The Importance of Disclosure

Case: Cargill Australia Ltd v Viterra Malt Pty Ltd (No 28) [2022] VSC 13

This is a brief review of a case in the Supreme Court of Victoria which outlines the importance of disclosure and honesty when selling a business. It demonstrates that the repercussions for not doing so can be expensive and time-consuming.

Plaintiff:	Cargill Australia Ltd [Wholly owned subsidiary of Cargill Inc]
1^st Defendant:	Viterra Malt Pty Ltd [Wholly owned by 2^nd Defendant]
2^nd Defendant:	Viterra Operations Ltd [Wholly owned by 3^rd Defendant]
3^rd Defendant:	Viterra Ltd (“Viterra”) [Wholly owned by 4^th Defendant]
4^th Defendant:	Glencore International AG (“Glencore”)

Joe White Maltings Pty Ltd (“Joe White”) produces malt from barley. In 2013, it was the largest maltster operating in the Asia Pacific region;

Viterra acquired Joe White in September 2009;

In December 2012, Glencore purchased the corporate group that included Viterra Ltd (“the Viterra Group”) with all its subsidiaries, including Joe White;

Following the acquisition of the Viterra Group, Glencore sold Joe White through a two-phase auction process:

Phase 1 – Glencore provided a selected group of prospective purchasers with an Information Memorandum containing financial and operational information regarding Joe White. They imposed a strict regime for any indicative bid, including confidentiality obligations;

Phase 2 – Prospective purchasers as chosen by Glencore were able to ask questions and were given access to a data room with further commercial, financial and legal information regarding Joe White (effectively due diligence prior to making a bid);

After Cargill performed their due diligence, they increased their bid by $15 million. On 4^th August 2013, an acquisition agreement was signed with Viterra, purchasing all shares in Joe White, plus additional assets used by Joe White. The purchase price was $420 million, and the acquisition was completed on 31 October 2013;

The proceedings consist of claims under Australian Consumer Law for breach of contract and in tort for deceit;

Cargill Australia alleged the defendants engaged in misleading and deceitful conduct by failing to disclose material information regarding the business practices of Joe White (and it was not discovered during the due diligence process). Cargill also claimed that it was induced to increase its offer for purchase based on misleading representations made by executives of the seller in relation to other bidders included in the blind auction process;

Specifically:

– Cargill Australia alleged that the defendants made a series of misrepresentations:

– They claimed they did not disclose that Joe White routinely, and without informing customers, supplied malt that did not comply with the customer’s contractual requirements and specifications;

– They also claimed that they supplied certificates of analysis to customers that misstated the results of analytical testing of malt supplied;

– Certificates misstated the barley varieties used;

– They failed to disclose that malt had been produced from barley varieties which were not approved by the customer;

– Gibberellic acid was used as an additive in the malting process when some customers prohibited its use;

Cargill Australia contends it would not have entered into the Acquisitions Agreement, or would have terminated prior to completion had they known this information;

Cargill claims the difference between the amount it paid for Joe White and the true value of Joe White at the date of completion (Cargill Australia contends that it was substantially less);

The defendants denied the claims, put up counterclaims and various defences;

The third-party claims against Cargill Inc, Joe White and a number of executives who were formerly employees engaged in the Joe White business up to the completion of the Acquisition Agreement by the defendants were dismissed;

The defendants allege that if Cargill Australia established its claims, it was because the third parties made misleading representations or failed to disclose material information to the defendants about Joe White’s business practices prior to the sale;

Cargill Australia successfully established that Glencore and Viterra made misleading representations, and that their conduct gave rise to some of their representations being fraudulent. Viterra was found liable for deceit. Cargill Australia was found to be entitled to an award of damages for the difference between the purchase price and the true value of Joe White as at the settlement date (31 October 2013)

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