Argument
99 As I have noted, the plaintiff claims that the 2015 amendments to Article 31 immediately disenfranchised it from its right under that article to participate in the management of the defendant through the appointment of Mill Owner Directors and that its future position as a Mill Owner Member has been subordinated to the will of the BIM mills whose position in the appointment of Mill Owner Directors has been entrenched as a de facto majority.
100 The defendant accepts that the 2015 amendments to Article 31 were discriminatory in that they discriminate between different Mill Owner Members. But, the defendant says, these amendments were not unfair.
101 I have briefly referred to the defendant's position that the 2015 amendments to Article 31 were justified because of the new competitive environment in which the defendant finds itself: see [68] above. The defendant developed this contention in the following way.
102 Notwithstanding the provision of SEIS, under the RSSAs, the bulk of each Mill Owner Member's sugar is marketed by the defendant. Thus, each Mill Owner Member has, at the present time, a continuing dominant economic interest in the defendant marketing its sugar for the best possible return, in accordance with the defendant's Charter: see [12] above. The provision of SEIS does not create a problem for the defendant's board, because, at the present time, all the board members are Independent Directors.
103 However, the competitive landscape has changed. This change was brought about by the plaintiff giving its notice of termination in May 2014 and by MSF and Tully giving their notices of termination in June 2014. The practical consequence is that these Mill Owner Members will, from July 2017, be directly competing with the defendant in the export market. These Mill Owner Members currently supply approximately 2.85 million tonnes of the approximately 3.5 million tonnes of raw sugar now handled by the defendant. The defendant submits that, from 1 July 2017, it will be in "full blooded competition" with the plaintiff, MSF and Tully in selling Queensland sugar in the export market.
104 This scenario is subject, of course, to how grower nominations might play out under the Growers Choice legislation. At the present time, it is not known what tonnages of GEIS the growers may require the plaintiff, MSF and Tully to place with the defendant. But, assuming growers require significant tonnages to be placed with the defendant, the plaintiff, MSF and Tully will not have an economic interest in the return that the defendant achieves for that sugar.
105 The defendant argues that it must now plan for how it will effectively market the raw sugar that continues to be supplied to it in what it says will be a very different commercial setting from the end of the 2016 season. This includes how to best manage the BSTs it now leases, given what it anticipates will be a dramatically lower quantity of raw sugar to be supplied to it from 1 July 2017 onwards.
106 The defendant argues that the plaintiff, MSF and Tully unilaterally decided to end their respective supplier arrangements with the defendant and to compete with it. This competition now includes competition for GEIS. In short, the plaintiff says that the changed circumstances in the Queensland sugar market have resulted, substantially, from the actions taken by the plaintiff, MSF and Tully in giving their notices of termination in 2014.
107 The defendant's evidence is that this competition is already underway. Over the next 18 months, the defendant will be competing against the plaintiff, MSF and Tully for forward sales, locking in freight arrangements, and seeking grower nominations for GEIS: see [32]-[33] above. From 1 July 2017 onwards, the defendant is likely to be, by tonnage, the second or third ranked seller of Queensland sugar in the export market.
108 The defendant submits that, in the eyes of a commercial bystander, it would not be unfair that a Mill Owner Member who has chosen to sell in competition with the defendant, rather than through the defendant, should not be able to participate in the management of the defendant by nominating and appointing directors. The defendant submits that fairness, in a business context, does not require that the prospective first and second rank sellers should have nominees on the defendant's board, while the defendant plans and implements strategies to deal with the new market circumstances, including how it will compete against these sellers. The defendant submits that it was not unfair for members to advance the object of maximising the return for millers and growers, in accordance with the defendant's Charter, in a way which involves discriminating against members who have decided that their best economic interests lie in selling in opposition to the defendant.
109 The defendant argues that the present case is not one in which the plaintiff could have had a legitimate expectation that the status quo would continue once it gave its notice of termination. The 2010 amendments, particularly Article 22, addressed the circumstance that a Mill Owner Member might give notice of termination, and opened the way for the defendant's Constitution to be amended without that member's vote. The defendant submits that this forms part of the overall commercial context in which fairness should be assessed.
110 In any event, the defendant submits, this is not a case in which the plaintiff has sought to participate in the management of the defendant by appointing Mill Owner Directors, despite having the right to do so. Thus, the defendant argues, the present case is not one where a party which has been actively participating in management has been actively excluded from that participation.
111 Further, the defendant submits that the 2015 amendments were supported by the Independent Directors who obviously considered that the amendments were in the best interests of the defendant.
112 With regard to the plaintiff's complaint concerning the entrenchment of the BIM mills as a de facto majority in the appointment of Mill Owner Directors, the defendant submits (as I have noted at [98] above) that the question of fairness must be determined by what was known at the time of the 2015 amendments, not by reference to what subsequently happens.
113 Accordingly, the defendant submits that, as at 8 December 2015, the prospect of the plaintiff, MSF or Tully coming back to the defendant for fresh supply agreements in the future was uncertain. In submissions, the defendant canvassed various possibilities. However, its central argument was that, assessed as at 8 December 2015, it was impossible to know which eventuality would occur, with the result that it was impossible to foresee both the duration of any such agreement or the tonnages of raw sugar that might be supplied under it.
114 The defendant submits that, in these circumstances, a commercial bystander might consider it not unfair to provide a mechanism in the Constitution which would enable the BIM mills to decide at a future time, based on the circumstances then existing, whether it was appropriate to have an additional Mill Owner Director under the procedures provided in the new Article 31. According to the defendant, much would depend on the circumstances, having regard to the requirements of Article 31(e): see [58] above. The defendant put the matter in the following way:
Assessed as at 8 December it could have been seen that the question of whether "returning" mill owner members should be able to nominate and have a say in the appointment of mill owner directors was best left to a future decision. Further, that it would be appropriate to build into the constitution a control mechanism which would allow that decision to be made from time to time in the future, depending upon the circumstances then prevailing. The mechanism of leaving the question to a determination of the original continuing mill owner members, who are obliged to act reasonably and in the interests of QSL (having regard to the volume and duration of any sugar commitment and the benefits to QSL and the Queensland Sugar Industry) was a course that reasonable members considering the matter might not have thought unfair.
115 Thus, the defendant submits, the future operation of Article 31 should not be held to be oppressive.
116 There are two particular matters to which the defendant draws attention concerning the operation of the new Article 31.
117 First, although the BIM mills are designated as the Original Continuing Mill Owner Members, the defendant submits that it is conceivable that one or more of them might also give notice of termination. I should note here that there is no evidence before me that there is a real prospect in the foreseeable future of any such notice being given. Indeed, the evidence points persuasively to the contrary. The plaintiff, MSF and Tully gave their notices of termination in May/June 2014. As I noted in [25] above, the defendant sent an email to members extending the rollover period under the current RSSAs by six months to 15 December 2015. None of the BIM mills have given notices of termination. Thus, this argument by the defendant is advanced on what could be described as a theoretical basis. Be that as it may, the defendant submits that if one of the BIM mills were to give notice of termination then it would no longer be a Continuing Mill Owner Member and a vacancy for a Mill Owner Director (originally appointed by it) would arise by operation of new Article 36(f)(i). It is thus conceivable that, in the future, there may be a vacancy for more than one Mill Owner Director (ie apart from the additional Mill Owner Director specifically contemplated by the new Article 31), depending on who remains as a Continuing Mill Owner Member.
118 Secondly, although the possibility of the additional (fourth) Mill Owner Director being appointed depends on the will of the BIM mills (albeit subject to the requirements of new Article 31(e)), the defendant submits that this would also change if one of the BIM mills gives notice of termination. Once again, there is no evidence before me that there is a real prospect in the foreseeable future of that happening. But, if it did happen, the mill giving notice would no longer be a Continuing Mill Owner Member and would no longer have a vote on whether the additional Mill Owner Director should be appointed.