Mackay Sugar Limited v Wilmar Sugar Australia Limited

Raw Sugar Supply Agreements 22 Mill owners acquire the raw sugar from growers. The Judge found that the supply agreements between the mill owner and grower typically provide that, in exchange for milling, the mill owner will keep approximately one-third of the net sale proceeds with the balance going to the grower, at [19]. 23 The mill owners supply the raw sugar to QSL under Raw Sugar Supply Agreements (RSSAs). The Judge found that QSL handles currently approximately 3.5 million tonnes of raw sugar annually, derived as follows: (a) approximately 2 million tonnes from Wilmar; (b) approximately 850,000 tonnes supplied by MSF and Tully; and (c) approximately 650,000 tonnes supplied by the appellants. This is approximately 85% of Australia's total raw sugar exports and generates approximately $1.7 billion in revenue, at [14]. 24 QSL markets the majority of the raw sugar it obtains from the mill owners to export markets. The Judge found that this occurs under a pooling arrangement in which sales revenues and the associated costs and risks are allocated on a shared basis between the mill owners. 25 There are some qualifications to those arrangements. A mill owner may elect to market "Supplier Economic Interest Sugar" (SEIS) itself. The amount of SEIS is calculated in accordance with a formula contained in the RSSAs. When a mill owner nominates an amount of SEIS, QSL supplies the nominated amount back to the mill owner. The mill owner may then sell the raw sugar for itself and the net proceeds of the sugar sold will be paid to it. 26 Wilmar has a current RSSA with QSL (although, as the Judge noted at [20], there is some uncertainty as to the date upon which the parties entered into that RSSA). The Judge accepted evidence indicating that the sugar which Wilmar supplies to QSL under its current RSSA is approximately 54% to 60% of the overall raw sugar received by QSL for export each year. Wilmar has nominated approximately 700,000-800,000 tonnes of raw sugar as SEIS. This is marketed and sold internationally by another subsidiary (Wilmar Sugar Pte Limited) (WSPL) of Wilmar's parent company. Each of MSF, Tully, Isis and Mackay have also nominated an amount of SEIS under their respective RSSAs with QSL and, as the Judge found at [21], are to this extent and like Wilmar, competing with QSL in relation to the marketing and export sale of raw sugar. The Judge found that approximately one-third of the quantity of raw sugar supplied to QSL by each of Wilmar, MSF, Tully, Isis and Mackay is currently SEIS. 27 Wilmar's RSSA with QSL is expressed to apply for the 2012, 2013 and 2014 seasons but operates on a rolling term of three years. That is, the term of the agreement is extended automatically for a further 12 months on 30 June each year, unless either party gives written notice that it does not wish a further 12 month extension period to apply. Wilmar gave such a notice to QSL on 21 May 2014, with the effect that its RSSA with QSL will terminate following the 2016 season on 30 June 2017. 28 Two other mill owners, MSF and Tully have also served notices of termination on QSL so that their RSSAs will also terminate on 30 June 2017. The appellants, Mackay, Isis and Bundaberg, have not issued notices of termination under their respective RSSAs.

Changes in the marketing of sugar 29 The Judge found that, without the operation of an Act of the Queensland Parliament passed in late 2015, the effect of the notices of termination of Wilmar, MSF and Tully would have been that, from 1 July 2017, they would have been able to market and sell all of their raw sugar independently of QSL, whereas the remaining mill owners (to whom the Judge referred as "the BIM Mills") would have continued to supply 100% of their raw sugar to QSL in accordance with the existing arrangements, at [26]. 30 On 17 December 2015, the Queensland Parliament enacted the Sugar Industry (Real Choice in Marketing) Amendment Act 2015 (referred to commonly as the "Growers Choice Legislation"). This legislation has the effect, for present purposes, that a supply contract between a grower and a mill owner must (subject to some qualifications which are presently immaterial) contain a term providing for a proportion (if any) of the on-supply of sugar for which the grower will bear the sale price exposure, called "Grower Economic Interest Sugar" (GEIS) and the proportion of the on-supply of sugar for which the mill owner must bear the sale price exposure. The grower can also nominate a trader to whom the mill owner must deliver the nominated quantity for sale. This trader could be QSL or any other trader or mill owner (or for that matter, one of the large international trading houses). 31 The effect, as the Judge found, at [28], is that from 1 July 2017, Wilmar, MSF and Tully will be able to market and sell all of their raw sugar to export customers, unless their growers have nominated GEIS to be placed with another trader. Likewise, the BIM Mills will continue to supply 100% of their raw sugar to QSL, subject to their growers nominating GEIS to be placed with another trader and subject also to their ability to nominate an amount of SEIS which they can market and sell independently of, and in competition with, QSL. 32 The Judge accepted, at [126], that the notices of termination of their respective RSSAs given by Wilmar, MSF and Tully have changed the competitive environment in which raw sugar produced by Queensland mills is to be marketed and sold in the export market. He also accepted the evidence of QSL's CEO that its Board of Directors is now considering strategies and taking steps: (a) to be in a position to directly compete with [Wilmar], MSF and Tully in respect of the 2017 season and beyond; (b) to sell its sugar supply produced in the 2017 season and beyond; and (c) to be in a position to compete with [Wilmar], MSF and Tully for GEIS from now on in respect of the 2017 season and beyond. 33 In particular, the Judge accepted the CEO's evidence that QSL is now: (a) devising plans to commence marketing its services to growers in a bid to have growers nominate it as their marketing entity in respect of the 2017 season as opposed to another entity such as [Wilmar], MSF or Tully; (b) considering which customers it will target in respect of the 2017 season and beyond, the tonnages it will supply and the pricing levels it will target; (c) making decisions about locking in prices in respect of the next five years through futures market hedging or OTC off-market transactions; (d) considering whether it may not be able to supply the market or a specific customer's requirements for a type of sugar in a particular period; and (e) considering what its freight costs are likely to be for future years and potentially locking in freight arrangements, including optional freight arrangements with ship owners. 34 The CEO gave evidence at the trial that QSL is concerned that, should Wilmar, MSF or Tully be privy to its strategies and plans, they might gain a competitive advantage on QSL, and QSL thereby suffer a corresponding detriment.

Directorships of QSL 35 QSL's Constitution provides for directors in three broad classes: Independent Directors, Grower Directors and Mill Owner Directors. The CEO of QSL is also a Director and its Managing Director. Until the amendments to QSL's Constitution which have given rise to the present litigation, QSL's Constitution provided that there may be up to four, but no less than three, Independent Directors (Art 29A(c)), four Grower Directors (Art 30) and four Mill Owner Directors (Art 31). Until May 2008, QSL had had 12 directors, including four Grower Directors and four Mill Owner Directors. An attempt in May 2008 at a Special General Meeting of QSL to delete Arts 30 and 31 failed as ACFA, which had a "golden" vote under Art 19(b) in respect of changes to Art 30, voted against the motion. 36 Subsequently, in June 2008, Art 29 of the QSL Constitution was amended so as to establish a Board Selection Committee with responsibility for selecting independent directors. That Committee was to consist of four members - two elected by Mill Owner Members and two elected by Grower Representative Members. Article 29B was added to provide for Industry Director (Grower Directors and Mill Owner Directors) vacancies: 29B Industry Director Vacancies (a) When a vacancy in the company's Grower Directors exists a panel shall not be appointed to elect a Grower Director in relation to that vacancy unless a majority of Grower Representative Members vote in favour of doing so. On such a vote, each Grower Representative shall have 1 vote. (b) When a vacancy in the company's Mill Owner Directors exists a nomination shall not be made by any Mill Owner Member to fill that vacancy unless Mill Owner Members vote in favour of considering the nomination. On such a vote, each Mill Owner Member shall have that number of votes calculated in accordance with the formula contained in Article 31(b)(ii). Thus, a nomination could not be made to fill a vacancy in the Mill Owner Directors unless a majority of the mill owners' votes (calculated in accordance with a formula) was in favour. 37 The formula referred to in Art 29B(b) turned on the tonnages of raw sugar supplied to QSL by each mill owner. Because Wilmar supplied more than half of the raw sugar received by QSL, it had more votes than all of the other mill owners combined with the consequence that its views about the nomination of Mill Owner Directors could prevail. Wilmar held the view that the Board of QSL should be comprised entirely of independent directors and it used the influence to which its voting power gave rise to achieve that result. 38 By 31 December 2008, the existing directors of QSL had resigned and, in 2009, four independent directors were appointed. QSL has operated with a Board of five directors since that time, comprising four independent directors and the CEO. 39 The QSL Constitution was amended again in November 2010 with, relevantly, an amendment to Art 22(e). It provided: (e) A Mill Owner Member which has a current agreement to supply raw sugar to the company for sale to export markets in respect of which a Notice to Terminate has been given, is not entitled to vote (and will not be included within the calculations of 'A' or 'B' for the purposes of paragraph (b)) on any resolution except a resolution which, if passed, would result in the company: (i) materially contravening the agreement under which the Mill Owner Member supplies raw sugar to the company for sale to export markets; (ii) engaging in conduct which is not in accordance with the normal and efficient operation of the company and which will cause direct financial detriment to that Mill Owner Member; (iii) acting other than in accordance with this Constitution; or (iv) amending Article 6 or Schedule 1 of this Constitution. 40 As can be seen, the new Art 22(e) imposed limitations on the entitlement to vote of mill owners who had given notice of termination of their RSSA. Wilmar had been bound to vote in favour of this amendment as a condition of the Federal Treasurer's approval of the acquisition by Wilmar International Limited of its shares previously held by CSR. 41 As the same time, Art 29, dealing with the Board Selection Committee was also amended by the addition of Art 29(h) as follows: (h) Despite any other provision of this Article 29 (i) a Mill Owner Member to which Article 22(e) applies will not be entitled to vote in the election of the members of the Board Selection Committee to be elected by Mill Owner Members; and (ii) any members of the Board Selection Committee elected by Mill Owner Members must not be connected to a Mill Owner Member to which Article 22(e) applies. The effect was to preclude a mill owner which had given notice of termination of its RSSA from participating in the selection of the Board Selection Committee.

Amendments to QSL Constitution in December 2015 42 At the General Meeting of members of QSL held on 8 December 2015, a number of amendments to QSL's Constitution were passed on a single resolution. It is the amendment to Art 31 which the Judge found to be oppressive. 43 The Judge summarised the effect of Art 31 before the 8 December 2015 resolution at [54], as follows: Prior to the passing of the resolution on 8 December 2015, Article 31 provided that the Mill Owner Members could: elect four Mill Owner Directors; remove any Mill Owner Director; and elect a person to be a Mill Owner Director where a vacancy in office had occurred. The Mill Owner Directors were elected or removed according to a specified procedure. When a vote was required, each Mill Owner Member had a number of votes calculated by a formula contained in Article 31(b)(ii). This formula was based on the tonnes of raw sugar supplied by the Mill Owner Member to the defendant in respect of the three complete crushing seasons preceding the calendar year in which the vote was held. … 44 It is convenient to adopt the Judge's summary of the effect of the amendments to Art 31 by the resolution passed on 8 December 2015: [56] … Article 31 now refers to Continuing Mill Owners, Continuing Mill Owner Members and Original Continuing Mill Owner Members. A Continuing Mill Owner Member is a Continuing Mill Owner who has an agreement to supply raw sugar to the defendant for sale to export markets and in respect of whom Article 22(e) does not apply. The Original Continuing Mill Owner Members are defined as the BIM mills. Each Original Continuing Mill Owner Member is given: the right to appoint one Mill Owner Director; the right to remove any Mill Owner Director appointed by that Original Continuing Mill Owner Member; and the right to appoint a person to be a Mill Owner Director in the place of a Mill Owner Director appointed by that Original Continuing Mill Owner Director when a vacancy in office arises. [57] Any additional Mill Owner Director must be appointed in accordance with new provisions in Article 31. To be eligible for appointment, a Mill Owner Director must be a person nominated by a Continuing Mill Owner. If that person is an employee or officer of a Continuing Mill Owner, then he or she must continue to be an employee or officer of that Continuing Mill Owner. [58] … Article 31(c)(ii) provides that the Original Continuing Mill Owners (ie the BIM mills) can determine that an additional Mill Owner Director is to be appointed following one or more other Mill Owner Members becoming Continuing Mill Owner Members. On such a vote, each Original Continuing Mill Owner Member has one vote, which must be exercised in accordance with Article 31(e), which now provides: (e) In determining whether to vote in favour of an additional Mill Owner Director being appointed, the Original Continuing Mill Owner Members must act reasonably and in the interests of the company, having regard to: (i) the volume of raw sugar the new Continuing Mill Owner Member or Members have committed to supply to the company; (ii) the duration of any commitment by the new Continuing Mill Owner Member or Members to supply raw sugar to the company; and (iii) the benefits to the company and the Queensland Sugar Industry of having the new Continuing Mill Owner Member or Members as a Continuing Mill Owner Member. [59] If the Original Continuing Mill Owners determine that an additional Mill Owner Director is to be appointed, then each Continuing Mill Owner Member who has not appointed a current Mill Owner Director may nominate a candidate for the position. If there are more nominees for Mill Owner Directors than there are vacancies to be filled, then the Continuing Mill Owner Members must vote to select the nominees to be appointed as a Mill Owner Director. The number of votes for each Continuing Mill Owner Member is determined by a formula in Article 31(d). 45 Put more shortly, each of the appellants can now nominate a Mill Owner director and remove and replace the director it has nominated. Any new Mill Owner Director must be a person nominated by one of the appellants. The power to approve nominations of directors which Wilmar had pursuant to Art 29B(b) has now been negated. Even if Wilmar, MSF or Tully resumed supplying sugar to QSL, their ability to nominate a Mill Owner Director would be subject to a vote by the appellants. 46 The effect, as the Judge found at [62], is that the amendments to Art 31 mean that Wilmar no longer has a role in the appointment and removal of Mill Owner Directors, notwithstanding that it remains a Mill Owner Member of QSL and notwithstanding that, at least until 30 June 2017, it has a continuing contractual obligation to supply, substantially, 100% of its production of raw sugar to QSL. That position also applies to MSF and Tully who, like Wilmar, have given notices of termination of their respective RSSAs. 47 At the trial, QSL submitted that the 2015 amendments to Art 22(h) did not have the effect of removing any right of Wilmar, having regard to Art 22(e). It was, instead, Wilmar's notice of termination of its RSSA which had had that effect. The Judge rejected that contention. Although the appellants' notice of appeal complains of the correctness of that finding, they did not pursue that ground at the appeal hearing, and it is not necessary to address it.

The decision of the trial Judge 48 The Judge found that the amendments to Art 31 by the resolutions passed on 8 December 2015 were oppressive to, unfairly prejudicial to, and unfairly discriminatory against Wilmar for a number of reasons: (a) As Wilmar remains obliged until 30 June 2017 to supply 100% of its production of raw sugar for export to QSL, it has an economic interest in QSL marketing that sugar for the best economic return and, accordingly, a "real and significant continuing commercial interest" in the way in which QSL's affairs are conducted. Despite those interests, it is now precluded from participating in the conduct of QSL's affairs, at [120]; (b) Although QSL says that the amendments to Art 31 are justified by the competition which it will now face from Wilmar (and from MSF and Tully), it already faces competition of that kind in respect of the SEIS. That is particularly so given that approximately one-third of the raw sugar supplied by Wilmar, MSF, Tully, Isis and Mackay is SEIS and Wilmar's SEIS alone is greater than the production of raw sugar (including SEIS) supplied by the BIM Mills to QSL. Such conflicts of interest as may have arisen in the past from competitive marketing in relation of the SEIS, have been managed adequately (through the existence of an independent Board of Directors) and the Judge considered that it was not easy to see why such conflicts as may arise in the future could not be managed in a similar way, at [121]-[122]; (c) QSL's argument that Wilmar had not in the past exercised its right to appoint Mill Owner Directors and, inferentially, had thereby chosen not to participate in its affairs was not persuasive. Wilmar had not appointed Mill Owner Directors but that was because of its preference that QSL's Board be comprised of independent directors. The fact that Mill Owner Directors have not been appointed since 2008 was a reflection of Wilmar's potential voting power, at [123]; (d) Had Wilmar exercised its voting power to appoint Mill Owner Directors, those directors, once appointed, would have had fiduciary and statutory duties to QSL and not to Wilmar, at [124]; (e) QSL's submissions underestimated the significance of the entrenched dominant position given to the BIM Mills in the appointment of Mill Owner Directors under the new Art 31 and overlooked that, because of the potential for a growers' nomination in respect of GEIS, Wilmar may well continue to have a significant commercial involvement with QSL, at [125]. 49 The trial Judge made this assessment by reference to the circumstances which existed as at the time of his decision (1 February 2016) and as they were expected to be until 30 June 2017. This is an important consideration given that Wilmar is contractually bound until 30 June 2017 to supply all the sugar it mills (other than GEIS) to QSL. If the constitutional amendments were not to take effect until after 1 July 2017, it is possible that the Judge's assessment of the commercial fairness of the situation may have been different. That is not a matter which this Court need address.

The Appellants' contentions 50 As noted earlier, the appellants did not contend that the Judge had made any error of law or had misunderstood the evidence. Instead, their contentions related to errors they perceived in the Judge's evaluation of the evidence. The appellants advanced three broad and overlapping complaints: (a) the Judge had given too much weight to Wilmar's "continuing commercial interest" and had, at the same time, failed to weigh all the relevant circumstances (Grounds 3(a) and (b)); (b) the Judge had failed to give sufficient weight to the changed competition in the marketing of raw sugar (Grounds 3(c) and 4); (c) the Judge had given too much weight to the duties of any director of QSL appointed by Wilmar and had not taken account of the "practical realities" of Wilmar appointing directors (Grounds 3(d) and (e)). The appellants' overarching submission was that the assessment of commercial unfairness involves the balancing of competing considerations and that, in carrying out that exercise, the trial Judge had not recognised that conduct may be prejudicial to a member but not unfair. 51 Many of the appellants' submissions were to the effect that this Court should evaluate for itself the materials at trial and to make its own assessment of the fairness of QSL's conduct. If that assessment differed from that of the trial Judge, the submissions seem to be that the Court should, without more, give effect to its own views. 52 This is not the correct approach. Even though an appeal under s 24 of the Federal Court of Australia Act 1976 (Cth) is by way of rehearing, the function of this Court on an appeal is the correction of error. The Court does not proceed de novo as though the conclusion of the trial Judge stands for nought. It is instead for the appellants to demonstrate error by the trial Judge. It is true that this is an appeal of the kind discussed in Warren v Coombes (1979) 142 CLR 531, because the evidence before the trial Judge was wholly documentary and the deponents of the two affidavits relied upon were not cross-examined. But even in such an appeal, it is still necessary for the appellants to establish error by the primary judge. These propositions are well established: Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833, (2001) 117 FCR 424 at [21]-[24] (Allsop J with whom Drummond and Mansfield JJ agreed); Australian Competition and Consumer Commission v Australian and New Zealand Banking Group Ltd [2015] FCAFC 103, (2015) 236 FCR 78 at [168]-[169]; JR Consulting & Drafting Pty Limited v Cummings [2016] FCAFC 20, (2016) 329 ALR 625 at [62]. The resolution of the appeal is to be approached on this basis.

Wilmar's continuing commercial interests 53 The appellants submitted that the Judge had overlooked, or failed to give adequate weight, to five considerations when he had concluded (at [120]) that Wilmar has "a very real and significant continuing commercial interest in the way in which [QSL's] affairs are conducted". The Judge had expressed a similar conclusion at [125]. 54 The appellants submitted, first, that Wilmar had itself elected to terminate its contractual and supply relationship with QSL "in order to" become its competitor in the export market from 30 June 2017. 55 In so far as this is a complaint that the trial Judge overlooked evidence as to Wilmar's purpose in giving notice that it did not wish to extend its RSSA, it is not soundly based. There was no evidence at trial that Wilmar's purpose was to compete with QSL and it is far from self-evident that that was so. Wilmar may have thought only that it could obtain a better return for its raw sugar than is presently being obtained by QSL. 56 However, the submission seemed to be that Wilmar had brought the conduct found to be oppressive on itself, by giving notice that it did not wish to extend its RSSA. The appellants submitted that this was an important element of context. They referred to some of the authorities which indicate that allegations of oppressive conduct require an examination of the conduct, not in isolation, but in the context in which it takes place; see in this regard, Reid v Bagot Well Pastoral Co Pty Ltd (1993) 12 ACSR 197; (1993) 61 SASR 165 at 212. The relevant context includes the conduct of all parties, including the conduct of the plaintiff: Joint v Stephens [2008] VSCA 210 at [136]; Hunter v Organic & Natural Enterprise Group Pty Ltd [2012] QSC 383, (2012) 92 ACSR 183 at [105]. The appellants emphasised in particular, the exercise required of the Court in balancing the competing considerations disclosed by the evidence, noting the approval by Black J in Re Ledir Enterprises [2013] NSWSC 1332; (2013) 96 ACSR 1 at [179] of the observation of Richardson J in Thomas v HW Thomas Ltd [1984] 1 NZLR 686 at 694-5 that: Fairness cannot be assessed in a vacuum or simply from one member's point of view. It will often depend on weighing conflicting interests of different groups within the company. It is a matter of balancing all the interests involved in terms of the policies underlying the company's legislation in general and s 209 [the NZ Provision] in particular: thus to have regard to the principles governing the duties of a director in the conduct of the affairs of a company and the rights and duties of a majority shareholder in relation to the minority; but to recognise that s 209 is a remedial provision designed to allow the Court to intervene where there is a visible departure from the standards of fair dealing; and in the light of the history and structure of the particular company and the reasonable expectations of the members to determine whether the detriment occasioned to the complaining member's interests arising from the acts or conduct of the company in that way is justifiable. (Emphasis added) 57 It cannot be said that the Judge overlooked the circumstance that it was Wilmar's service of the notice of termination of the RSSA which created the context in which the resolutions of 8 December 2015 were passed. Plainly, Wilmar had given the notice of termination of its RSSA in the context that QSL's Constitution had, since November 2010, the effect of precluding it from participating in the election of the Board Selection Committee once it gave the notice of termination. This was undoubtedly part of the context in which QSL's conduct was to be considered. However, contrary to the appellants' submission, these circumstances did not limit the nature of Wilmar's continuing commercial interest to at least 30 June 2017. That commercial interest remained unaffected. 58 The appellants emphasised that the QSL Board is now very much concerned with post-1 July 2017 issues. The Judge did not overlook this consideration. He set out in his reasons the passages in the CEO's affidavit concerning the matters which QSL's Board is presently addressing, at [32]-[33]. These matters have been repeated in these reasons. 59 Next, the appellants submitted that the effect of the resolutions was not to deprive Wilmar of the ability to appoint directors to the Board of QSL but instead, to deprive it of its ability to veto Mill Owner Directors being appointed to the Board by the BIM Mills. The Judge had overlooked, the appellants submitted, the commercial reality that what Wilmar was losing in practice was the right of veto, and not a right of appointment. This consideration is not persuasive. Under the Constitution as it stood before 8 December 2015, Wilmar could have exercised its voting power to ensure the appointment of four Mill Owner Directors of whom it approved. It had, however, not done so. Instead, it had exercised the influence given to it by the extent of its voting power so as to ensure that QSL had an independent board. It is undoubtedly the case that it has now lost that power. In our opinion, the distinction which the appellants sought to draw between the loss of a power to appoint, on the one hand, and the loss of a power to veto, on the other, is, in the circumstances of the present case, illusory. 60 Next, the appellants submitted that there should not, in any event, be an adverse effect on Wilmar's commercial interests in the period to 30 June 2017 because Wilmar's interests are aligned with those of the BIM Mills. That is because all will be selling sugar through QSL and all would wish QSL to maximise sales. This submission seemed to have, as an unstated premise, the proposition that unity of interest in a desired outcome will necessarily be reflected in unity of judgment as to the way or ways in which that outcome is to be achieved. That proposition is, self-evidently, unsound. It is obvious that Wilmar, on the one hand, and the BIM Mills, on the other, might reasonably adopt divergent views about the way in which the goals they have in common until 30 June 2017 are to be achieved. 61 Finally, in relation to these grounds of appeal, the appellants emphasised the impact of the Growers Choice Legislation and in particular, that sugar growers are now able to nominate the marketer to whom they wish to have their GEIS sugar supplied. That has had the consequence that QSL and Wilmar are now in competition to attract grower nominations for GEIS supply. It also has the consequence, so the appellants contended, that, contrary to the conclusion of the trial Judge, Wilmar will not have a continuing commercial interest in the conduct of QSL's affairs. 62 One may accept that the first of these propositions is true. However, the trial Judge's conclusion that it is another form of competition of the kind which existed between Wilmar and QSL in the past in relation to the SEIS was reasonably open to him. It has not been shown to be in error. The appellants' submissions did not indicate how the introduction of GEIS changed, qualitatively, the potential conflicts of interest which may arise. 63 There are also difficulties with the second of the appellants' propositions. Wilmar will have a continuing commercial interest in the growers who supply it obtaining the optimum price for their sugar. That may be because Wilmar will like its growers to be content with the contractual arrangements they have with it, or because it does not wish its own market for the sugar it sells to be undermined. During the course of submissions, the appellants seemed to acknowledge that this was so, but emphasised that Wilmar and QSL will be in competition after 1 July 2017 for grower nominations of GEIS. That may be so, but it does not indicate error in the Judge's conclusion that Wilmar's commercial interest in the sugar supplied to QSL is continuing and may, to some extent, continue after 1 July 2017. 64 The appellants also submitted that it was the combined effect of these matters which should be considered. We accept that that is so but will defer doing so until we have completed consideration of the remaining contentions of the appellants.

The changed competition in the marketing of raw sugar 65 The appellants' next submission was that the Judge had not acknowledged adequately the changed competition in the marketing of raw sugar. Coupled with that was a submission that the Judge had not appreciated the full commercial context in which the competition will occur. 66 The appellants emphasised that, until 30 June 2017, all mill owners have obligations pursuant to their respective RSSAs to supply 100% of their raw sugar to QSL and are obliged to use QSL operated storage facilities for that sugar. The proportion of that sugar which is SEIS is then sold back to the mill owners by QSL and they compete with QSL only in respect of that proportion. However, from 1 July 2017, Wilmar will not have any contractual obligation (with QSL) to supply any raw sugar under its control to QSL. It will instead be competing with QSL every season for GEIS nominations from the growers. The only raw sugar which it will provide to QSL will be GEIS sugar in respect of which it has no economic interest. From 1 July 2017, there will be no fixed proportion of sugar that Wilmar, MSF and Tully will market in competition with QSL. Further still, Wilmar will no longer be obliged to use QSL operated storage facilities. 67 Counsel for the appellants noted that, instead of being the dominant participant in the sugar export market, QSL may become the second or third ranked seller by volume of Queensland sugar. 68 Counsel went further and submitted that, after 1 July 2017, it will be in Wilmar's interest for QSL not to succeed, because its success will be reflected in the grower nominations for which Wilmar will also be competing. 69 The appellants submitted that it is necessary for QSL to plan for this changed competitive environment and for the management of the storage facilities given that significantly lesser quantities of sugar are likely to be delivered to the BSTs. They submitted that the Judge had failed to take adequate account of these matters and, in particular, that the existing competition with respect to SEIS sugar will be quantitatively and qualitatively different from the competition post 1 July 2017 for which QSL is planning presently. The appellants pointed out, amongst other things, that the competition occurring presently is only in respect of a fixed proportion of the raw sugar supplied to QSL. They submitted that a commercial by-stander would not consider it unfair in these circumstances that the constitution of QSL discriminated between their rights, on the one hand, and those of Wilmar, MSF and Tulley, on the other, to appoint directors. 70 Counsel critiqued in particular the trial Judge's conclusion that Wilmar may well continue to have a significant commercial involvement with QSL, at [120], and his statement, at [125], that whilst it will be the grower and not Wilmar which will bear the sales price exposure in respect of GEIS, it did not follow that Wilmar would not have a continuing commercial interest, as a member, in the manner in which QSL's affairs are conducted. 71 However, as already noted, there are two bases on which Wilmar will continue to have the interest to which the Judge referred. First, Wilmar has an interest in the growers who supply sugar cane to its mills being satisfied with the ultimate sale of the sugar they produce. Secondly, Wilmar has an interest in the market in which it sells sugar being maintained. In addition, Wilmar has an interest in QSL, at least for the foreseeable future, arising from the fact that it will be continuing to deliver sugar to the BSTs operated by QSL. 72 One may accept (as the trial Judge did) that the competitive market for raw sugar will change with effect from 1 July 2017 and that QSL, acting prudently, is preparing now for those changed circumstances. However, the circumstance that there will be a change does not, of itself, indicate error by the trial Judge. Nor does the fact that the quantity of sugar which will be the subject of competition will increase, or that the competition will extend to grower nominations for GEIS, mean that the trial Judge should have reached a different conclusion. The appellants may not like the decision, but they did not point to any matter indicating a failure by the Judge to consider all of the changing circumstances or an incomplete understanding of what those circumstances are, or will be. On the contrary, counsel did not make any criticism of the Judge's summary of the evidence or of the submissions regarding the changed circumstances. 73 In our opinion, the Judge was correct to take the view that the significance of the changed circumstances of competition should not be overstated. That is especially so given that Wilmar, MSF, Tully, Isis and Mackay are already in competition with QSL and with each other in relation to the marketing of SEIS. It is also open to Bundaberg to compete with QSL in the sale of SEIS. 74 As the Judge noted, the amounts of SEIS have been substantial and yet QSL and its mill owner members have been able, despite being in competition with one another, to manage in an appropriate way such conflicts of interests as may have arisen. The appellants do not suggest that the Judge's conclusion in that respect was wrong. Like the Judge, we consider that it is not easy to understand why such conflicts as may arise in the future may not be managed in the same way as they have in the past. 75 The appellants referred to Sidebottom v Kershaw, Leese and Company Limited [1921] 1 Ch 154 in which it was held that an alteration of a company's articles introducing a power for its directors to require any shareholder who competed with the company's business to transfer his shares, at full value, to nominees of the directors was valid. They submitted that if it was reasonable to exclude a competitor from membership of a company, it ought also be reasonable to exclude a competitor from having involvement in the management of a company. It is to be observed however that Sidebottom did not concern an analogue of s 232 of the Corporations Act. Further, and in any event, the circumstances considered in Sidebottom were different from the present case, because the excluded shareholders were not compelled to continue to supply materials to the company. At best for the appellants, Sidebottom illustrates that different factual circumstances may result in different assessments of the commercial fairness of a company's conduct, but it does not indicate an incomplete or erroneous appreciation of the relevant circumstances by the trial Judge.

Practical realities of Board appointment 76 Ground 3 of the notice of appeal referred to the Judge's conclusion at [124] that, even if Wilmar had used its voting power under the existing Art 31 to appoint Mill Owner Directors rather than independent directors, the appointed directors would have had fiduciary and statutory duties to QSL and not to Wilmar. The Judge said that QSL's submissions had not acknowledged this important circumstance. The Judge considered that QSL's submissions, and to an extent, the evidence of its CEO, had made the unwarranted assumption that directors appointed by Wilmar in this way would not adhere to the duties imposed on them by the law. 77 As can be seen, in this conclusion, the Judge was addressing a hypothetical situation, namely, that which would apply if Wilmar exercised its voting power differently from the manner in which it had done so in the past. There was no indication in the evidence that Wilmar had any intention to act in this way. 78 The appellants submitted that the trial Judge had erred by failing to take account of the practical realities of Wilmar having the power to appoint directors and had given too much weight to the duties of any director appointed by Wilmar. In particular, they contended that the Judge's conclusion was affected by two errors. The first was that QSL's submissions at first instance had been directed to "the commercial incongruity" which would arise from the presence on its Board of "nominee directors" appointed by members who were in direct competition with it, rather than to the potential for such nominee directors to breach their fiduciary and statutory duties to QSL. 79 Secondly, the appellants submitted that the test under s 232 is directed to "commercial unfairness" within the broader commercial context. That being so, the precise legal duties owed by a potential "nominee director" cannot be determinative of commercial unfairness. In this respect, the appellants referred to authority indicating that it is open to nominee directors to act with the interests of their appointors in mind, providing that they do so in the genuine belief that they are also acting consistently with the interests of the company as a whole: Re Broadcasting Station 2GB Pty Ltd [1964-5] NSWR 1648 at 1662-3; Australian Competition and Consumer Commission v Malaysian Airlines System Berhad [2010] FCA 757; (2010) 271 ALR 91 at [148]. 80 As noted, there is no suggestion that the present independent directors are nominee directors of Wilmar. Nor is there evidence that Wilmar intends to revise its long-standing position so as to appoint its own nominees to QSL's board of directors. Counsel for the appellants agreed that the notion of the independent directors being nominees of Wilmar could be discounted. Counsel also acknowledged that there was no suggestion in the evidence that any of the four independent directors passed on to Wilmar information about QSL's developing plans for the new competitive environment. 81 In these circumstances, this ground of appeal seems to be directed to a position which is hypothetical only and one which was not at the forefront of the Judge's reasoning. 82 However, in our opinion, the approach of the Judge was correct. A commercial observer would not readily conclude that directors appointed by Wilmar would breach the statutory and fiduciary duties which they owed to QSL by engaging in conduct which was plainly inimical to QSL's interests, that is, by disclosing to Wilmar, QSL's confidential information concerning its strategies in the changed competitive environment. Such an observer would know that the statutory and fiduciary duties of directors are not mere matters of form. They are not to be ignored in the balancing of interests involved presently. It was appropriate for the Judge to proceed on the basis that, in the event that Wilmar did nominate directors, those directors would take their statutory and fiduciary duties seriously and not act in a manner which was adverse to QSL's own interests. 83 No error by the Judge has been shown in this respect.

The matters in combination 84 We have, as counsel for the appellants submitted, considered the combined effect of the matters which they propounded. We are not satisfied that, considered in that way, the submissions have any greater force. None of the individual matters urged by the appellants, whether by themselves or in combination, indicate error by the trial Judge. 85 It is to be emphasised that this decision, like that of the trial Judge, concerns the commercial fairness of the position at present and until 30 June 2017. Once Wilmar ceases altogether to supply sugar to QSL pursuant to its RSSA, the balance of the commercial fairness may well change. That is not a matter which arises for determination presently.

Disposition 86 For the reasons given above, we grant the appellants leave to appeal but dismiss the appeal. We will hear from the parties as to costs. I certify that the preceding eighty-six (86) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Gilmour, Jagot and White.