.15 of the Acquisition Agreement, he gave evidence that he did not think that the concerns raised by Cargill in the 22 October letter would affect him personally, and he could not recall turning his mind to the Warranties. The October 2013 investigations all occurred within a very short time frame, it was close to settlement, and he was concerned to respond to the 22 October letter ‘factually and correctly’, and
(t) when asked why he considered there were legal proceedings pending, he pointed to the part of the 22 October letter which said that ‘Cargill reserves all of its rights’.
Senior counsel for the Cargill parties also tendered a number of documents during the course of Mr Fitzgerald’s cross‑examination. These included:
(a) a letter dated 31 October 2011 containing an offer of employment from the Viterra parties to Mr Fitzgerald, which included the terms of his contract of employment;
(b) a letter from the Viterra parties to Mr Fitzgerald dated 28 October 2010 concerning his appointment as Director – Legal;
(c) a letter from the Viterra parties to Mr Fitzgerald dated 13 December 2012, confirming his ongoing employment after the purchase of the Viterra parties by Glencore, and advising him of his new title and reporting lines;
(d) Mr Fitzgerald’s Performance Review for 2009-2010; and
(e) Mr Fitzgerald’s Performance and Development Review for 2010-2011.
After Mr Fitzgerald finished giving evidence, senior counsel for the Cargill parties also tendered documents concerning his bonus payment in 2013, and Mr Fitzgerald’s confirmation of the amount paid to him in respect of the 2013 financial year, and that he ceased to own any shares in Viterra Inc as at December 2012.
Also tendered into evidence during the course of the hearing were the responses by KWM to the requests for further and better particulars of the third party notice made by the solicitors for Mr Hughes and the solicitors for the YWA parties in 2016. These were relied upon in support of these parties’ contentions that the defendants had, by reason of the third party notice, squarely put in issue their knowledge of the Viterra Practices and the Viterra Policies prior to 31 October 2013.
The Cargill parties (and the other applicants) relied upon a folder of key documents derived from the exhibits to Ms Whiting’s affidavit. These included, among other things:
(a) an email sent by a Mr Simon Stone dated 28 May 2010, and addressed to, among others, Mr Fitzgerald and Mr Hughes, and copied to Mr Jason Rees. The stated purpose of this email was to ‘kick off’ the Transformation Project, including the Malt Cost Review. Mr Fitzgerald was on the steering committee with respect to an unrelated aspect of the Transformation Project, but not the Malt Cost Review. Messrs Hughes, Argent and Rees were on the steering committee for the Malt Cost Review. The email attached the Project Charter for the Malt Cost Review, which had as its stated objective:
Reduce cost of barley by using off specification grades through taking advantage of segregation and storage and handling opportunities from Viterra’s ownership of the SA supply value chain …
This Project Charter identified Dr Stewart as one of the project managers for the Malt Cost Review;
(b) an email from Mr Lucas Jones dated 23 July 2010 (copied to Mr Hughes and Dr Stewart), which stated, among other things:
Essentially Malt has determined that the majority of their plants can use up to 30% off specification grain. We’re keen to take advantage of the cost saving that this will allow.
(c) an email from Mr Gary Hughes to Mr Rob Gordon dated 10 August 2010 which commenced:
as discussed last week a couple of the malt staff have advised that they feel the code of conduct may be in conflict with some of the decisions being made in malt around the accepted practise [sic] of burying off grade barley.
The code of conduct statement referred to in the email was as follows:
Be accurate and truthful in all dealings with customers and accurately represent the quality, features and availability of all dealings with customers and accurately represent the quality, features and availability of Viterra Inc products and services;
(d) some emails concerning the above issue, including a redacted email which suggested advice was sought from Mr Fitzgerald concerning this issue;
(e) an email chain commencing on 11 August 2010 with a question by a JWM customer concerning the difference between its laboratory tests and the Certificate of Analysis provided by Viterra, with the final email from Dr Stewart stating:
I think we have been caught out fair and square on this one.
(f) a copy of the Viterra Malt Certificate Analysis Generation Procedure;
(g) a bundle of JWM’s Sign Out reports and Certificates of Analysis which showed handwritten amendments to the laboratory results, such amendments being incorporated into the Certificate of Analysis provided to the JWM customer;
The analysis in Rich v Harrington was by the Cargill parties said to be applicable to the position of Mr Fitzgerald in giving advice concerning the October 2013 investigations. Given his nomination in clause 31.15 of the Acquisition Agreement, Mr Fitzgerald was said by senior counsel for the Cargill parties to have a personal stake in the successful completion of the sale. However, Mr Fitzgerald’s evidence is that he did not actually turn his mind to that issue during the course of the October 2013 investigations. Again, that evidence is hardly surprising: one might expect that the Viterra parties’ receipt of the 22 October letter, nine days before completion of a sale of a business valued at $420 million, the serious nature of the allegations in the 22 October letter, and the work required to address these allegations, would no doubt have caused Mr Fitzgerald and other relevant personnel of the Viterra parties to focus upon nothing else but responding to the 22 October letter and subsequent correspondence.
Accordingly, I consider that Mr Fitzgerald has the requisite independence to enable the defendants to maintain a claim for legal professional privilege over legal advice provided by him, subject to my findings concerning issue waiver and fraud.
Section 125 Issue
Section 125 of the Act provides as follows:
125 Loss of client legal privilege – misconduct
(1) This Division does not prevent the adducing of evidence of –
(a)a communication made or the contents of a document prepared by a client or lawyer (or both), or a party who is not represented in the proceeding by a lawyer, in furtherance of the commission of a fraud or an offence or the commission of an act that renders a person liable to a civil penalty; or
(b)a communication or the contents of a document that the client or lawyer (or both), or the party, knew or ought reasonably to have known was made or prepared in furtherance of a deliberate abuse of a power.
(2)For the purpose of this section, if the commission of the fraud, offence or act, or the abuse of power, is a fact in issue and there are reasonable grounds for finding that –
(a)the fraud, offence or act, or the abuse of power, was committed; and
(b)a communication was made or document prepared in furtherance of the commission of the fraud, offence or act or the abuse of power –
the court may find that the communication was so made or the document so prepared
(3)In this section, power means a power conferred by or under an Australian law.
Paragraphs 14 and 15 of the Cargill parties’ written outline contain a useful summary of the principles governing the application of s 125 of the Act, as follows:
Further, under s.125(2), if the relevant misconduct is a fact in issue, the Court may find that the misconduct was committed and the communication was made (or document prepared) in furtherance of that misconduct if “there are reasonable grounds” for so finding. This means that the party alleging fraud need not establish it on the balance of probabilities – it only needs to show “‘something to give colour to the charge’ at a prima facie level that has a foundation in fact”.
Conduct in furtherance of fraud includes concealing information about a past fraud. While merely seeking legal advice about the consequences of past fraud is generally not “in furtherance” of that fraud, “if the client is obtaining legal advice in the context of an ongoing dishonest or fraudulent undertaking, so that the advice will or may impact upon or inform the client in the course of that undertaking, it will be regarded as being in furtherance of the improper purpose”. Further, so long as the advice sought objectively assisted in the commission of the fraud, it does not matter whether the individual giving or receiving the advice had knowledge of that fraud.
Also of significance is the statement of Kyrou J (as he then was) in Amcor v Barnes[59] to the effect that he could see no reason why the expression ‘fraud’ in s 125 of the Act should be given a narrower meaning than that given to it by the common law principles of privilege. He stated:
clearly, where the client seeks advices on how to commit a fraud or an act that is sufficiently serious to warrant the imposition of pecuniary penalties pursuant to statute. In my opinion, the same also applies to advice on how to commit an equitable fraud falling short of actual dishonesty.[60]
and further: [61]
the fact that s 125(1) does not require that the commission of an offence or an act that renders a person liable to a civil penalty involve any dishonesty indicates that the section is intended to apply to all categories of fraud known to the law irrespective of whether dishonesty is a necessary element of such a fraud.
[59][2011] VSC 341, [42].
[60]Ibid, [45].
[61]Ibid, [47].
The approach of Kyrou J in Amcor v Barnes concerning what constitutes ‘fraud’ differs somewhat from the approach taken in New South Wales, where the authorities, at least tentatively, suggest that the notion of fraud must incorporate some actual dishonesty. In Talacko v Talacko,[62] Elliott J did not need to form a view on the matter given the nature of the misconduct involved, but observed that it would be unlikely for him to find that Kyrou J was ‘clearly wrong’.
[62][2014] VSC 328, [79].
The distinction between fraud involving actual dishonesty and other species of fraud is of some relevance to the current application, because of the nature of the conduct relied upon by the Cargill parties in support of its contention that s 125 of the Act strips the protection of legal professional privilege from documents which include legal advice evidencing the defendants’ knowledge of the nature and extent of the Viterra Practices, as such advice was sought ‘in the context of an ongoing dishonest or fraudulent undertaking’, and therefore was in furtherance of a fraud.
For the purpose of the analysis required for the purpose of this aspect of the application, it seems to me that the conduct of the Viterra parties can be disaggregated as follows:
(a) the Viterra Practices, whereby JWM alleged sold products using ‘off‑specification’ barley to customers, and products including additives contrary to customer specifications;
(b) the Viterra Policies, which documented the policies which enabled JWM to allegedly provide customers with Certificates of Analysis which did not reflect the results of laboratory tests carried out by JWM, allegedly for the purpose of disguising from customers the impact of the Viterra Practices upon the nature and the quality of products supplied to them by JWM;
(c) the making of the Warranties, and the making of representations in the Information Memorandum and during the course of the sale process; and
(d) the making of the pre-completion representations, made during the course of October 2013, which were said by senior counsel for the Cargill parties to have been deliberately and intentionally crafted to conceal the true nature and extent of the Viterra Practices, and that the Viterra Policies were deliberately undertaken to conceal from customers that malt supplied was not in compliance with customer specifications.
Adopting Kyrou J’s broader, but not definitive, approach to the question of fraud, the question remains, what is ‘fraud’ for the purpose of s 125 of the Act? In particular, does it extend to species of equitable fraud, such as unconscionable dealing, or a breach of fiduciary duty?
One definition of fraud is as follows:
Fraud, n. 1. A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment. Fraud is usu. A tort, but in some cases (esp. when the conduct is willful) it may be a crime. – Also termed intentional fraud. … 2. A misrepresentation made recklessly without belief in its truth to induce another person to act. … 3. A tort arising from a knowing misrepresentation, concealment of material fact, or reckless misrepresentation made to induce another to act to his or her detriment. 4. Unconscionable dealing; esp., in contract law, the unfair use of the power arising out of the parties’ relative positions and resulting in an unconscionable bargain. fraudulent, adj.
‘[T]he use of the term fraud has been wider and less precise in the chancery than in the common-law courts. This followed necessarily from the remedies which the respectively administered. Common law gave damages for a wrong, and was compelled to define with care the wrong which furnished a cause of action. Equity refused specific performance of a contract, or set aside a transaction, or gave compensation where one party had acted unfairly by the other. Thus “fraud” at common law is a false statement … ; fraud in equity has often been used as meaning unconscientious dealing – “although, I think, unfortunately, a great equity lawyer has said.” William R. Anson, Principles of the Law of Contract 263 (Arthur L. Corbin ed., 3d Am. Ed. 1919).
Actual fraud. A concealment or false representation through a statement or conduct that injures another who relies on it in acting. – Also termed fraud in fact; positive fraud; moral fraud. [Cases: Fraud 3.][63]
[63]Bryan A. Garner (ed), Black’s Law Dictionary (Thomson West, 8th ed, 2004) 685.
The note under the definition of fraud reproduced above highlights the difficulty in construing the term ‘fraud’ within the meaning of s 125 of the Act.
One difficulty with extending the definition of ‘fraud’ too far beyond conduct involving actual dishonesty is that, while the authorities emphasise that what is described as ‘unconscionable dealing’ must be accompanied by some ‘moral obloquy’[64], extending the definitions of fraud to all forms of unconscionable or misleading and deceptive conduct might well give the s 125 exception far greater reach than was ever intended by the legislature. As noted by senior counsel for the defendants in his submissions concerning the effect of Mr Fitzgerald’s inclusion in clause 31.15 of the Acquisition Agreement upon claims for privilege over legal advice provided by him, legal professional privilege is an important legal right, only to be abrogated by clear words. In my view, adopting too broad a definition of fraud may well encroach too far upon the principle that parties should be able to be fulsome and frank with their lawyers.
[64]See Attorney-General of New South Wales v World Best Holdings Pty Ltd (2005) 63 NSWLR 557.
It is not necessary for the purposes of the current applications to precisely delimit the boundaries of what conduct might be considered to be fraud for the purposes of s 125 of the Act, and whether it includes all species of equitable fraud. However, given that the Cargill parties seek to extend the operation of s 125 of the Act to conduct which, properly analysed, is really said to be actionable by reason of the failure of JWM and the Viterra parties to disclose certain matters, in the case of JWM, to their customers, and, in the case of the Viterra parties, to Cargill, I do consider it necessary to consider what conduct might or might not be fraudulent for the purpose of s 125 of the Act.
Taking first the conduct of JWM in engaging in the Viterra Practices, and developing and implementing the Viterra Policies, there seems to me to be a clear distinction between the Viterra Practices and the Viterra Policies. The Viterra Practices, involving the use of off‑specification barley, and the unauthorised use of additives, even taking Cargill’s case at its highest, are no more than breaches of JWM’s contracts with its customers. Properly analysed, the fact that these breaches may have been frequent, intentional, and even systematic does not alter their fundamental character.
In my view, by engaging in the Viterra Practices, JWM has not engaged in a fraud upon its customers. It is clear from the authorities, that, without more, a breach of contract, even an intentional breach, cannot amount to unconscionable conduct (assuming, for the present purposes, that the definition of fraud within the meaning of s 125 of the Act includes unconscionable conduct). The position is helpfully summarised by the Court of Appeal in Body Bronze International Pty Ltd & ors v Fehcorp Pty Ltd,[65] when considering whether a deliberate breach of a contractual obligation amounted to unconscionable conduct under s 51AC of the Trade Practices Act 1974 (Cth), as follows:[66]
In applying these principles to conduct which involves the breach of a contract, it should be recognised that not every breach of contract, even a deliberate breach, necessarily involves the moral obloquy that the authorities suggest needs be present for unconscionable conduct in breach of s 51AC to be made out. Although it may be true that for an act to have that moral character it will usually be conduct that is intentional or at least reckless, it does not follow that any breach that is intentional necessarily has that moral character. As Weinberg J (as the then was) said in Macdonald v Australian Wool Innovation Ltd:
Any promise that is deliberately broken could easily be characterised as ‘unconscionable’. That is not the sense in which the term is used in s 51AC.
A decision may be taken to break a contract because, upon rational commercial considerations, the burden of performance may be greater and more onerous than the liability to be incurred if the conduct amounts to breach. The party committing the breach may know that it will deliver to the opposite party an opportunity to exercise rights both under and outside the contract that flow from the breach, and that the opposite party has the means to exercise and enforce those rights. Those rights may include seeking injunctive relief to restrain the breach, accepting a repudiation of the contract so as to terminate executory obligations and seeking damages, or keeping the contract on foot and merely seeking damages. There may be nothing offensive to conscience in a commercial participant taking such a commercial decision in given circumstances. Whether or not it amounts to unconscionable conduct does not simply flow from it being a deliberate breach; it must be evaluated in ‘all the circumstances’.
[65](2011) 282 ALR 571.
[66]Ibid, [91]-[92].
In the current case, the evidence suggests that, as a result of the Malt Cost Review component of the Transformation Project, JWM (and possibly the Viterra parties) made a conscious commercial decision to breach JWM’s contracts with its customers for perceived prospective commercial gain.
Of course, the current proceeding does not involve parties who might have claims against JWM by reason of JWM engaging in the Viterra Practices, such that this Court is deprived of the contentions of JWM’s customers as to how to properly characterise the legal effect and consequences of the Viterra Practices. However, in the absence of anything more, I do not consider that otherwise privileged documents which further or give effect to the Viterra Practices are ‘in furtherance of the commission of a fraud.’
However, the position is different with respect to the Viterra Policies. In my view, the evidence is sufficient to persuade me that there are reasonable grounds to believe that JWM, by altering the results of its laboratory tests on Certificates of Analysis provided to its customers, with the intention and effect of concealing its breaches of contract from the customers affected, thus, in many cases at least, depriving them of the opportunity to exercise any rights they have as a result of JWM’s breaches of contract, had engaged in fraud for the purposes of s 125 of the Act. It could be argued that customers are able to conduct their own testing (and the evidence is that at least one customer did), but it seems to me that the purpose of the provision by JWM of Certificates of Analysis was to provide JWM’s customers with the comfort that the products supplied to them were of a nature consistent with the Certificates of Analysis. To me, there are reasonable grounds for finding that JWM, in providing altered Certificates of Analysis, engaged in ‘a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment.’
Here, the detriment to JWM’s customers by not knowing the true state of affairs could be that they lost the opportunity to reject the product supplied to it, or to seek a refund of moneys paid by it, or produced inferior quality products using JWM’s malt, with potentially adverse commercial consequences for them. Accordingly, any documents which were made or prepared in order to further give effect to, or conceal from JWM customers the Viterra Practices, including the Viterra Policies, are not protected from disclosure by reason of legal professional privilege. For the avoidance of doubt, this of course does not include legal advice as to the consequences of JWM developing and implementing the Viterra Policies.
In forming the view that there are reasonable grounds that, in developing and implementing the Viterra Policies, and in particular, the practice of supplying customers with Certificates of Analysis which had been altered, JWM had engaged in a fraud, I rely upon the following matters:
(a) as a result of the Malt Cost Review Component of the Transformation Project, JWM had a financial and operational objective of reducing costs by increasing the use of off specification barley;
(b) the evidence, including subsequent references to the Transformation Project, supports the contention that this policy was implemented;
(c) the staff concerns referred to in paragraph 57(c) above indicate that the implementation of the Viterra Practices would, at least in the view of some staff, breach the Viterra Code of Practice with respect to the ‘accuracy and truthfulness’ of JWM’s dealings with its customers;
(d) the Viterra Malt Certificate of Analysis Generation Procedure itself provides a mechanism by which alterations to Certificates of Analysis must be approved;
(e) this document was not kept in Viterra or JWM’s main document/information management system, apparently to avoid it becoming available to JWM customers and/or auditors. This, along with the emails referred to at paragraphs 57(e), (i), (j), (k), (l) and paragraph 58 of these reasons do evidence some ‘consciousness of guilt’ on the part of the relevant personnel; and
(f) the bundle of documents described at paragraph 57(g) above indicates that the practice of altering Certificates of Analysis was, even if it was not the dominant practice, was not isolated.
The fact that JWM personnel may have also been hiding things from their superiors at the Viterra parties may be a live issue at trial. However, this question is not relevant to this application; it is sufficient for present purposes for there to be reasonable grounds for finding that JWM had acted fraudulently with respect to its customers.
It is not possible for me to determine whether, on the evidence, and in the absence of a full understanding on my part of the nature of the documents over which privilege has been claimed, and the manner in which the defendants have conducted the discovery process (no criticism is intended), there are likely to be documents which would otherwise be the subject of a claim for legal professional privilege but have been prepared in furtherance of this particular fraud. However, it is sufficiently clear from the authorities that s 125 would catch documents prepared to give effect to, and conceal from customers, the Viterra Policies.
Turning now to the representations said to have been made to Cargill by the Viterra parties during the course of the sale process, I consider that there must be, for the purpose of this aspect of the application, a material distinction between the alleged misrepresentations made to Cargill in the Information Memorandum, the 18 and 19 July statements, and the due diligence process (including the data room disclosures), and the pre‑completion representations. Essentially, the former misrepresentations can be characterised as misrepresentations by silence, in that Cargill alleges that the Viterra parties failed to disclose the existence of the Viterra Practices and the Viterra Policies, and the impact of the Viterra Practices and the Viterra Policies upon the profitability, and therefore the value, of the JWM business.
It seems to me that there will be substantial debate at trial as to what the Viterra parties knew about the practices, what, if they did know about them, they were required to disclose to Cargill, and, given the terms of the sale process disclaimers, and the fact that Cargill was represented in the sale process by one of Australia’s leading investment banks, the extent to which Cargill was entitled to rely upon these alleged misrepresentations. I am conscious that, while it is possible that misrepresentations by silence can be found to have been made, that is only in particular circumstances,[67] and I am not satisfied that there are reasonable grounds to believe that any non‑disclosure of the Viterra Practices or the Viterra Policies by the Viterra parties was knowing and/or intentional, at least for the purpose of the current applications. It is quite possible that the JWM executives, and/or the Viterra parties, had some knowledge of these practices and policies, or some of them, but never turned their mind to the question of whether they should be disclosed as part of the sale process. Taken at its highest, the evidence does not carry the whiff of deceit, at least at this stage, and at least insofar as it concerns the alleged non‑disclosures made during the course of the sale process, and as such, s 125 does not apply to otherwise privileged documents concerning the Viterra Practices and the Viterra Policies insofar as they came into existence prior to the 22 October letter.
[67]For example, where silence distorts a positive representation, which may well found to be applicable in the current case.
Further, in reaching this view, I am conscious of how Cargill has relied upon its allegations that the defendants have failed to disclose the Viterra Practices and the Viterra Policies. These allegations do not stand alone, but are said to have underpinned the Warranties and representations concerning the financial performance of the JWM business made during the course of the sale process. Accordingly, in order to find that there were reasonable grounds for finding the Viterra parties had acted fraudulently in giving the Warranties and making certain representations during the sale process, I would need to find that the persons referred to in clause 31.15 (or any of them):
(a) knowingly and/or intentionally failed to disclose the existence of the Viterra Practices and the Viterra Policies; and
(b) did so knowing that these practices and policies underpinned the financial performance and thus the value of the JWM business, and thus the accuracy of the Warranties and the representations made during the sale process.
There is simply insufficient information before me, at least at this stage, to even lend ‘colour to the charge’ in relation to these matters.
Again, the position is different with respect to the pre-completion representations. Following the 22 October letter, the Viterra parties were put squarely on notice of the existence of the Viterra Practices, and Cargill’s concerns about the consequences of the Viterra Practices. Indeed, the tone of the 22 October letter suggests that Cargill, whether reasonably or not, was quite aghast at what it had learned from the JWM executives about the Viterra Practices. The Viterra parties can have been in no doubt that Cargill took the matter very seriously: indeed, this is consistent with Mr Fitzgerald’s evidence that he expected litigation to be initiated, and he contacted KWM immediately for advice. Completion was only nine days away, and could well have been in jeopardy. Given the time frames involved, there is little doubt that the October 2013 responses would, for all practical (rather than necessarily legal) purposes,[68] significantly influence what Cargill would do. As it happened, Cargill proceeded to completion. Whether it did so in reliance upon what the Viterra parties told it in the October 2013 responses, or whether it would have done so anyway even had it known the true extent of the Viterra Practices, is a matter for trial. However, examining the October 2013 responses, and the other documents relied upon by the Cargill parties, such as Mrs Purser’s record of her phone call with Mr Mattiske, I consider that there are reasonable grounds to find that notwithstanding what had emerged, during the course of the October 2013 investigations at the latest, the October 2013 responses were, in the words of the Cargill parties’ submissions, ‘deliberately and intentionally crafted to conceal the true nature and extent of the Viterra Practices’ from Cargill.
[68]The question of the legal effect of the pre-completion representations is of course a matter for trial.
In particular, the thrust of the October 2013 responses was to the effect that any non‑compliance by JWM with its customer contracts was isolated, and certainly not systemic, and that the Certificates of Analysis provided to customers were ‘above board’. While of course the Viterra parties had a relatively short period of time to prepare the October 2013 responses, it is apparent from the documents relied upon by the Cargill parties that Dr Stewart, who appears from the evidence to have been aware of the Viterra Practices and the Viterra Policies from an early stage, was involved in the October 2013 investigations.
It is apparent from the terms of Cargill’s letter of 29 October 2013 that Cargill was not particularly impressed by Viterra’s initial response to the 22 October letter. That may support a contention at trial to the effect that Cargill did not in fact rely upon the October 2013 responses, but rather decided to take the risk of going ahead with completion, and to rely upon its rights to make claims under the Acquisition Agreement afterwards. However, it is not necessary, for the purposes of s 125 of the Act, that the fraud (in this case, deceit) is effected:[69] the section operates upon communications made or prepared with the purpose of effecting a fraud.
[69]Amcor Ltd v Barnes [2011] VSC 341, [64].
I should hasten to add that my determination that documents brought into existence for the purpose of making the October 2013 responses are not subject to a claim for legal professional privilege by reason of s 125 of the Act does not amount to a finding that any person, including any lawyer, acted dishonestly. Who knew what and when remains quite murky, and is clearly a matter for trial. It may well be found that the pre‑completion representations were made recklessly, and are thus actionable, rather than intentionally. It may well be that some or all of those involved in preparing the October 2013 responses genuinely believed the pre-completion representations to be true, even though had proper inquiries been made, they would have been found to be incorrect. I accept the caution sounded by senior counsel for the defendants about making definitive findings concerning fraud at an interlocutory stage. However, while the situation is somewhat awkward, the purpose and nature of the inquiry provided for by s 125 of the Act necessitates making preliminary determinations in less than perfect circumstances and upon less than perfect material.
Third party issues
The final component of the applications, being the claims by Mr Hughes and Dr Stewart for access to documents of which they were the author or the recipient can be dealt with quite promptly: the terms of s 117 and s 118 of the Act confer privilege over communications which are confidential between a lawyer and a client as against the world, unless that privilege is lost in circumstances prescribed by the Act. At the time that Mr Hughes and Dr Stewart were parties to these communications, they were privy to them in their capacity as employees of the Viterra parties. As such, they were under an obligation not to disclose the contents of the communications. Nothing in the Act provides for a partial loss of confidentiality, or a loss of confidentiality vis a vis some people and not others. I accept that the current application is analogous to the situation and circumstances in State of South Australia v Barrett[70] (“Barrett”) and William Buck (WA) Pty Ltd v Faulkner (No 4),[71] the authorities relied upon by the defendants. In particular, the circumstances of current applications are almost on all fours with the applications in Barrett, where the Full Court of the Supreme Court of South Australia held that former directors of a company do not have a right of access to privileged documents they would have had access to when exercising their duties as directors of the company. As former employees of the Viterra parties, Mr Hughes and Dr Stewart arguably did not have an automatic right of access to the Viterra parties’ privileged documents, even when they were employees.
[70](1995) 64 SASR 73.
[71][2013] WASC 63.
I do not consider the authorities relied upon by counsel for Mr Hughes and Dr Stewart concerning what amounts to disclosure particularly helpful. ‘Disclosure’, within the meaning of ss 118 and 119, and 131A of the Act means disclosure of the contents of the confidential communication: the fact that a third party, when under an obligation of confidence not to disclose the contents of the communication, has knowledge of the existence and contents of the communication does not of itself a right to compel production of the otherwise privileged communication.
Proposed Orders
Accordingly, having made the findings in respect of the application as set out in these reasons, and subject to hearing further from counsel concerning the manner in which the orders should be framed, I propose to make orders in the following terms:
(a) By 4.00pm on [date], the defendants produce for inspection documents which record or evidence the knowledge of the persons referred to in clause 31.15 of the Acquisition Agreement of the Viterra Practices and the Viterra Policies (as defined in the FASOC) prior to 31 October 2013, alternatively in the period between 22 October 2013 and 31 October 2013;
(b) By 4.00pm on [date], the defendants produce for inspection any documents brought into existence to further, give effect to, or conceal the existence of policies and practices in the JWM business which resulted in JWM providing to its customers Certificates of Analysis which had been altered to conceal the use of off-specification barley and/or additives in the products supplied by JWM. For the avoidance of doubt, this category of documents does not include documents which record advice as to how to deal with the consequences of this conduct;
(c) Insofar as they are not required to be disclosed pursuant to paragraphs (a) or (b) above, documents relied upon or brought into existence for the purpose of the Viterra parties preparing the October 2013 responses, including any legal advice concerning the October 2013 responses; and
(d) the applicants’ summonses be otherwise dismissed.
SCHEDULE OF PARTIES
BETWEEN
CARGILL AUSTRALIA LIMITED (ACN 004 684 173) Plaintiff VITERRA MALT PTY LTD (ACN 096 519 658) First Defendant VIETERRA OPERATIONS PTY LTD (formerly VITERRA OPERATIONS LTD (ACN 007 556 256)) Second Defendant VITERRA PTY LTD (ACN 084 962 130) (formerly VITERRA LTD (ACN 084 962 130)) Third Defendant GLENCORE INTERNATIONAL AG Fourth Defendant CARGILL, INCORPORATED First Third Party CARGILL MALT ASIA PACIFIC PTY LTD (formerly JOE WHITE MALTINGS PTY LTD (ACN 004 287 352)) Second Third Party GARY HUGHES Third Party PETER YOUIL Fourth Third Party ROBERT WICKS Fifth Third Party DOUGLAS STEWART Sixth Third Party SCOTT ARGENT Seventh Third Party AND BETWEEN VITERRA MALT PTY LTD (ACN 096 519 658) First Plaintiff by Counterclaim VITERRA OPERATIONS PTY LTD (ACN 007 556 256) (formerly VITERRA OPERATIONS LTD (ACN 084 962 130)) Second Plaintiff by Counterclaim VITERRA PTY LTD (ACN 084 962 130) (formerly VITERRA LTD (ACN 084 962 130) Third Plaintiff by Counterclaim GLENCORE INTERNATIONAL AG Fourth Plaintiff by Counterclaim CARGILL AUSTRALIA LIMITED (ACN 004 684 173) Defendant by counterclaim
20
5
0