Shareholder Oppression - Court of Appeal dismisses appeal in the long running “Wine in a Can” case

30 January 2019

In a decision which was handed down on 19 December 2018, in Knights Quest Pty Ltd and Anor. V DaiwaCan Company and Anor [2018] VSCA 349, the Victorian Court of Appeal unanimously dismissed an appeal by the minority shareholders of a company which produced and sold wine in cans.

In 1997, Anthony Barics and Gregory Stokes established Barokes Pty Ltd (Barokes) through their corporate entities, Knights Quest Pty Ltd (Knights Quest) and SMS Management Pty Ltd (SMS), the appellants in the matter. Following the establishment of the company, Barokes developed the “Vinsafe” system to package wine in cans which was then patented in various countries and licensed to Australian and Asian wineries.

Prior to 2012, companies within the Spotlight group had acquired a 60% shareholding in Barokes. However, in or about 2009, Barokes became aware that Daiwa Can Company (Daiwa) based in Japan had been producing and selling wine in can products in Japan in competition.

Following extensive negotiation and discussion, Daiwa agreed to purchase the 60% shareholding held by the Spotlight companies in Barokes and appointed two directors to the board. The parties also entered into an extensive shareholders deed which was executed in September 2012.

However Daiwa alleged that Barokes failed to meet various production targets whilst Barokes alleged that Daiwa:

did not acquire the Vinsafe system;
through a subsidiary continued to sell competing products;
breached its obligations under the shareholder agreement to act in good faith and “use reasonable endeavours” to assist Barokes; and
barred Barokes from suing Daiwa for patent infringement.

On 24 August 2015, Daiwa commenced proceedings seeking to wind up Barokes on just and equitable grounds. A few days later, on 26 August 2015, Knights Quest and SMS commenced a shareholders oppression claim against Daiwa pursuant to sections 232 and 233 of the Corporations Act, 2001 (Cth)(Act).

Sifris J at first instance held that Daiwa had not, either directly or through its subsidiary, breached the good faith and reasonable endeavours clauses by carrying on the business of producing and marketing wine in cans for the reason that:

there was never any agreement that the subsidiary would stop its pre-existing business of producing wine in cans for sale in the Japanese market;
neither Daiwa or the subsidiary considered that they were in any infringement of Barokes’ patent which they consistently communicated to Barokes;
neither Daiwa or the subsidiary agreed that the subsidiary was required to pay any license fee to Barokes which view was consistently communicated to Barokes; and
each of Knights Quest and SMS, the applicants in the oppression proceeding were aware of each of these matters.

His Honour concluded that Daiwa and the subsidiary were entitled to carry on the business of producing and marketing wine in cans, that they made no assurances to the contrary and that the shareholders deed did not restrict such activity.

As for the winding up proceeding, His Honour said that it was beyond doubt that the relationship between the parties “has broken down irretrievably” and as the joint venture had failed with “the clearest of deadlock” at the board level, it was appropriate for Barokes to be wound up.

Knights Quest and SMS appealed to the Court of Appeal. On 19 December 2018, Justices Beach, Kyrou and Hargrave granted the appellants leave to appeal however dismissed the appeal.

Howard Chait, Partner, Meerkin & Apel