Oppression claim succeeds!
Mar 2016 |
Introduction
It is not uncommon in disputes between members and their company for ‘oppression’ to be raised.
In this context, s 233 of the Corporations Act 2001 (Cth) entitles a member to seek a wide variety of alleviating orders if the member can prove they were oppressed by the company’s conduct, acts or omissions or where the conduct in question was unfairly prejudicial to or unfairly discriminatory against the member.
In a recent case of Wilmar Sugar Australia Limited v Queensland Sugar Limited, in the matter of Queensland Sugar Limited [2016] FCA 20, Wilmar Sugar Australia Limited (Wilmar) argued it was oppressed as a member of Sugar Australia Limited (SAL) and sought to have annulled an amendment to SAL’s constitution which it claimed to be oppressive. This newsletter examines the case and its ramifications.
Case facts
SAL was a company limited by guarantee overseeing eight Queensland sugar mills, making SAL the largest producer of raw sugar in Australia. SAL was the successor to the Queensland Sugar Board. Wilmar was one of the members of SAL which comprised of sugar cane farmers, sugar cane grower representative bodies and owners of seven sugar mills (including Wilmar). SAL leased six bulk sugar terminals and handled approximately 85% of Australia’s raw sugar exports.
Wilmar had a Raw Sugar Supply Agreement (RSSA) with SAL under which Wilmar, as a mill owner, provided raw sugar from its mill to SAL. The sugar supply was around 54% to 64% of SAL’s annual sugar supply, which was sold internationally. In 2014, Wilmar gave notice to SAL that Wilmar would be terminating its RSSA with effect on 30 June 2017. The consequence of termination would allow Wilmar to independently sell all the produced sugar from its mill in competition with SAL.
However, as a result of Queensland legislation seen in the Sugar Industry (Real Choice in Marketing) Amendment Act 2015 (Qld), a sugar cane grower was required to specify the proportion of sugar for which the grower would bear sale price exposure and the residual proportion which would be at the mill owner’s exposure. Growers also had a right to specify a buyer or trader. Evidence was given that SAL was adopting strategies to avoid the impact of competition from 30 June 2017.
The affairs of SAL were governed by a board which, in 2008, comprised of four independent directors, four grower representative directors and four mill owner directors. By 31 December 2008, SAL board representation comprised of the CEO and four independent directors. In December 2015, SAL had a resolution passed to amend SAL’s constitution by changing the procedures for the appointment of mill owner directors, from that provided for, in the constitution. These changes resulted in Wilmar no longer having a role in the appointment and removal of mill owner directors. This was despite the fact that Wilmar had, until 30 June 2017, the obligation to supply 100% of its raw sugar production to SAL.
Wilmar advanced its argument to the court that it was unfairly prejudiced as a member by these constitution changes, constituting oppression.
SAL argued that Wilmar lost its rights to participate in the appointment of mill owner directors when Wilmar gave SAL notice of the termination of the RSSA. Consequently, the amendments effect the interests of SAL as a whole.
The findings
The presiding Judge accepted Wilmar’s arguments that termination of the RSSA impacted on Wilmar’s voting rights in the appointment or removal of mill owner directors. The Judge then considered whether SAL’s conduct was oppression. This entailed an extensive review of decided cases on the topic of oppression.
The Judge found that until 30 June 2017, Wilmar had a legitimate common interest into how the affairs of SAL were conducted and the removal of that right by constitutional amendments could not be justified. SAL has therefore acted oppressively and unfairly prejudicial to or unfairly discriminatorily against Wilmar.
The case did not decide what orders would be made, leaving that for the parties to deliberate on and for a later hearing date.
Lessons learned
Changing the rights of members of a company has always been a fertile ground for sowing the seeds of an oppression claim. In the case just dissected, it is apparent that SAL viewed Wilmar as a competitor in 2015, when it was only a potential competitor. It is not a defence to an oppression claim to argue that the action in question was in the best interests of the company. As can be seen by this case (and earlier cases), an oppressive action brought by an aggrieved member need only focus on the consequences to the individual. It is actually irrelevant that the conduct in question was appropriate for the interests of the majority of members or the company itself.
This article may provide CPD/CLE/CIP points through your relevant industry organisation.