Cadbury Pty Ltd v Mercer Investment Nominees Ltd

... ' Cadbury Schweppes plc' means the body corporate of that name incorporated in the United Kingdom. 'Change of Control' means where: (a) Cadbury Schweppes plc ceases to be the Ultimate Holding Company of the Participant; (b) the shareholding of Cadbury Schweppes plc and any wholly owned subsidiary or wholly owned subsidiaries of Cadbury Schweppes plc in aggregate in the Holding Company falls below 51% of the issued capital of the Holding Company; (c) at any time on or after 1 April 1987 any person or corporation obtains a Relevant Interest in 35% or more of the issued share capital of Cadbury Schweppes plc; (d) at any time on or after 1 April 1987 any person or corporation becomes in a position to control the composition of the Board of Directors of Cadbury Schweppes plc; or (e) having been requested to consider the matter by the Trustee or any Member, the auditor for the time being of the Holding Company determines that as a result of an event or a series of events occurring after 1 April 1987 there has been a change of control of the business or affairs of the Holding Company. ... 'Holding Company' means Cadbury Schweppes Australia Limited. ... 'Relevant Date' means in respect of a Change of Control: (a) in the case of a matter falling within paragraphs (a), (b), (c) and (d) of the definition of Change of Control, the date upon which, in the opinion of the auditor of the Holding Company, the events constituting a Change of Control occurred; and (b) in the case of determination by the auditor of the Holding Company under paragraph (e) of the definition of Change of Control the date (if any) determined by the auditor as being the date upon which a Change of Control occurred." Background to Clause 3.8.3 5In 1972, the Cadbury Schweppes Superannuation Fund was established, with Claremont Trustee Company Pty Ltd as trustee, for employees of Cadbury. In 1980, by deed between Cadbury and Sweetenam Pty Ltd, the Sweetenam Investment Fund was established as a superannuation fund for senior executives which provided what could be described as top-up benefits. Also in 1980, the 1972 deed was amended. The trustee remained but was then known as CS Superannuation Pty Ltd. On 22 June 1987, by supplementary deed to the Sweetenam Investment Fund deed, a "change of control" benefit provision, with definitions and benefits set out in words almost exactly the same as those in the Participation Agreement, was put in place. On 27 July 2002, CS Superannuation Pty Ltd, the trustee of the Cadbury Schweppes Superannuation Fund, replaced the operative provisions of the 1972 deed and rules with a new deed and rules which by the 17 th Schedule to the rules, incorporated the Sweetenam top-up provisions, including the change of control provisions, into the Cadbury Schweppes Superannuation Fund. 6Finally, as a result of the Participation Agreement, the new scheme with Mercer as trustee was put in place. Further Facts 7In 2008, it was decided to carry out what has been described as a "de-merger" of the American beverages and business operation of the Cadbury group. This was the group's non-alcoholic beverages business in the United States, Mexico, Canada and the Caribbean and was a very big part of the group business. The first stage of the de-merger involved an internal restructure in the United Kingdom by way of a scheme of arrangement. Under the scheme, a new ultimate holding company, Cadbury plc, was placed above the up to then ultimate holding company Cadbury Schweppes plc. The shares in Cadbury Schweppes plc were cancelled and in exchange the former shareholders of that company received shares in Cadbury plc in the same proportions as they had held them in Cadbury Schweppes plc. The name of Cadbury Schweppes plc was changed to Cadbury Holdings plc. The scheme was approved by court order on 2 May 2008. The name of Cadbury up to that time was Cadbury Schweppes Pty Ltd but this was changed to Cadbury Pty Ltd. To make matters more complicated, the name of Cadbury Pty Ltd has, since these proceedings were commenced, been changed to Kraft Foods Australia Pty Ltd. The holding company of Cadbury in Australia was and is Cadbury Schweppes Australia Ltd. 8The second stage of the de-merger involved a reduction in capital of Cadbury plc on 7 May 2008. The former shareholders in Cadbury Schweppes plc received common stock in Dr Pepper Snapple Group Inc in the same proportions as they had held shares in Cadbury Schweppes plc and Dr Pepper Snapple Group Inc took over the American beverage business. The decision had been made that the Cadbury group would concentrate on its confectionary businesses. The group structure before and after the scheme and de-merger is shown as follows: 9The second to eighth defendants were all senior executive members under the Mercer plan who left the service of Cadbury after 2 May 2008 and not more than twelve months thereafter. They have all filed submitting appearances. 10By its further amended summons, the plaintiff claims: "1 A declaration that there was no "Change of Control", within the meaning of Clause 3.8.3 of the Annexure to the Participation Agreement made on 30 March 2006 ( the Annexure), in the circumstances where, pursuant to a scheme of arrangement under the Companies Act 1985 (UK), on 2 May 2008: (a) existing Cadbury Schweppes plc ordinary shares were cancelled; (b) a new listed holding company (Cadbury plc) became the holding company of Cadbury Schweppes plc, and the ultimate holding company of the plaintiff; and (c) the former holders of Cadbury Schweppes plc ordinary shares received Cadbury plc ordinary shares in the same proportion, (collectively, the UK Internal Restructure ) 2 Further or in the alternative, a declaration that the word "following" in Clause 3.8.3 of the Annexure means "as a result of". 3 A declaration that none of the individual defendants (ie, the second to eighth Defendants), are entitled to be paid by the first defendant under Clause 3.8.3 of the Annexure, as a result of the UK Internal Restructure." 11On 4 May 2010, Tamberlin AJ made an order that the following questions be determined before other issues in the action: "1 Was the UK Internal Restructure a "Change of Control" within the meaning of Clauses 3.1.2 and 3.8.3 of the Annexure to the Participation Agreement made on 30 March 2006, between the Plaintiff (as participant) and the First Defendant (as trustee of the Mercer Super Trust) ( the Annexure )? 2 Does the word "following" in Clause 3.8.3 of the Annexure mean "as a result of" or otherwise require a causal connection between a senior executive member leaving the service of the employer, and a "Change of Control"? Unless otherwise indicated, terms in this Schedule have the same meaning as in the Amended Summons filed on 1 December 2009." Additional Facts 12It is an agreed fact that the "UK Internal Restructure" referred to in the further amended summons was put in place for the purpose of de-merging or hiving off the American beverage business. 13Counsel for both parties put their cases on the basis that the construction of clause 3.8.3 was to be determined based on the objective intention of the parties to the 1987 Sweetenam deed. In other words, although I raised the matter with them as I had and still have some doubt about it, it was not argued that the relevant date was either 22 July 2002 or the date of the Participation Agreement which is 30 March 2006. I proceed on that basis, but in any event I do not consider the date would make any difference. 14It was accepted that in construing commercial documents, accepting that superannuation deeds are commercial documents, the context in which the document came into being can be taken into account. I will return to that briefly later. The plaintiff contended that a key matter of background was the fact that "acquisitions, disposals and internal reorganisations were a common feature of the business of the Cadbury group (from before 1987), and that was public knowledge by means of documents such as its annual report." The 1987 annual report is the only evidence relied upon. This does refer to business acquisitions and to structural changes. These matters appear to relate to divisions within the group and the merger of the Coca-Cola and Schweppes brands in the United Kingdom. I do not consider that background is of much value in determining the construction question even assuming without deciding that it is of relevance other than to determine whether there is ambiguity. Question One 15The question does not ask what "change of control" means. The definition determines what it means, although it is the words of the definition which are in question here. It is accepted that within the terms of the definition, stage one of the restructure brought about a "change of control" as defined under subclauses (a), (c) and (d) of the definition. There is no question of ambiguity. The question then is whether or not the result of the definition is absurd so as to lead to the conclusion that this could not be what the parties intended: Fitzgerald v Masters (1956) 95 CLR 420 at 426-7, Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25 and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912. 16The contention of Mr P J Brereton SC, senior counsel for the plaintiff, is that the parties, in entering into the change of control amendment document, could not have intended the change of control definition to apply to an internal reconstruction in the Cadbury group which had no real effect on shareholders or operations. The clear intention, he said, to be gleaned from the words, was that the intention was to provide for change of control by external happening, such as a takeover offer by way of formal offer or some scheme of arrangement having the same effect, but in any event involving an outsider to the group. 17Although Lord Hoffman in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at [21] said: "When the language used in an instrument gives rise to difficulties of construction, the process of interpretation does not require one to formulate some alternative form of words which approximates as closely as possible to that of the parties. It is to decide what a reasonable person would have understood the parties to have meant by using the language which they did."; it is still, I think, necessary, if one is to decide that words do not carry their literal meaning, to say at least in general terms what the true intended meaning is. In this case, it is probably sufficient to say that the plaintiff's contention is that the proper construction would be obtained by inserting the words "other than as a result of internal reconstruction or re-organisation" after the words "Change of Control means where" in the definition of "Change of Control". 18I do not consider the fact that the Cadbury group was a dynamic organisation involved in the purchase of similar businesses and internal rearrangements gives any assistance in determining the construction issue here. Nor do I consider the fact that superannuation deeds, by their very nature, are often expressed in somewhat general terms and cannot provide for every eventuality has much bearing on the matter. The rules do provide for a particular eventuality. As is often said, courts must be careful in determining objective intentions contrary to the clear words used. This is not a matter where there can be any doubt about the meaning. The only doubt is whether that meaning is absurd. 19The Court of Appeal has recently dealt with the question of commercial and business-like construction as relevant to ambiguity and absurdity in Jireh International Pty Ltd t/as Gloria Jean's Coffee v Western Exports Services Inc [2011] NSWCA 137. The principal judgment was that of Macfarlan JA, with whom Young JA and Tobias AJA agreed. Paragraphs 54 to 63 of the judgment are as follows: "54 The opening words of the sentence in which his Honour made this finding, and the preceding sentence, indicate that he made it in order to give the provision "a commercial and business-like operation". 55 In my view the primary judge erred in taking this approach. So far as they are able, courts must of course give commercial agreements a commercial and business-like interpretation. However, their ability to do so is constrained by the language used by the parties. If after considering the contract as a whole and the background circumstances known to both parties, a court concludes that the language of a contract is unambiguous, the court must give effect to that language unless to do so would give the contract an absurd operation. In the case of absurdity, a court is able to conclude that the parties must have made a mistake in the language that they used and to correct that mistake. A court is not justified in disregarding unambiguous language simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted. 56 In my view the primary judge departed from these principles. There is no suggestion in his Honour's judgment that he considered that the contract would have an absurd operation if it were given its literal meaning. Rather his Honour appears to have acted on the basis that the provision would make more sense from a commercial point of view if it extended beyond sales by Jireh to sales by JIWD. Both sentences of [299] of the primary judgment indicate that this was his Honour's approach. Each focuses upon what his Honour perceived to have been the reasonable commercial operation of cl 3 without acknowledging that, absent a finding of absurdity of operation, the proper construction of an unambiguous contractual provision accords with its literal meaning. 57 The principles to which I have referred are established or supported by the following authorities. 58 The judgment of Gleeson CJ in McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 at [22] is perhaps the most frequently cited authority for the proposition that commercial contracts should be given a businesslike interpretation. It is notable however that immediately after stating this proposition his Honour noted that the interpretation of a commercial document required "attention to the language used by the parties" and that the language of the provision in question did not "require the [unbusinesslike] interpretation for which the appellants contend" ([22] and [23], emphasis added). In other words the observation as to the need for a businesslike interpretation was made in relation to a provision that was capable of being read in more than one way and was therefore ambiguous. 59 In the case to which Gleeson CJ referred in support of the proposition, namely, Hydarnes Steamship Company v Indemnity Mutual Marine Assurance Company [1895] 1 QB 500, the literal meaning of the provision in question was, in effect, absurd. As Lord Esher MR put it, on the literal meaning of the provision "the result from a business point of view is insensible" (at 505). That circumstance entitled the court to depart from the literal meaning and to construe the provision "in a businesslike way, so as to give it a sensible application" (at 504). 60 Consistent with these cases is the well-known observation of Gibbs J in Australian Broadcasting Commission v Australian Performing Right Association Ltd [1973] HCA 36 ; (1973) 129 CLR 99: 'If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, "even though the construction adopted is not the most obvious or the most grammatically accurate" ... (at 109).' 61 To like effect was the following statement by Kirby P in Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310: 'Whoever may be the parties to the agreement, it is the fundamental rule, that a court should give the words of a written agreement the natural meaning that they bear. Subject to that rule, in giving meaning to the words of an agreement between commercial parties, courts will endeavour to avoid a construction which makes commercial nonsense or is shown to be commercially inconvenient. This is because courts will infer that commercial parties would not themselves normally agree in such a way (at 313-314).' 62 In Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70 ; (2002) 210 CLR 181 at [43], Gleeson CJ, Gummow and Hayne JJ referred with approval to the observation of Lord Diplock in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201 that "if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense". As their Honours pointed out, minds may differ as to what comprises "business commonsense" in particular circumstances. 63 Their Honours then adopted as the appropriate question to be addressed one of whether "something must have gone wrong with the language" (at [43]), this being the expression used by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 913. In effect, this question requires an inquiry as to whether the relevant provision would have an absurd operation if construed in accordance with the literal meaning of the words used." These paragraphs seem to me to set out clearly the principles which apply and are binding on me and happily avoid the requirement to consider two learned articles to which I was referred, namely J J Spigelman, "From text to context: Contemporary contractual interpretation" (2007) 81 Australian Law Journal 322 at 335; and the response of Professor David W. McLauchlan in "Plain Meaning and Commercial Construction: Has Australia Adopted the ICS Principles?" (2009) 25 Journal of Contract Law 7. In fact the paragraphs come close to restating Lord Wensleydale's golden rule in Grey v Pearson (1857) 6 HL Cas 61, but accepting that matrix can be considered in determining whether there is ambiguity. There is clear acceptance of the authority of Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 and I only set out the paragraphs because I was referred to many cases on the law of construction of contracts which cannot all be reconciled. 20The plaintiff argues that the literal meaning of the definition produces an absurd result that could never have been the intention of the parties. There was only one party to the Sweetenam Investment Fund supplemental deed dated 22 June 1987 which introduced the change of control provision and that was Sweetenam Pty Ltd, the trustee of the then fund. If the contention of the plaintiff is correct, then there were two occasions on which opportunity could have been taken to amend the wording to make it clear because on the plaintiff's case that would not have diminished the rights of the participating members. Nevertheless, the plaintiff argues that on the facts as they have turned out here, the second to eighth defendants would obtain an undeserved and unexpected windfall if the words are given their literal meaning. 21It was also argued that paragraph (e) of the definition of "Change of Control" is against the unrestricted construction. I do not think that follows: paragraph (e) is directed to events relevant to Cadbury which is the holding company as defined. It is a clear separate alternative which does not bear on the construction of subclauses (a) to (d) in the definition provision. 22There was put into evidence the 2007 and 2008 annual reports of the Cadbury group. This was not put in as post-contract evidence on the question of construction, but was admitted without objection on the question of absurdity. The only relevant fact established by these documents was that at the end of the 2008 year, conditional agreement had been reached for the sale of the Australian beverage businesses, thereby returning the plaintiff to a purely confectionary business company. This was said to show, without any other evidence, that the literal meaning was not ridiculous as senior employees in the beverage division might be properly concerned about a change in control. 23There was some discussion on the question of construction of contracts where third party rights are involved as with the documents here. Obviously, members joining a fund in 2002 would have no way of ascertaining any matrix of facts or relevant surrounding circumstances existing at the inception of the fund. There is, in such cases, more reason for requiring the words to be obviously absurd on their literal meaning before courts should hold that the ordinary meaning should not apply: see Spooner v British Telecommunications plc [1999] All ER (D) 1090 ; Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council [2010] NSWCA 64 per Campbell JA at [151]; and the two articles mentioned in [19] above. In addition, if counsel are correct and it is the 1987 date which is relevant, it would be difficult to think that Mercer, in entering into a contract in 2006 with the same words, would not have intended them to mean what they said. Had the 2006 date been regarded as the relevant one, which if there had been no agreement I would have thought correct, the matrix of facts could have included the prior deeds, but that would not have established ambiguity. 24As has happened in the present case, change of control can be followed by de-merger or by sale of some parts of a business or by sale of shares in subsidiary companies. Such matters may well bear upon future job security or satisfaction of particular employees. Further, if there was not a change of control through the restructure there can be no future change of control under subclause (a) of the definition at least from a practical point of view as reversal of the restructure, while not impossible, could not be regarded as even remotely likely. 25To some extent absurdity relies on impression. It is for the plaintiff to establish that the plain meaning of the words in question is absurd and could not have been intended. I do not think that has been done. An unexpected result is not an absurd result. I answer the first question yes. Question Two - Does "following" mean "after" or "because of"? 26There is no doubt that there is ambiguity. The plaintiff referred to definitions from the Oxford English Dictionary (2 nd ed, 1989), the Shorter Oxford English Dictionary (6 th ed) and the Macquarie Dictionary, the first two including both temporal and causative meanings. This may establish ambiguity but it does not answer the question. The plaintiff argued for a causative meaning, saying if a temporal meaning were intended, there would be no need for the words "following a Change of Control" in clause 3.8.3. That could be so although it is not perfectly clear as to be unarguable as the omission of the words would make clause 3.8.3 less clear. In addition, counsel for the plaintiff submitted that it could not possibly be thought that it was intended to make a windfall available to senior executive members leaving employment without a reason related to the change of control. That is a circumstance which might support a causative construction, but this is not necessarily obvious as the additional benefit decreases the closer the employee gets to retirement age and the younger the employee is the more reason there might be for staying with the company. 27Counsel for the first defendant argued the temporal words "before" and "not more than 12 months after" point towards a temporal meaning for "following". This is not a very convincing argument but it has some weight. Counsel also points out, perhaps in response to a suggestion from me, that on a temporal construction there could be no dispute as to entitlement, whereas on a causative construction there could be room for dispute as to whether the leaving from service was caused by or resulted from the change of control. This could be difficult to determine as subjective considerations would be concerned. 28As a matter of impression, I consider "after" a more usual meaning of "following" than causative words such as "because of" or "as a result of". But more importantly, although not referred to by counsel, other provisions appearing in the relevant Annexure are significant. In Part 2 of the Annexure which deals with contributions and benefits for "Accumulation Members", clause 2.4.1 refers to benefits payable to an Accumulation Member "on ceasing Employment (other than due to the the Member's death or Total and Permanent Disablement on or before attaining age 65)" [emphasis added]; and clause 2.4.2 deals with Category A Accumulation Members who cease employment " due to the Member's death or Total and Permanent Disablement on or before attaining age 65" [emphasis added]. Perhaps more significantly, in Part 3 of the Annexure which deals with contributions and benefits for "Defined Benefit Members", clause 3.7.2 deals with benefits payable upon "the retirement of a Defined Benefit Member from the service of the Employer before the Normal Retirement Date as a result of the Total and Permanent Disablement of the Member" [emphasis added]. The words in clause 3.7.2 are the same words, with the exception of the words "Total and Permanent", as those that appear in clause 7 of the rules in the original Sweetenam Fund. As clear causative words have been used in closely related provisions, I think this points to "following" in clause 3.8.3 having a temporal meaning. As there is ambiguity, evidence of surrounding circumstances is admissible to aid construction, but as I have said that evidence is of little assistance. After consideration I conclude that the proper construction of "following" is "after" and I so find. 29I answer question two - No. 30I direct the answers be recorded. 31In view of these answers, the third question raised by the summons does not arise. In those circumstances the summons should be dismissed. Orders 32The further amended summons be dismissed. 33The plaintiff to pay the defendants' costs, those of the second to eighth defendants as submitting defendants.

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