Cargill Australia Ltd v Viterra Malt Pty Ltd

1 Pursuant to leave of the court granted on 1 December 2017, the defendants ("the Viterra Parties") amended an existing summons, filed 26 September 2017, to seek particular discovery of categories of documents.

2 The categories of documents were identified by reference to affidavits sworn by Jessica Lee Bounds ("Bounds") on 26 September 2017 ("the First Affidavit") and 11 October 2017 ("the Second Affidavit"). With respect to the First Affidavit, documents were sought by reference to paragraphs 55 to 56, 57, 58, 64, 65, 66, 67 to 68 and 70 to 71. With respect to the Second Affidavit, documents were sought by paragraphs 17, 20, 25, 29, 35, 39, 43, 47, 55, 61, 66 to 68, 74 and 77.

3 At the time leave was sought, the court queried whether each of these categories of documents was critical.[1] On the assurance that each of them was, leave was duly granted.[2] However, on the hearing of the application, the Viterra Parties only sought access to documents referred to in paragraphs 55 to 56, 58 and 67 to 68 of the First Affidavit, and paragraphs 17, 20, 25, 29, 55, 66 to 68 and 74 of the Second Affidavit. The change of position of the Viterra Parties was explained on the basis that, taking into account the substantial affidavit in opposition that was filed by the plaintiff, the first third party ("Cargill, Inc") and the second third party (together "the Cargill Parties") on 8 December 2017 ("the Opposing Affidavit"), the Viterra Parties no longer had a sufficient basis to press for the documents referred to in the other paragraphs.

4 The application is made pursuant to r 29.08(2) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), which provides:

Where, at any stage of a proceeding, it appears to the Court from evidence or from the nature or circumstances of the case or from any document filed in the proceeding that there are grounds for a belief that some document or class of document relating to any question in the proceeding may be or may have been in the possession of a party, the Court may order that party to make and serve on any other party an affidavit stating -

(a) whether that document or any, and if so what, document or documents of that class is or has been in that party's possession; and

(b) if it has been but is no longer in the party's possession, when the party parted with it and that party's belief as to what has become of it.

(Emphasis added.)

5 Any orders made under r 29.08 are discretionary and not to be made lightly.[3] If an affidavit of documents has been filed, there is a presumption that the obligations with respect to discovery have been complied with.[4] Such a presumption might be less acute in circumstances where multiple affidavits of documents have been filed, and the supplemented affidavits record that discovery obligations have been met. In this case, the Cargill Parties have filed multiple affidavits of documents.[5] However, in fairness, this is in part explained by the volume of discovery in this proceeding, the complexity of the issues and also various orders made by the court.

6 It is unnecessary to go into any detail concerning the issues in this case. This has been done elsewhere.[6] Suffice to say, speaking broadly, the case involves allegations of fraudulent concealment of systemic misleading conduct on the part of the Viterra Parties with respect to the business sold to the Cargill Parties. In response, the Viterra Parties dispute the allegations, but say further that the Cargill Parties were fully aware of the manner in which the business was conducted before the decision was made to proceed with the acquisition. In this regard, the Viterra Parties seek to rely, amongst other things, on due diligence conducted by the Cargill Parties before settlement of the purchase.

7 Evidence was given by Bounds of discovery with respect to 2 former employees of Cargill, Inc.

8 The first, Emery Koenig ("Koenig"), retired in February 2016. At the time of his retirement, Koenig was vice chairman and chief risk officer of Cargill, Inc.

9 The First Affidavit recorded details of discovered emails to which Koenig was a party; namely, that there was discovery of only 9 emails to Koenig, 2 emails in which Koenig was copied in, and no discovery of any emails from Koenig. It was suggested there ought to have been more emails given Koenig's position.

10 In the Opposing Affidavit, the Cargill Parties' solicitor, Janet Whiting ("Whiting"), stated that Koenig's role with respect to the acquisition the subject of the dispute was limited and that he was not involved in the day-to-day acquisition process. The affidavit continued:

There has been extensive discovery in this proceeding of documents of Koenig's colleagues who were involved in Project Hawk. Documents in which Koenig was involved have therefore been discovered as a result of those documents also being located among the documents of his colleagues. Given his limited involvement in the day-to-day acquisition process, there are not many such documents.

(Emphasis added.)

11 In my view, the passage referred to above suggests that there had not been inquiries directed to Koenig's relevant documents in the possession of the Cargill Parties,[7] but rather there has been only incidental discovery of emails concerning him as a result of inquiries being directed to other employees' documents. Upon indicating this during the course of submissions, the Cargill Parties' counsel suggested that this was not correct. Accordingly, it was agreed that the matter could be resolved by a further affidavit, sworn by Whiting, clarifying the position. There is therefore presently no ruling needed with respect to this category of documents.

12 Paragraphs 55 and 56 also concerned emails with respect to another former employee of Cargill, Inc, namely Matthew Evers ("Evers"). Evers was a "reliability excellence leader" from October 2011 in the company's malt division. He ceased being employed by Cargill, Inc in September 2014.

13 Similar to the position adopted to Koenig, the First Affidavit identified the limited number of emails that have been discovered referring to Evers either as sender or recipient. A belief was expressed that there ought to be further emails.

14 The Opposing Affidavit said that Evers had nothing to do with the acquisition the subject of the dispute. It noted that the Viterra Parties had not sought discovery from Evers until March 2017. Reliance was also placed upon Evers' witness statement, which has now been filed, which indicates he had no substantial involvement in the acquisition.

15 In light of the evidence led in opposition, in my view there is no proper basis for forming a belief that some document or class of document in the form of an email sent to or from Evers relevant to the dispute may have been in the possession of the Cargill Parties and has not yet been discovered. The court was not taken to any documents already the subject of discovery to suggest that there was evidence of the existence of other documents of the type sought.

16 The First Affidavit referred to a spreadsheet attached to an email sent to Goldman Sachs, entitled "DD_Workstreams_Questions_Issues_Progress_072713_updated _xlsx". Goldman Sachs were the Cargill Parties' investment banking advisers at the relevant time. The spreadsheet contained a series of questions with respect to the business that was then being acquired. The First Affidavit continued by noting that the Cargill Parties had not produced any document that showed:

(i) [W]hy the following questions contained in the Worksheet were never submitted to the [Viterra Parties] in the due diligence process;

1. "What is the history of off-spec malt and the cost of selling to alternative markets"; and

B. "Why 5 day malting - at least at Perth?"; or

(i)(sic) [A]ny discussion of the following questions contained the Worksheet which were submitted to the [Viterra Parties] in the due diligence process:

17 The Cargill Parties contended that there was no foundation to support any allegation that documents of the sort ever existed. I agree. There is nothing in the material or the circumstances of the case to suggest that any documents of the type referred to were created. The mere fact that an external adviser identified certain potentially relevant questions does not, without more, give rise to a belief that documents of the type sought would be in the Cargill Parties' possession.

18 Documents were sought with respect to Evers' modelling and analysis in relation to out of specification shipments. These were sought on the basis of a letter sent by the Cargill Parties' solicitors on 4 May 2017, observing that Evers prepared such modelling and analysis. The First Affidavit noted that only 5 documents had been discovered in connection with this.

19 The Opposing Affidavit confirmed that there are only 5 such documents. Reference was made to the document retention policy (as described in the Opposing Affidavit) as to why Evers' emails and files were not retained upon him leaving Cargill, Inc. Whiting also referred to the limited role of Evers as set out above.[8] Finally, the documents that were discovered in this category were discovered pursuant to specific orders of the court made on 6 June 2017, about which there has been no complaint concerning compliance. By reason of any or all of the matters raised in the Opposing Affidavit, in my view there are no grounds for belief concerning the class of documents sought that would justify a further discovery order.

20 Reference was made to weekly telephone calls that were conducted on 29 May 2013, 5 June 2013, 12 June 2013, 19 June 2013, 25 June 2013, 3 July 2013, 10 July 2013, 17 July 2013 and 24 July 2013 between representatives of Goldman Sachs and representatives of the Cargill Parties. The affidavit referred to 2 previous weekly calls, held on 16 May 2013 and 22 May 2013, and the fact that summaries were circulated with respect to those calls. The summaries of these earlier meetings have been discovered.

21 The Second Affidavit suggested that, "[d]espite it appearing to be Goldman Sachs' practice to circulate a summary" of these weekly calls, no such summaries have been discovered for the later meetings. In my view, the belief expressed that there ought to be summaries for these later meetings on this limited premise is not soundly based. The mere fact that there have been summaries discovered for some of the meetings and not others suggests that, to the extent that there were summaries, they have been discovered. Accordingly, no orders should be made with respect to this category.

22 The next category concerned telephone calls conducted on 3 July 2013, 9 July 2013 and 16 July 2013. The fact that these calls occurred is apparent from documents discovered by the Cargill Parties.

23 The Second Affidavit said that it appeared that "at least someone was taking a record of these calls", but that there was no discovery of any handwritten notes. However, there is nothing to suggest that handwritten notes were in fact taken of these calls. The documents discovered show that an electronic record was taken of the calls, but nothing more. In the circumstances there is no proper basis for forming the belief relevant to r 29.08(2).

24 In this proceeding, there has been substantial discovery by the Cargill Parties of due diligence reports, and related documents. During the course of argument, the Cargill Parties provided the court with a spreadsheet, which indicated that at least 44 such documents had been discovered to date. The evidence discloses there were a number of due diligence teams involved for the purpose of considering whether or not to proceed with the acquisition.

25 The Second Affidavit set out details of the due diligence process from 10 July 2013, which included a requirement for due diligence reports to be completed, at least in draft. The Second Affidavit noted that a search of the Cargill Parties' discovery had showed only 1 "stand alone" document as being discovered, entitled "Preliminary Due Diligence Summary", which was prepared by Goldman Sachs and was marked "Draft for Discussion". Reference was also made to the fact that there were only 4 emails that had been discovered attaching a summary due diligence report. It was noted that all these emails were the subject of a claim for legal professional privilege.

26 Bounds expressed the view in the Second Affidavit that there were likely to be multiple drafts of preliminary due diligence reports, together with documents "evidencing or relating to discussions about them".

27 In response, the Opposing Affidavit referred to the evidence in the Second Affidavit and noted that the requirement for due diligence reports had previously been the subject of an order of the court on 31 March 2017. Having reviewed that order, it did not directly address all documents that would fall within the category now sought.[9] Further, the Opposing Affidavit recorded that the Cargill Parties' "team" was instructed to search for "final due diligence reports". The Opposing Affidavit further recorded that, other than the information that had been previously provided to the Viterra Parties relating to documents over which there is a claim for privilege, there were no "final" due diligence reports in the Cargill Parties' possession. In this regard, the Opposing Affidavit stated:

I am aware from documents that I have seen that final due diligence reports for the (sic) some of the workstreams were not prepared prior to signing. Those that were prepared have been discovered.

(Emphasis added.)

28 In my view, the Opposing Affidavit is not directly responsive to the documents sought pursuant to the Second Affidavit. The Opposing Affidavit, relevantly, only referred to searches for, and the position relating to, final due diligence reports. It did not address the issue of drafts.

29 Further, given the nature of the due diligence process, as outlined in the Second Affidavit, in my view it appears to be likely that there would be drafts of the reports that were ultimately reported as final, together with drafts that were never finalised.

30 Furthermore, the court was informed by senior counsel for the Viterra Parties, without any opposing submission, that the 3 final reports that had been discovered (for which a claim for privilege has been made) were discovered as stand alone documents, without discovery of any drafts. In my view, it is likely that drafts of such documents would exist in light of the evidence before the court and the nature of the exercise involved. Accordingly, an order for particular discovery will be made in this regard.

31 As is apparent, the reasons above for a proposed order for particular discovery do not include any reference to materials recently obtained by the Viterra Parties pursuant to a subpoena directed towards Goldman Sachs. On 24 November 2017, the Viterra Parties issued a subpoena requiring production from Goldman Sachs of various documents, including all due diligence reports prepared for Project Hawk, whether draft or final. Particular reliance was placed by the Viterra Parties upon the list of documents produced pursuant to that subpoena, suggesting that documents so listed had not been the subject of discovery by the Cargill Parties.

32 At the time of the hearing of the application, no party had inspected the documents produced by Goldman Sachs.[10] In response to the Viterra Parties' submissions, the Cargill Parties stated that they had not had the time, nor the ability because of date and time differences between Australia and the United States, to verify whether the submissions made by the Viterra Parties were in fact correct.

33 In these circumstances, I have not relied upon this evidence for the purposes of determining whether or not an order for particular discovery ought to be made in relation to the draft due diligence reports. Suffice to say, had I done so, it appears it would have supported the conclusion I have otherwise already reached.[11]

34 As to the second component of the application under paragraph 25,[12] the evidence does not suggest that documents evidencing or relating to discussions about draft due diligence reports exist and have not been discovered. Accordingly, the requisite belief cannot be established.

35 The next category of documents concerned the non-discovery of final due diligence reports with respect to certain workstreams. Initially, 5 workstreams were the subject of the application. During oral submissions, senior counsel for the Viterra Parties appeared to suggest there may have been discovery with respect to 2 of the workstreams, but not the remaining 3, namely tax structuring, valuation and synergies, and legal and regulatory. However, following the delivery of this ruling orally, senior counsel for the Viterra Parties indicated that the position as understood by the court (and the Cargill Parties) was not that that had been intended to be conveyed. Rather, the court was informed the Viterra Parties intended to submit that the final due diligence reports of the first 2 workstreams, being the commercial and operations workstreams, had not been discovered, and remained the chief focus of this part of the Viterra Parties' application.

36 With respect to these 5 workstreams, it is unclear whether or not final due diligence reports were ever produced at the time of the due diligence. However, whether they be final, or drafts, in my view such due diligence documentation was likely to be relevant given the titles of those workstreams. In the circumstances, the proposed order referred to above with respect to paragraph 25 will also encapsulate any draft or final due diligence reports with respect to these 5 workstreams identified above.

37 The next category of documents concerned the due diligence question and answer process set out by the Cargill Parties. On 18 June 2013, an email was circulated by Khai Le Binh which stated:

We would like each lead to 1) Populate their question tab every day by not later than 5 PM and send the file to Ryan, Pat and me - we will then share the key questions with Anup so that he can contact BAML to have them answered.

(Original emphasis.)

38 The Second Affidavit recorded that the Cargill Parties have not produced documents which reflect spreadsheets being populated "every day".

39 The Opposing Affidavit took issue with the time range for the documents sought, namely from 18 June 2013 to 29 July 2013. By reason of an email sent on 22 July 2013 from Anup noting that there was no ability to submit questions going forward, it was said that it was likely that no population of spreadsheets would have occurred after that time. This was accepted by senior counsel for the Viterra Parties.

40 Further, the Opposing Affidavit sought to engage in speculation as to why the relevant spreadsheets would not be populated every day. There was no suggestion that any of the information contained in the response was based on information from any of the relevant witnesses. Furthermore, the Opposing Affidavit referred to examples of documents responsive to the application, but these consisted of only 3 documents, 2 dated 20 June 2013 and 1 dated 24 June 2013. However, there was no statement, or list of documents provided, that exhaustively indicated what the actual position was in relation to the then proposed daily inputs.

41 Given the state of the evidence, there is a basis for a belief that documents of the categories sought may exist and have not been discovered. Orders will be made as sought, but confined to the period from 18 June 2013 to 22 July 2013.

42 These categories concerned the alleged lack of emails involving a Mr Hermus ("Hermus"), who, according to a spreadsheet prepared on 8 July 2013, was the author of the questions referred to in a spreadsheet entitled "Copy of Commercial workstream update 8 July. xlsx". A belief was expressed that Hermus would have sent emails prior to 31 October 2013, being the date of the single relevant email discovered related to this issue. Also it was contended by the Viterra Parties that "Hermus would have been sent numerous emails about the Cargill Parties' Certificate of Analysis Policy and their blending procedures/policies".

43 The Opposing Affidavit noted that Hermus was not a member of the "core deal team". Further, it recorded that there was no evidence indicating that it was likely that Hermus would have sent any such emails. In an affidavit in response sworn 15 December 2017, no further evidence was provided by Bounds. She simply repeated her belief that the Cargill Parties had not given discovery of "Hermus' documents".

44 In the circumstances, there is nothing of substance to found a belief of the requisite kind referred to in r 29.08(2).

45 There is a further and alternate basis upon which the orders proposed above may be made. The knowledge of the Cargill Parties, and the nature of the enquiries they made leading up the acquisition of the business, are central to the issues in dispute in this proceeding. Even if the requisite belief could not objectively be formed where I have found otherwise, I would have made the orders under the Civil Procedure Act 2010 (Vic). It is consistent with the just, efficient, timely and cost-effective resolution[13] of the issues concerning due diligence, and the broader related issues referred to above, that the issue of whether the Cargill Parties have discovered the relevant documents is put to rest. By the Cargill Parties complying with the orders to be made, this result ought to follow.

[1] See Civil Procedure Act 2010 (Vic), s 26.

[2] The application for leave was formally opposed by the Cargill Parties in a short email sent to the court, by which they also indicated they did not seek to appear at the hearing of the Viterra Parties' application for leave.

[3] Olympic Airways SA v Alysandratos (unreported, Supreme Court of Victoria, Harper J, 26 May 1997), 8-9.

[4] Ibid. See also Auspine Ltd v H S Lawrence & Sons Pty Ltd [1999] FCA 1749, [108] (O'Loughlin J); Mulley v Manifold [1959] HCA 23; (1959) 103 CLR 341, 343.4-343.6 (Menzies J).

[5] A total of 13 affidavits of documents have been filed by the Cargill Parties, on 11 September 2015, 9 October 2015, 6 November 2015, 27 November 2015, 22 December 2015, 29 January 2016 (3 affidavits), 26 February 2016 (3 affidavits), 7 February 2017 and 1 September 2017.

[6] Cargill Australia Ltd v Viterra Malt Pty Ltd [2017] VSC 126, [2]-[28] (Daly AsJ); Cargill Australia Ltd v Viterra Malt Pty Ltd (No 2) [2017] VSC 283, [6]-[9].

[7] Inquiries were made to Koenig directly, and he informed the Cargill Parties he had no documents at all relating to the dispute.

[9] Orders made on that occasion required the Cargill Parties to confirm that, having discovered 1 due diligence report, "discovery of reports or other work product of this nature is now complete".

[10] The Cargill Parties were commencing inspection for the purpose of determining whether or not claims for privilege would be made.

[11] Immediately before this ruling was delivered, counsel for the Cargill Parties sought to file a further affidavit attesting to the results of inspection of the Goldman Sachs documents in seeking to challenge the Viterra Parties' submissions about the existence of documents that had not been discovered. For the reasons outlined above, it was not necessary for the court to receive that further evidence.

[12] See par 26 above.

[13] See s 7.