ICM Investments Pty Ltd v San Miguel Corporation (Ruling No. 1)

[2012] VSC 504

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT

List D

No.  1408 of 2011

ICM INVESTMENTS PTY LTD	Plaintiff
v
SAN MIGUEL CORPORATION	First Defendant
and
BERRI LIMITED	Second Defendant

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JUDGE:	DAVIES J
WHERE HELD:	Melbourne
DATE OF HEARING:	22 - 24 October 2012
DATE OF RULING:	24 October 2012 (delivered ex tempore; revised 26 October 2012)
CASE MAY BE CITED AS:	ICM Investments Pty Ltd v San Miguel Corporation and Anor (Ruling No. 1)
MEDIUM NEUTRAL CITATION:	[2012] VSC  504

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PROCEDURE – PLEADINGS – Whether plaintiff’s case as opened departed significantly from case as pleaded and particularised

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	NJ Young QC with DC Gration	Baker & McKenzie
For the First Defendant	ND Hopkins	Herbert Smith Freehills
For the Second Defendant	DG Collins SC with SH Parmenter	King & Wood Mallesons

HER HONOUR:

1. In issue is whether the plaintiff’s case as opened goes beyond its pleaded case against the defendants. 

1. The plaintiff (“ICM”) formerly owned 50% of the shares in the second defendant (“Berri”) and the first defendant (“SMC”) owned the remaining shares. ICM exercised a put option under an Option Deed to require SMC to acquire its shares. SMC did acquire ICM’s shares but the parties are in dispute about whether Berri was to pay a dividend to ICM before ICM transferred its shares to SMC.  ICM has sued the defendants for breach of contract. ICM has alleged that:

(a)       pursuant to the terms of the Option Deed, SMC agreed to complete the acquisition of ICM’s shares under the put option on 16 December 2005;

(b)      pursuant to cl 7.7 of the Option Deed, SMC was required to procure Berri to pay a dividend to ICM (“the dividend entitlement”) immediately before ICM’s shares were to be transferred to SMC on 16 December 2005;

(c)       pursuant to cl 21.9 of a Shareholders Agreement to which ICM, SMC and Berri were parties, SMC and Berri were each required to do everything necessary on their part to ensure that ICM was paid the dividend entitlement before ICM’s shares were transferred to SMC;

(d)      SMC, in breach of the Option Deed, failed to complete the sale acquisition on 16 December 2005 and failed to procure Berri to pay to ICM the dividend entitlement in accordance with cl 7.7 of the Option Deed;

(e)       ICM, SMC and Berri entered into a compromise agreement pursuant to which completion of the share acquisition was to be completed on 30 December 2005 and at completion, SMC would declare and pay the dividend entitlement to ICM calculated up to 16 December 2005 and SMC would pay ICM interest from 16 December 2005 to the date of completion at the same rate applied to the calculation of the dividend payable by Berri to ICM. 

1. The share acquisition was completed on 28 December 2005. It is alleged that before completion:

(a)       SMC and Berri informed ICM that Berri would not pay ICM the dividend entitlement and represented that Berri was forecasted not to have any distributable earnings as at the completion date; and

(b)      ICM, SMC and Berri entered into a deed pursuant to which ICM agreed to proceed with completion of the put option on the basis that its rights to the payment of the dividend entitlement would be reserved.  

1. ICM has alleged that the dividend that was payable to it was $3,472,198.04. ICM has further alleged in paragraph 27 that Berri had sufficient distributable profits to pay ICM its dividend entitlement.  The allegation is as follows:

… as at 16, 28 and 31 December 2005, the Second Defendant had sufficient distributable profits to pay the Plaintiff the dividend entitlement.

Particulars

The financial report of the Second Defendant for the 12 months ended
31 December 2005 shows that the Second Defendant had a general reserve of $5.313 million, and asset realisation reserve of $1.831 million, net profits for the year ended 31 December 2005 of $1.717 million, and undistributed profits arising from the six months ending on 31 December 2004 of
$3.124 million.  As at 31 December 2005, the sum of $10.268 million, alternatively a sum substantially in excess of the dividend entitlement of $3,472,198.04 was available for distribution for dividends.[1]

[1]Amended Statement of Claim (29 July 2011), [27].

1. Paragraph 27 is at the heart of the defendants’ claim that ICM’s case as opened went beyond its pleaded case against the defendants. 

1. The defendants claimed that the case put against them, and the case which they came to court to meet, was that $10.268 million was available for distribution as dividends out of the two reserves and the undistributed profits, based on the statutory accounts.  By their respective defences, both defendants joined issue with the allegations in paragraph 27 by denial of the allegations. 

1. The case that Mr Young QC opened for ICM was that the operational reports for Berri for the months of October, November and December 2005 showed that there were sufficient actual and forecasted distributable profits out of which to pay the dividend.  The October operational report showed a net profit of $1.6 million for that month and year to date net profit of $14.5 million with a full year forecast of

   
   

   $19.5 million net profit.  The November report showed an actual net profit for that month of $1.5 million, a net profit for the year to date of $16 million and a full year forecast net profit of $19.1 million.  The forecast profit for the rest of the year was

   
   

   $3 million. The December figures showed a transformed position but these figures would have been prepared after the month end. The figures showed a loss of

   
   

   $10.4 million, contrary to budget forecasts. The figures also showed that a provision for loss of $25 million was booked for rationalisation costs and abnormal items for year to date compared to the provision of $4 million in the November 2005 figures. The provision reduced the net profit for the year to $5.6 million.

1. Mr Young QC also opened on the case that ICM understood that it had to meet, namely that Berri did not have sufficient distributable profits as at 16 and 28 December 2005. The actual net profit for Berri for the year ended 31 December 2005 as recorded in statutory accounts was $1.717 million, which was substantially less than the projected full year net profit as recorded in the November operational results.  The Court was told that the year end result was adversely impacted by the write-off of a number of abnormal items that had the effect of eliminating the profits that were available to fund an interim dividend as at 16 and 28 December 2005.  On ICM’s case, as opened, the write-downs were irrelevant to the inquiry that has to be made as to whether there were sufficient profits as at 16 and 28 December 2005 from which to pay the dividend to ICM.  This contention was put in two ways.  First it was said that some of the abnormal items written off were referrable to the consequences of SMC acquiring 100 per cent of Berri’s shares and therefore did not relate to the dividend position as at 16 and 28 December 2005.  Secondly it was said that Berri and SMC were bound by the contractual obligations to ensure that ICM was paid the dividend entitlement and that Berri was not compelled to identify and write off those abnormal items in the accounts for the year ended 31 December 2005. 

1. ICM’s case, as opened, is therefore to be understood as put upon the basis that as at 16 and 28 December 2005 the net profit for the year ended 31 December 2005 anticipated to be disclosed in statutory accounts was more than $1.717 million.[2]

   [2]Marra Developments Limited v B W Rofe Pty Ltd [1977] 2 NSWLR 616, 622 (Hutley JA).

1. In my view, ICM’s case as opened went beyond its pleaded case against the defendants.  The allegation of material fact in paragraph 27 of the Amended Statement of Claim that as at 16 and 28 December 2005, Berri had sufficient distributable profits to pay ICM the dividend entitlement is to be understood against the statutory accounts for the 2005 year as particularised.  I reject the submission that it is clear from the defences filed on behalf of SMC and Berri that those parties joined issue as to whether, in fact, as at 16 December and 28 December, there were anticipated sufficient available profits, having regard to monthly profits, estimates of provisions of costs and other matters.  This submission was put on the basis that parties knew, and understood, that the issue was the sufficiency of anticipated profits from which to pay an interim dividend and that the statutory accounts were not relevant to, nor could be determinative of that issue.

1. But nowhere is it pleaded as a material fact, let alone particularised, that the anticipated profits out of which to pay an interim dividend as at 16 and 28 December 2005 included an anticipated net profit for the year that was more than the actual net profit of $1.717 million as disclosed on the statutory accounts. A pleading to that effect was required, properly particularised, if that is the case to be put by ICM.  

1. Furthermore, and contrary to Mr Young QC’s submissions, it cannot be made out from a reading of the positive allegations made by the defendants in their respective defences that the defendants understood how ICM would put its case that there were sufficient anticipated profits.  Specifically, I do not read paragraph 24 of the defence of SMC as providing any support for the proposition that SMC understood that ICM was not confining the way in which it sought to support the allegation in paragraph 27 as at 16 and 28 December 2005 to the profits as disclosed in the statutory accounts.  The positive allegations in paragraph 24 respond to an allegation as to what SMC and Berri were alleged to have informed and represented to ICM on 22 December 2005.  Paragraph 27(c) of Berri’s defence similarly does not support the proposition put by Mr Young QC.  Paragraph 27(c) was said to be a positive counter allegation that as at 16 and 28 December 2005 Berri did not have sufficient distributable profits.  Paragraph 27(c) has to be read in the context of the preceding sub-paragraphs which make it plain that Berri relied on the statutory accounts as the basis of the denial, consistently with the way in which ICM had pleaded its case.[3] No reply was filed by ICM.

   [3]See Amended Defence of the Second Defendant (6 August 2012), particulars to [27(b)].

1. Nor, contrary to Mr Young QC’s submissions, can it be made out from the list of issues and topics of evidence and documents identified for tender filed pursuant to court order.  I cannot read into question 15 of the list of issues, expressed in the most general of terms, that there has been raised as an issue for determination as to whether the anticipated net profits for year end out of which to pay an interim dividend was more than the actual net profit of $1.717 million as reported. The topics of the lay witnesses simply reflect the broad way in which the list of issues has been prepared.

1. Finally, it could not be said that SMC and Berri were put on notice as to the way in which ICM intended to prove its case that there were distributable profits.  The expert for ICM was specifically instructed to assume that there was no material change in the financial position of Berri between 28 December 2005 and 31 December 2005 or between 16 December 2005 and 28 December 2005, other than in respect of the provision which was made for costs associated with the legal dispute with certain suppliers.

1. It was submitted for SMC and Berri that they will be prejudiced by the case that ICM has opened on it because they will need to go into all the issues raised by Mr Young QC about the abnormal items.  Whether that is so may depend on how Mr Young QC would plead the case that he seeks to put, if leave is sought to amend the pleadings.

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