The amendments are oppressive
96 As noted, the BIM Mills sought a declaration that the 5 July 2016 amendments were not oppressive to Wilmar within the meaning of s 232 of the Corporations Act. For the reasons given above, in prosecuting that claim, the BIM Mills ought to have been confined to their pleading that the relevant difference between their position and that of Wilmar (as well as Tully and MSF) was that, by reason of their notices of termination, "from 1 July 2017, Wilmar, MSF and Tully will be in direct competition with QSL to sell 100% of their raw sugar production in the international market" subject to the requirements of the Growers Choice Legislation (para 30(b) of the statement of claim).
97 In submissions to the primary judge the BIM Mills contended that the 5 July 2016 amendments were materially different to those considered and declared oppressive to Wilmar by Yates J in reasons for judgment [2016] FCA 20 (a conclusion affirmed on appeal in [2016] FCAFC 133), and that the evidence of the commercial context was also different (it being more extensive before the primary judge than before Yates J), whereas Wilmar contended that the difference was not such as to warrant any different conclusion from that which Yates J reached.
98 It may be accepted that the effect of the 5 July 2016 amendments is different from the amendments Yates J considered. It is also true that the evidence of the commercial context before the primary judge was more extensive than the evidence before Yates J. The basic commercial context, however, remained (and remains, at least until 15 December 2016) the same because it is set by the legislation and the terms of the current RSSAs.
99 First, we agree with Wilmar that the effect of the 5 July 2016 amendments is that Wilmar now has materially inferior rights to the BIM Mills in respect of the appointment of Mill Owner directors to QSL. The relevant focus of the inquiry must be whether this effect is unfair in the requisite sense. This is not the same as the question which Wilmar sought to ask in its written submissions, namely, whether the effect is "justified by reference to the relationship of the parties", which departs from the applicable test in a number of respects.
100 Second, the notices of termination and the effect they will have from 1 July 2017 is undoubtedly a relevant consideration. From 1 July 2017 Wilmar, Tully and MSF will be directly competing with QSL for the sale of raw sugar into the export market. Also relevant is the effect of the Growers Choice Legislation and that, as a result, there is already competition in the market - including between Wilmar, Tully and MSF and QSL for nominations by growers of GEIS. These are not the only relevant facts, however.
101 Third, the 5 July 2016 amendments operate immediately. Until 1 July 2017 Wilmar, MSF and Tully are contractually bound to supply 100% of their raw sugar for export to QSL. This is in circumstances where it is not in dispute that Wilmar, by volume, is by far the largest of QSL's suppliers and will continue to be so for the six or so months until 1 July 2017.
102 Fourth, and as explained at [65] of the reasons for judgment of the primary judge, although 100% of the raw sugar is currently supplied by all Mill Owners to QSL, the existing RSSAs between the Mill Owners and QSL provide (as they must) a mechanism for the designation of SEIS. SEIS is the sugar nominated by the Mill Owner for re-supply from QSL to the Mill Owner (or its nominated entity) for sale into the export market in competition with QSL. As such, approximately one third of the raw sugar supplied by Mill Owners to QSL, other than Heck and Bundaberg, is re-supplied back for export sale. Two of the BIM Mill owners nominate SEIS and thus also compete with QSL in respect of SEIS sales into the international market. As the primary judge also accepted at [95], by accepting the evidence of QSL's Managing Director, QSL's position is that competition in respect of SEIS is not seen as raising any unmanageable conflicts of interest for QSL.
103 Fifth, and as explained at [65] and [66] of the reasons for judgment of the primary judge, growers who supply Wilmar may nominate QSL as the seller of their GEIS, being the raw sugar in respect of which the grower takes on the sale price exposure. The inevitable consequence of this is that, although Wilmar is competing with QSL for GEIS nominations, insofar as Wilmar growers nominate QSL for GEIS, Wilmar will have a commercial interest in ensuring that its growers remain effective participants in the industry. The way in which this complex dynamic will operate in practice, a dynamic which applies not only to Wilmar's relationship with QSL and Wilmar's growers, but also the BIM Mills relationship to QSL and the BIM Mills growers, as the primary judge said at [66] is uncertain as "any Grower irrespective of their relationship with a particular Mill Owner either by reason of circumstance, geography, the inherent features of cane production and crushing or otherwise, is free to select any one of a number of" marketers of their GEIS (referred to as GEISMEs by the primary judge, being a "GEI sugar marketing entity" as defined in the Growers Choice Legislation).
104 Sixth, as the primary judge identified at [76], [80], [85] and [110], the rollover date for the RSSAs between the BIM Mills and QSL is 15 December 2016. By that time (or whatever extended period for rollover might be agreed between them) the BIM Mills must decide whether to continue with their current RSSAs, by which they will supply 100% of their raw sugar to QSL, albeit subject to re-supply for sale of their SEIS in respect of Mackay and Isis. If they terminate their RSSAs, moreover, the terms of the 5 July 2016 amendments entrench the BIM Mills as "Original Continuing Mill Owner Members", with the associated privileges that status brings, provided they have a "current agreement" with QSL. While QSL will determine whether it agrees to the content of that agreement, nothing in the 5 July 2016 amendments requires the content to be a continuation of the obligation to supply 100% of raw sugar to QSL, subject only to SEIS. If an agreement on other terms is accepted by QSL, by which the BIM Mills do not exclusively supply QSL, the BIM Mills will nevertheless retain their privileged position under the 5 July 2016 amendments despite also being in direct competition with QSL in precisely the same manner as Wilmar. By Art 19(b) of the QSL Constitution, a special majority is required to change this entrenched position. Further, nothing prevents the BIM Mills themselves competing with QSL for GEIS nominations in the future.
105 In this commercial context, the submission for the BIM Mills that they will continue to supply 100% of their raw sugar to QSL and thus have an economic interest in the performance of QSL and for QSL to be as efficient as possible and attract as many grower nominations for GEIS to QSL as possible in the future, whereas Wilmar does not, cannot be accepted as a statement of certainty about the future. The reality is that the BIM Mills have not given any notice of termination and, unlike Wilmar, Tully and MSF, may continue to supply 100% of their raw sugar to QSL. In evidence on their behalf, Mackay's representative said it was Mackay's "wish" to continue to supply QSL. Bundaberg's representative said that it had to decide whether it should "remain in QSL" and this decision would "pose less of a problem" if Bundaberg could nominate a director to QSL's board. Isis's representative also said that in the near future Isis will need to decide whether to continue its RSSA with QSL. It is apparent from this evidence that continuation of the RSSAs for a new term by the BIM Mills, or any one of them, is by no means a certainty. Of course, if the BIM Mills decide to roll-over their current RSSAs with QSL then this will be subject to the fact that two of the BIM Mills will also continue to require about a third of the sugar they supply to be re-supplied for export sale in competition with QSL as SEIS. Further, it is possible that, by 15 December 2016 or such other extended date as may be agreed between them and QSL, the BIM Mills may terminate their RSSAs or negotiate some other arrangement with QSL. The BIM Mills may also decide to compete with QSL for GEIS nominations. In summary, there is no certainty because the BIM Mills have not yet decided whether to roll-over their current RSSAs with QSL.
106 As noted, insofar as growers who supply to Wilmar nominate QSL for their GEIS, Wilmar will have an interest in ensuring that those growers obtain a proper price for their sugar so that they can continue to participate effectively as a grower for Wilmar. This is the only rational inference open in the circumstances and it is one which the Full Court did not hesitate to draw at [63] and [71] of [2016] FCAFC 133. We cannot see anything in the additional evidence which was before the primary judge which would justify any departure from the conclusion which Yates J reached in ([2016] FCA 20) that both before and after 30 June 2017, Wilmar will have a continuing commercial interest in the efficient participation of QSL in the market. That is inevitable given the statutory requirements which affect the operation of the market, and the structure of the market as described involving growers, Mill Owners, QSL, and QSL's bulk terminals as described by the primary judge (descriptions which, we note, are consistent with those which informed the decision of Yates J).
107 We also cannot see anything in the evidence before the primary judge which would justify departure from Yates J's conclusion, as described when confirmed on appeal in [2016] FCAFC 133, that:
[73]…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.
108 Further, as the Full Court said at [74] of [2016] FCAFC 133, the position remains 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".
109 There is also an issue which arises in respect of the vacation of the office of Director appointed by an Original Continuing Mill Owner Member (that is, one of the BIM Mills). There is no automatic vacation of the office of director on one of the BIM Mill Owners ceasing to be an Original Continuing Mill Owner Member. For example, if one of the BIM Mill owners decides not to renew their RSSA with QSL on 15 December 2016 (or decides not to renew at any further renewal date), but has already appointed a director, two possibilities arise. The BIM Mill Owner may thereafter negotiate a different agreement with QSL on different terms. As noted, in that case, irrespective of its terms, there will be a "current agreement" between the BIM Mill and QSL, and the BIM Mill will remain an "Original Continuing Mill Owner Member" with entrenched preferential voting rights. The director nominated by that BIM Mill Owner is not required to vacate office because the BIM Mill Owner will remain an Original Continuing Mill Owner Member. Alternatively, there may be no agreement in place between the BIM Mill and QSL. The BIM Mill will no longer be an Original Continuing Mill Owner Member or a Continuing Mill Owner Member, once there is no longer an agreement in place. Under Art 36(f)(i) of the QSL Constitution, the director appointed by that BIM Mill will remain in office until the next annual general meeting unless the BIM Mill decides to remove that director under Art 36(f)(ii). Contrary to the submission for the BIM Mills, Art 36(f)(iii) applies to the director appointed by the Continuing Mill Owner Members collectively, not the BIM Mills separately.
110 As a result, the 5 July 2016 amendments enable a director appointed by a BIM Mill Owner to remain in place in perpetuity provided the BIM Mill has in place any agreement with QSL. Further, if (but only if) the BIM Mill Owner ceases to be a Continuing Mill Owner Member then its nominated director will vacate office, but only after the next annual general meeting. By way of contrast, Wilmar, Tully and MSF, between them, may appoint a single director while they remain Continuing Mill Owner Members. Moreover, even if they entered an agreement with QSL in the future, equivalent to any agreement the BIM Mills might negotiate with QSL, the 5 July 2016 amendments operate to ensure that Wilmar, Tully and MSF can never have the same voting rights as the BIM Mill Owners.
111 Against this background, the conclusion we reach is that the reasonable hypothetical bystander would conclude that the effect of the 5 July 2016 amendments is objectively unfair in the requisite sense. The basis for the discrimination against Wilmar, Tully and MSF, competition for GEIS now and in the export market of sugar from 1 July 2017, does not lead to a different conclusion. The 5 July 2016 amendments immediately and, but for a vote by a special majority, permanently, entrench the rights of the BIM Mills to appoint three of the four Mill Owner directors of QSL. They do so in circumstances where two of the BIM Mill Owners already compete with QSL, as does Wilmar, in respect of SEIS, which amounts to about a third of the volume of raw sugar supplied to QSL. They also do so in circumstances where none of the BIM Mills has yet, or had at the time of the 5 July 2016 amendments, agreed to roll-over their existing RSSAs with QSL. Moreover, under the 5 July 2016 amendments, provided an agreement is in place between a BIM Mill Owner and QSL for the BIM Mill Owner to supply any raw sugar to QSL, the entrenched preferment of the BIM Mill Owner in respect of the appointment of a director will remain. This is so even if the BIM Mill Owner's agreement does not involve exclusive supply to QSL, before the re-supply of SEIS, or the BIM Mill being able to compete, and in fact competing with QSL and Wilmar, for GEIS nominations. It is so, moreover, no matter what the position might be in the future including any possible agreement between Wilmar, Tully or MSF and QSL on terms equivalent to those which the BIM Mills might negotiate with QSL.
112 For these reasons we consider that the necessary conclusion is that the 5 July 2016 amendments are oppressive of Wilmar within the meaning of s 232 of the Corporations Act and orders reflecting this conclusion should be made.
I certify that the preceding one hundred and twelve (112) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Dowsett, Jagot and White.