The letter concluded that, 'based on a consideration of the above factors' E&Y continued to believe that its opinion that the Restructure Proposal was fair and reasonable and in the best interest of existing members and MCU holders was not altered by the Parmalat Proposal, and consent was given for the inclusion in the 6 September Materials of the paragraph set out above.
73 The plaintiffs say that the 6 September Materials were misleading with respect to E&Y's opinion in two ways: namely, they did not disclose important qualifications to that opinion which were set out in E&Y's letter of 6 September 1999; and they implied that E&Y had assisted the board by providing specialist financial advice and therefore was a supporter of the board's views. I agree with both points.
74 As to the first point, it is true that E&Y's original report had already drawn the members' attention to the significance of preservation of farmer control as an objective of restructuring. However, E&Y's opinion of 6 September was a different opinion directed towards the effect of a specific proposal which would remove farmer control. In the new context, E&Y's expression of 'understanding' of the importance of dairy farmer control to the members had a new significance. If the object of preserving dairy farmer control is taken to be a given, then the Parmalat Proposal is necessarily excluded from further consideration. To the extent that E&Y's opinion of 6 September 1999 was based on assumptions that the preservation of dairy farmer control was of paramount importance and that the members would not consider a proposal which would take it away, their opinion would be axiomatic and unhelpful. Full disclosure of what E&Y said in their letter of 6 September 1999 on the subject of dairy farmer control would have enabled the members to make an assessment of the extent to which this issue determined E&Y's conclusion, but no such disclosure was made.
75 Additionally, while disclosing that E&Y had not performed an evaluation of the Parmalat Proposal but had reviewed its original report in light of the Parmalat Proposal, the 6 September Materials said nothing to assist the reader to understand the difference between the review which had been performed and the evaluation which had not been performed. In my opinion the difference is by no means self-evident. An understanding of it would have required at least the disclosure (as stated in E&Y's letter of 6 September) that an evaluation would involve an assessment in detail of the Parmalat Proposal, and in the absence of such an assessment, E&Y were not in a position to compare the advantages and disadvantages of the two proposals.
76 Disclosure of these matters was, in my opinion, fundamental to an assessment of the significance (or more precisely, the relative insignificance) of E&Y's statement that the Parmalat Proposal did not alter their earlier conclusion. The inclusion in the 6 September Materials of the paragraph containing E&Y's opinion, without disclosure of these matters, was therefore misleading or deceptive. This defect in the 6 September Materials was a serious one, given the importance which the members and MCU holders of Dairy Farmers would be likely to attach to the opinion of an independent expert as to whether the Parmalat Proposal should affect their decision on the Restructure Proposal.
77 It is helpful to examine what might have been done, in order to identify the deficiencies of what was in fact done. I am inclined to doubt whether a verbatim disclosure of the qualifications contained in E&Y's letter of 6 September 1999 would have ensured that the 6 September Materials were not misleading. The letter is not clearly expressed. It does not explain with any clarity the relationship between E&Y's opinion and its 'understanding' of the importance to dairy farmers of the preservation of farmer control, and does not clearly explain what E&Y did to 'review' its earlier opinion in light of the Parmalat Proposal. To prevent disclosure of E&Y's new opinion from being misleading, it may have been necessary for Dairy Farmers to have given a substantial explanation of E&Y's reasoning and assumptions, going beyond the text of the letter, so that farmers could assess the degree of significance of the opinion.
78 This leads to another question: since a proper explanation of E&Y's opinion would have provided a basis for concluding that the opinion was of very little value, would it have been better to exclude E&Y's opinion entirely?
79 It is possible that the directors of a corporation may be in possession of relevant information, even information which is arguably material to the members' decision on a proposal which the directors have put forward, and yet be entitled not to disclose that information. As the Full Federal Court remarked in Fraser v NRMA Holdings Ltd (1995) 55 FCR 452, 468, 'the need to make full and fair disclosure must be tempered by the need to present a document that is intelligible to reasonable members of the class to whom it is directed, and is likely to assist rather than confuse', and therefore 'in complex cases it may be necessary to be selective in the information provided, confining it to that which is realistically useful.' There is room for doubting whether E&Y's opinion of 6 September 1999 was realistically useful in this sense, and further, given the limitations inherent in their opinion, there may well be grounds for concluding that it would be impossible to present the opinion to members in a fashion which would not be objectively misleading.
80 Was it necessary for the directors of Dairy Farmers to provide members with a useful opinion by the independent expert on whether the Parmalat Proposal affected the members' consideration of the Restructure Proposal? The answer to that question depends partly upon whether the directors were right in believing that the Parmalat Proposal could happen with or without the Restructure Proposal, and that the Restructure Proposal would not interfere with the Parmalat Proposal being considered at a later date. If that were in fact true, I cannot see why there would be any need to ask the independent expert to consider whether the Parmalat Proposal altered its opinion that the Restructure Proposal was fair and reasonable and in the best interest of members. But if the directors' view was wrong or doubtful, then the position would be substantially different. If one assumes, for example, that the implementation of even the first stage of the Restructure Proposal would cause the Parmalat Proposal to be withdrawn, or would make it impossible or harder for the Parmalat Proposal to be achieved, then the making of the Parmalat Proposal would be material to the members' consideration of the Restructure Proposal. The members would need to consider whether it was in their best interest to proceed with the Restructure Proposal knowing of its impact on the Parmalat Proposal, or reject the Restructure Proposal so that the Parmalat Proposal and any other alternatives could be brought forward. For the reasons given under the next heading in this judgment, my view is that the directors' claim, that the implementation of the Restructure Proposal did not interfere with consideration of the Parmalat Proposal, was wrong. It follows, in my view, that in the circumstances the directors were obliged to provide the members with a supplementary opinion from the independent expert.
81 This conclusion is reinforced by the contents of the Restructure Booklet. Volume 1 p 53 ff and the Independent Expert's Report make it clear that in the view of the directors of Dairy Farmers and E&Y, it is relevant for members to consider alternatives when assessing the Restructure Proposal, and appropriate for the independent expert to consider alternatives before forming a view as to whether the directors' proposal is in the best interest of members. The alternatives which were in fact considered by E&Y and the directors were described by E&Y (volume 2 section A65) as 'a reasonable list of realistic alternatives'. When, therefore, another alternative comes forward, which is indubitably realistic because it is 'on the table', it must be appropriate for the independent expert to consider the new alternative, at least to the same degree as the hypothetical alternatives were considered. The discussion of alternatives in the Restructure Booklet and the Independent Expert's Report therefore provides a context which, in my opinion, implies that when another alternative arises which was not previously being considered by the directors and the expert, the directors' obligation is not only to form and report to members their own view on the new alternative, but to procure a useful opinion of the expert as to whether the directors' proposal remains in the best interest of members.
82 In the present case, it was unnecessary for E&Y to make a valuation of Pauls. I need not accept any specific evidence (some of which was contradictory) in order to conclude that such a valuation would be costly and time-consuming, and would therefore entail a significant delay in consideration of the original proposal - and this at a time when the restructure must inevitably have caused management instability for Dairy Farmers. Moreover, the evidence indicates that neither Dairy Farmers nor E&Y had the time or opportunity to engage in a 'due diligence' investigation of Pauls of the kind which a reliable valuation would enquire. However, it would have been useful to members, and in my view sufficient for the discharge of the directors' duty of disclosure, for E&Y to have offered specific comments from an expert point of view on Parmalat's valuation of Pauls, and the directors' criticisms of it, without any necessity for them to conduct a full valuation. Further, as a result of the investigation which it had already conducted, E&Y was in a position to express a detailed opinion on Parmalat's valuation of Dairy Farmers. It is hard to see that a full valuation of Dairy Farmers would be needed for that purpose, assuming that E&Y had properly performed its mandate when it had prepared the original report.
83 The second criticism of the presentation of E&Y's opinion in the 6 September Materials is that the paragraph authorised by E&Y appears soon after the expression of the board's opinion and the assertion that the board was assisted by specialist financial advice. Consequently, it is said, the Response implies that E&Y assisted the board to form its views and supports them. If that implication is present, the Response is undoubtedly misleading, since the evidence demonstrates that although the board received specialist financial advice, principally from Merrill Lynch, E&Y did not provide such advice and did not form an opinion to support the board's conclusions.
84 The defendants say that the Restructure Booklet clearly distinguishes between the financial adviser to Dairy Farmers, named on page 1 of Volume 1 as Merrill Lynch International (Australia) Ltd, and the independent expert, named on the same page as E&Y. They say that a member of Dairy Farmers, having read the Restructure Booklet, would understand that the reference to 'specialist financial advice' in the Response would be a reference to Merrill Lynch rather than E&Y.
85 In assessing this issue I must take into account that dairy farmers were the principal class of readers to whom the 6 September Materials were directed. They would be unlikely to be familiar with the roles characteristically adopted by the advisers who congregate around a transaction of this kind. In objective terms, E&Y would accurately be described as a specialist financial adviser, therefore qualified to be the independent expert for the Restructure Proposal. In my view the principal audience of the Response would be likely to infer that E&Y had assisted the board and supported the board's strongly expressed opinions. Therefore, the Response was likely to mislead, and those who distributed it engaged in conduct which was likely to mislead.
86 Before leaving this point, I should note another aspect of it, which emerged from the evidence of Mr Jephcott of Merrill Lynch and was taken up in the plaintiffs' closing submissions. Mr Jephcott was very actively involved in providing specialist financial advice to the board during and in preparation for its meeting of 3 September 1999, and in the subsequent drafting of the 6 September Materials. He said his advice to the board was that the Parmalat Proposal could not be assessed because of the absence of financial information about Pauls and the lack of any opportunity to conduct due diligence investigations. I accept that he gave this advice to the board. However, for all their attacks on the Parmalat Proposal, the 6 September Materials do not assert that the Proposal cannot be assessed due to lack of information. Instead, the reader is told that the valuation approach is defective and the Parmalat Proposal is highly conditional. It may be that a critique of the Parmalat Proposal based on the proposition that there was inadequate information about it, would not be appealing to the authors of the 6 September Materials. Parmalat might respond by offering access to the information reasonably needed for that purpose, and this would make it difficult to maintain the negative and combative approach which had clearly been adopted in the drafting of the 6 September Materials. But having been advised by Mr Jephcott that there was inadequate information to assess the Parmalat Proposal, it was incumbent on the board either to convey that advice to the members or to reject it on proper grounds. There is no evidence that Mr Jephcott's advice was rejected - indeed Mr Langdon's evidence is that he accepted it. Far from asserting that there was insufficient information to assess the Parmalat Proposal, the 6 September Materials implied that the directors had made a negative assessment of it. By authorising the sending out of the 6 September Materials, Dairy Farmers and its directors engaged in misleading or deceptive conduct in this respect.