The proceeding concerned the sale of an Australian malting company, Joe White Maltings Pty Ltd (Joe White). In 2013, Joe White was the largest maltster operating in the Asia Pacific. In 2009, Joe White was purchased by Viterra Ltd (Viterra) which was subsequently purchased by Glencore in December 2012. In early 2013, Glencore decided to sell Joe White through a two phase auction process. The first stage involved Glencore providing prospective purchasers with an information memorandum which contained financial and operational information (the memorandum contained various disclaimers against reliance on the information contained in it) and invited indicative bids. In the second phase, Glencore chose prospective purchasers who were then allowed to ask questions and were given access to a data room which contained additional information about Joe White to allow for further due diligence.
Cargill Australia Ltd (Cargill) is a wholly owned subsidiary of Cargill Incorporated (Cargill Inc) (together, Cargill). Cargill Inc is a global food and agricultural company based in Minneapolis, Minnesota. Cargill participated in the sales process and conducted due diligence on Joe White prior to making a final bid of $405 million, this was subsequently increased to $420 million after discussions between Cargill and Glencore. On 4 August 2013, Cargill Australia and Viterra entered into an Acquisition Agreement to purchase shares in Joe White, the sale was completed on 31 October 2013.
Cargill Australia brought proceedings against Viterra and Glencore (the defendants) for misleading and deceptive conduct under the Australian Consumer Law (ACL), breach of contract (including breaches of specific warranties contained in the Acquisition Agreement), and the tort of deceit. In summary, Cargill Australia alleged that the Viterra and Glencore engaged in misleading and deceitful conduct by failing to disclose certain information about Joe White’s operating practices prior to it entering the Acquisition Agreement.
In summary those practices included:
- routinely supplying malt which did not conform with customers’ contractual specifications;
- supplying certificates of analysis of malt which misstated the results of analytical testing (through a practice colloquially called ‘pencilling’);
- supplying malt from different varieties of barley that were not approved by the customer;
- using an additive called gibberellic acid during the malting process which was not approved by certain customers.
Cargill Australia alleged that if it was aware of the practices it would not have entered into the Acquisition Agreement, or alternatively it would not have completed the sale. It sought damages in the amount being the difference between the purchase price of $420 million and the true value of Joe White as at 31 October 2013.
The defendants raised various defences and counterclaims, as well as bringing a third party claim against Cargill Inc, Joe White and a number of former executives of Viterra Ltd who were employed as senior managers in the Joe White business (the Third Parties). The defendants argued that they had not engaged in misleading and deceptive conduct as the information provided had relevant disclaimers. Further, they claimed that they were not aware of the relevant practices, as those were conducted by Joe White employees at arm’s length from Viterra and Glencore. Further, they alleged that if they were indeed liable to Cargill Australia, it was because the Third Parties made misleading representations or failed to disclose material information to the defendants prior to the sales process.
Justice Elliot found that the defendants engaged in misleading and deceptive conduct, and in some instances the representations were fraudulent and Viterra was liable for deceit. His Honour found that various representations during the sales process were, or were likely to be, misleading and deceptive. This included representations about the operational practices of Joe White as well as representations made about alternative bids which lead to Cargill Australia increasing its indicative bid. His Honour rejected the argument that the disclaimers operated so as to exclude the operation of the ACL.
In relation to knowledge, Elliot J dismissed the defendants’ argument that they were not aware of the relevant practices, as the knowledge of the Joe White Executives constituted the knowledge of Viterra as there was no delineation of Viterra’s business and Joe White’s, this was exemplified by the fact that the executives were, in fact, employed by a Viterra Group company. Finally, his Honour dismissed the claim against the Third Parties (other than the claim against the Executive Manager of Joe White), on the basis that the Third Parties did not provide information to Viterra and/or Glencore that was misleading or deceptive or in breach of their employment contract.
In a subsequent decision ( VSC 80), his Honour awarded damages to Cargill Australia in the amount of $169.8 million plus interest.
NB: The decision is subject to appeal.