Re Bonlac Foods Ltd
[2001] VSC 75
•22 March 2001
| SUPREME COURT OF VICTORIA | Not Restricted | |
| COMMERCIAL AND EQUITY LAW DIVISION CORPORATIONS LIST | ||
No. 4561 of 2001
| IN THE MATTER OF BONLAC FOODS LIMITED | Plaintiff |
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JUDGE: | Warren J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 9 and 14 March 2001 |
DATE OF JUDGMENT: | 22 March 2001 |
CASE MAY BE CITED AS: | In the matter of Bonlac Foods Limited |
MEDIUM NEUTRAL CITATION: | [2001] VSC 75 |
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Corporations Law, s.411 – scheme of arrangement – court ordered meeting – application by non‑shareholder to access scheme documents.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr N.J. Young QC with | Blake Dawson Waldron |
| For the Applicant | Mr J. Santamaria QC with Mr S. Anderson | Piper Alderman Lawyers |
TABLE [L1]OF CONTENTS
Background to application under s.411(1) of the Corporations Law....................................... 2
The proposed scheme of arrangement........................................................................................... 4
The application under s.411(1) on 2 March 2001.......................................................................... 5
The application by Murray Goulburn........................................................................................... 7
The awarding of costs....................................................................................................................... 8
HER HONOUR:
On 2 March 2001 I made orders pursuant to s.411(1) of the Corporations Law that the plaintiff, Bonlac Foods Limited ("Bonlac") convene a meeting of its members in relation to a proposed scheme of arrangement. Subsequently, one week later, the applicant, Murray Goulburn Co-operative Co. Limited ("Murray Goulburn") instituted an urgent application seeking production of exhibits to a principal affidavit filed in support of the Bonlac application under s.411(1). The exhibits consisted of the proposed explanatory statement in support of the scheme of arrangement and the notice of the court ordered meeting to shareholders and form of proxy. The application by Murray Goulburn was opposed by Bonlac on the basis that there was no entitlement to inspect the documents sought at all, or at least, not before registration of the explanatory statement with the Australian Investments and Securities Commission ("ASIC").
The original application by Bonlac for a court ordered meeting under s.411(1) was not opposed by ASIC. The court was so advised in a letter from ASIC to the solicitors for Bonlac dated 28 February 2001 produced to the court and directed by me to remain on the court file. Of course, ASIC reserved its ultimate position for the purposes of s.411(17) of the Law.
It is appropriate to set out the essential features of the application heard by me on 2 March 2001 and the orders made on that occasion.
Background to application under s.411(1) of the Corporations Law
Bonlac is concerned with the application of dairy products and its corporate structure consists of a number of divisions. Its consumer products division manufactures and distributes dairy products for sale through retail channels throughout Australia and overseas. The ingredients division supplies dairy products to manufacturing and wholesale outlets again throughout Australia and overseas for further manufacturing, processing and re-packaging. The bioscience division develops dairy technologies. Bonlac commenced trading on 1 January 1986 following the amalgamation of three independent dairy co-operatives and one dairy marketing company. Bonlac is admitted to the official list of the Australian Stock Exchange but its share capital is not listed. However, debt securities, in the form of unsecured notes, are quoted and traded on the exchange.
Bonlac is a public company limited by shares. Although it is incorporated under the Corporations Law its constitution contains many elements typical of a co-operative. For example, the current share capital of Bonlac consists of redeemable preference shares so that shares held by persons who cease to supply milk to Bonlac can be redeemed but control of Bonlac is retained by the suppliers of milk to it from time to time.
At present, the capital structure of Bonlac includes the following classes of shares:
(a)'A' class redeemable preference shares which are held by suppliers of milk to Bonlac and which entitle the holder to vote at general meetings of Bonlac ('supplier shares');
(b)'B' class redeemable preference shares which are held by institutional investors and former suppliers of milk to Bonlac and which generally do not entitle the holder to vote at general meetings of Bonlac;
(c)'C' class redeemable preference shares which generally do not entitle the holder to vote at general meetings of Bonlac ('special shares'). The special shares were issued to suppliers to Bonlac this financial year for the purposes of rewarding suppliers who have been loyal to Bonlac at a time when its milk price has been less than that of its competitors; and
(d)one 'Z' class share which exists for the technical legal reason of having a class of shares over which the other classes of shares can be preferred.
The proposed scheme of arrangement
On 28 February 2001 a master agreement ("the master agreement") was reached between Bonlac and other entities, namely, New Zealand Dairy Board ("NZDB"), Bonlac Supply Company Limited, New Zealand Milk (Ausapac) Pty Ltd ("New Zealand Milk") and ConsumerCo Pty Ltd ("ConsumerCo"). The agreement provided for an alliance between Bonlac and NZDB. The essential ingredients of the proposed alliance were:
(a)NZDB (through its wholly owned subsidiary, NZMA) would acquire a 25% interest in the voting shares of Bonlac. The remaining 75% interest would be held by Bonlac Supply Company, a new holding company. The shareholders of Bonlac Supply Company would be the former holders of Supplier Shares and Special Shares of Bonlac;
(b)ConsumerCo (a fifty/fifty incorporated joint venture) would market and distribute consumer products in Australia under brands licensed from Bonlac and NZDB; and
(c)the Australian ingredients businesses of NZDB would be acquired by Bonlac and Bonlac's ingredients products would be sold by NZDB outside Australia and New Zealand through NZDB's global network.
The master agreement was conditional upon approval by this court of the subject scheme of arrangement between Bonlac and the holders of its supplier shares. I was informed that the purpose of the scheme of arrangement was to interpose Bonlac's supply company between Bonlac and the holders of its supplier shares. The essential ingredients of the proposed scheme were two-fold. First, that all of the supplier shares would be transferred to Bonlac's supply company. Secondly, that Bonlac's supply company would issue to every supplier shareholder one "A" class redeemable preference share in Bonlac's supply company for every one supplier share held and one "B" class redeemable preference share in Bonlac's supply company.
The application under s.411(1) on 2 March 2001
Documents that might be described as standard or routine documents in support of the scheme of arrangement were exhibited to affidavits in support of the application. The exhibits included a proposed explanatory statement together with annexures and a proposed notice of court ordered meeting.
In the explanatory statement the following statement appeared:
"On 28 February 2001, after Bonlac had issued the necessary Court proceedings seeking an order to convene a meeting of Bonlac shareholders to consider the Scheme, Murray Goulburn and National Foods wrote to Bonlac indicating that they were interested in acquiring the ingredients and consumer products businesses respectively of Bonlac. Although the letter stated that a cash price was envisaged, there was no indication as to the amount of that price.
In the absence of any concrete offer from Murray Goulburn/National Foods, your Directors considered that the best course was for Bonlac to finalise its arrangements with NZDB and put the proposed NZDB alliance to Bonlac shareholders for their decision.
Your Directors believe that the proposed alliance with NZDB represents the best option available for Bonlac at this time. Your directors will, of course, keep you informed of any material developments in relation to Murray Goulburn/National Foods, or any other third parties."
In the course of the hearing of the application pursuant to s.411(1) of the Law on 2 March 2001 Mr N.J. Young QC who appeared with Mr P.W. Collinson for Bonlac drew my particular attention to the above statement in the explanatory memorandum relating to Murray Goulburn. After doing so, Mr Young stated:
" … Now, I raise that, Your Honour, because that's something that's arisen within the last few days, and it may be that between now and late April we will be sending further information to shareholders should anything develop about that, but at the moment all we wanted to do was to mention that fact in case Your Honour had seen references in newspapers and elsewhere to recent developments in relation to Bonlac."
I indicated to Mr Young that I anticipated that if there were any further developments, in addition to appropriate notice to shareholders, the chairman in all likelihood would address that matter at the proposed meeting of shareholders. Mr Young informed me that would most certainly be the case.
On the basis of the materials before me on 2 March 2001 and the submissions on behalf of Bonlac I made orders for the convening of a meeting. For present purposes the relevant parts or the orders provided:
"1.Pursuant to section 411(1) of the Corporations Law the plaintiff convene a meeting of its members holding 'A' class redeemable preference shares ('Supplier Shareholders') for the purposes of considering and, if thought fit, approving the scheme of arrangement proposed to be made between the plaintiff and its Supplier Shareholders, a copy of which is set out in the first schedule to this order (being substantially the same as the scheme of arrangement set out in Annexure 3 of the Explanatory Statement which is Exhibit 'NRC1' to the affidavit of Noel Robert Campbell sworn on 1 March 2001).
2.The meeting referred to in paragraph 1 above take place on 23 April 2001 at 12.30pm at Moonee Valley Racing Club, McPherson Street, Moonee Ponds.
3.The meeting referred to in paragraph 1 above be convened by sending on or before 21 March 2001 written notices to the holders of the Supplier Shares in the form or substantially in the form of the scheme notice exhibited as Exhibit 'NRC3' to the affidavit of Noel Robert Campbell sworn on 1 March 2001 by pre‑paid ordinary post addressed to each member at the address set out in the Company's register of members together with the documents described in the next succeeding order.
4.The notice be accompanied by:
(a)an explanatory statement in the form or substantially in the form exhibited as Exhibit 'NRC1' to the affidavit of Noel Robert Campbell sworn on 1 March 2001 which includes in full a copy of the proposed scheme; and
(b)forms of proxy for the meeting in the form or substantially in the form of the proxy form for that meeting exhibited as Exhibit 'NRC3' to the affidavit of Noel Robert Campbell sworn on 1 March 2001."
The application by Murray Goulburn
Subsequently, an urgent application was made returnable before me in the Corporations List on 9 March 2001 by Murray Goulburn seeking leave to intervene in the proceedings and an order for production of the explanatory statement together with all annexures and the final draft form of notice of court ordered meeting together with the form of proxy for that meeting. The circumstances relied upon by Murray Goulburn were that it had made an "in principle" offer to Bonlac to acquire the ingredients division of Bonlac on 28 February 2001 and that an offer had been made, also, on the same day by National Foods Limited ("National Foods") for the acquisition of the consumer products division of Bonlac.
Murray Goulburn was unable to gain access to the exhibits to the affidavits in support of the application. Consequently, it complained that it was deprived of access to the explanatory statement and the notice of meeting and proxy forms. Murray Goulburn complained that the form of order was such that it was deprived as an interested party from access to the critical documents that were the basis upon which the court order was made on 2 March 2001. Murray Goulburn by way of affidavit sworn by its solicitor, John William Armour, asserted that it needed access to the documents for the purpose of preparing a detailed offer to the plaintiff for the acquisition of the two divisions. Bonlac, through its solicitors, refused to provide the documents sought by Murray Goulburn until they were registered by ASIC.
It transpired that when the application by Murray Goulburn came on before me on 9 March 2001 it had been ascertained that the documents were expected by Bonlac to be registered with ASIC on the following Tuesday, 13 March 2001 (the preceding Monday, 12 March 2001 being a public holiday in the State of Victoria). On that basis, therefore, Murray Goulburn applied to adjourn its application to the following week to await the availability of the documents.
Notwithstanding this position, Mr Young QC who again appeared with Mr Collinson for Bonlac urged that the application of Murray Goulburn be dismissed on the ground that there was no legal foundation demonstrated by Murray Goulburn for the application. Rather than dismiss the application at that stage I adjourned it for further hearing on Wednesday 14 March 2001.
On that occasion I was informed by the parties that Murray Goulburn had obtained the documents that were the subject of the application and that the summons was not pursued any further. As a consequence, Mr Young for Bonlac urged that the summons be dismissed and sought costs against the applicant, Murray Goulburn. Mr Santamaria QC who appeared with Mr S. Anderson for Murray Goulburn applied for costs against Bonlac on the grounds that it should have provided the documents sought in any event without the need to bring the application for production.
The awarding of costs
The circumstances of the application and its prosecution by Murray Goulburn are unusual. As a matter of principle I do not consider that there was anything untoward or inappropriate in the form of the order made on 2 March 2001. Mr Santamaria for Murray Goulburn complained that whilst the orders were doubtlessly sought in good faith their form was such that a member of the public could not fully apprehend, if at all, the basis upon which the orders were made. In my view, the orders obtained by Bonlac followed a routine if not standard form in applications under s.411(1) of the Corporations Law in this list. In my view, there was nothing controversial about the form of the orders made on 2 March 2001. Mr Santamaria drew my attention to a number of authorities in support of the proposition that court proceedings are to be conducted publicly and in open view.[1] It must be observed at the outset that the application by Bonlac on 2 March 2001 was conducted by way of open hearing in this court in the Corporations List. There was no attempt in any way whatsoever by Bonlac to suppress or prohibit the publication of evidence underlying the application. Indeed, in the ordinary course the fact of the application was listed in the Supreme Court List published in the daily press and available on the Internet.
[1]Scott v Scott (1913) AC 417, 441; Herald and Weekly Times v Medical Practitioners' Board (1999) 1 VR 267, 275-293.
The form of the order made on 2 March 2001 is to be contrasted with orders under s.411 of the Law in some other applications, for example, in Re Amcor (2000) 34 ACSR 199, 206-207. On some occasions the form of order in applications under s.411 provide for the particular scheme to be annexed to the court order as a schedule. Different applications warrant different forms of order and there is not a hard and fast rule.
The present matter raises the question as to whether or not there was merit in the application of Murray Goulburn to gain access to the documents that were the subject of the application. I observe that Murray Goulburn is not a shareholder of Bonlac and that the proceeding before the court on 2 March 2001 was for approval of a scheme between one class of shareholders in Bonlac involving the interposition of a new holding company. If Murray Goulburn was a shareholder it would have had full rights of intervention. But it has no interest in the scheme.
Inevitably there will be occasions where explanatory statements contain confidential information that have an impact on the parties and, also, the market place. In those circumstances more often than not it is appropriate to await the release of explanatory statements after registration with ASIC and release from the exchange. It seems to me that there were difficulties in Murray Goulburn demonstrating that it was entitled to be put in a special position over and above other parties in the market place but more importantly as to whether it should have an advanced position before shareholders in Bonlac.
To some extent a somewhat similar problem was considered by Santow J in Re NRMA (2000) 33 ACSR 595, 625-6 where the learned judge in the context of a s.411 application considered the interest of the media in gaining advance access to draft documents. His Honour observed (at 625):
" … It would be inimical to the clear purpose of the Corporations Law in prescribing the information to be included in the document to permit members' analysis of the material contained in the information memorandum to be pre-empted or confused by media discussion of a possibly different document. To give full effect to the legislative purpose behind those provisions of the Corporations Law which regulate the content of the information memorandum, and the role of the court in reviewing a company's compliance with those requirements before the information memorandum is distributed to members, the role of the media should be confined to an informed discussion of the final version, not earlier versions of that information … ".
In the application made under s.411(1) of the Law the application related to the provision of information to shareholders to enable them to make an informed decision. Whilst it has not proved necessary for me to finally determine whether or not Murray Goulburn was entitled to access to the documents prior to their registration it throws up an example of an application to be approached with some caution.
Ultimately in this matter I have concluded that I should determine it on the usual principles where a party has instituted an application by way of summons and not prosecuted the same. It seems to me on that basis, therefore, the summons should be dismissed and costs ought follow the event. However, before an order for costs can be made the difficulty arises that Murray Goulburn is not a party to the proceeding.
Section 24(1) of the Supreme Court Act 1986 places the award of costs at the discretion of the court and vests power in the court to determine by whom and to what extent costs are to be paid. There have been numerous cases where the court has ordered a non-party to pay the costs of a party to the proceeding before the court.[2] The general principle can be gleaned from the authorities that there are many circumstances in which considerations of justice may support an order for costs against a non-party. The categories are never closed. Generally, the principle can be distilled from the authorities that where a party to a proceeding has incurred costs as a result of conduct or action by a non-party that was wholly unnecessary and unreasonable and has unnecessarily troubled the court and caused the party to the proceeding to incur costs the court may exercise the discretion to order that the non‑party pay the costs of the party to the proceeding. In considering the proper approach to be adopted in a matter such as the present I am much assisted by the criteria laid down by Gobbo J in Bischof v Adams[3]. There the learned judge identified two factors to be assessed in the determination of whether an order for costs should be made against a non-party. The first factor was whether there was a connection between the non-party and the proceedings. The second factor was whether there was a causal connection between the non-party and the incurring of costs. Whilst Gobbo J observed that the two criteria just described were by no means exclusive they nevertheless provide appropriate guiding principles in the present matter. Applying the criteria in Bischof and the principles stated in the authorities I am satisfied that there was sufficient connection between Murray Goulburn and the proceedings before me. Second, I am satisfied that there is a causal connection between Murray Goulburn and the incurring of the costs of the application by Bonlac. I am also satisfied that, as events transpired the application was made by Murray Goulburn and not pursued thereby causing unnecessary costs to Bonlac. It follows, therefore, that orders will be made dismissing the application by Murray Goulburn and, further, that Murray Goulburn pay the costs of Bonlac of the application.
[2]Burns Philp and Co Ltd v Bhagat (1993) 1 VR 203, 210; Bischof v Adams (1992) 2 VR 198; Cabot v City of Keilor (1994) 1 VR 220; Knight v FP Special Assets Limited (1992) 174 CLR 178.
[3]Supra at 204-205.
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