Plzen Pty Ltd v P&O Wharf Management Pty Ltd
[2007] VSC 318
•5 September 2007
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 6229 of 2007
| PLZEN PTY LTD (ACN 065 905 571) | Plaintiff |
| v | |
| P&O WHARF MANAGEMENT PTY LTD (ACN 100 737 264) | Defendant |
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JUDGE: | HABERSBERGER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 23 August 2007 | |
DATE OF JUDGMENT: | 5 September 2007 | |
CASE MAY BE CITED AS: | Plzen Pty Ltd v P&O Wharf Management Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2007] VSC 318 | |
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PRACTICE AND PROCEDURE - Pre-trial discovery - Appeal from order of Master – Access to documents sought in regards to change of control of one party to a joint venture agreement – Contractual construction – Form of relief - “Reasonable cause to believe [of] right to obtain relief” from party - Supreme Court (General Civil Procedure)Rules 2005, r. 32.05(a) – Appeal dismissed
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Ms H Symons SC, with Mr P Crutchfield | Clayton Utz |
| For the Respondent | Mr P Wood, with Mr A Cameron | Ebsworth and Ebsworth Lawyers |
HIS HONOUR:
By notice dated 2 August 2007 the respondent, P&O Wharf Management Pty Ltd (“POWM”), appealed against the order of a Master made on 27 July 2007 that it make discovery of, and produce for inspection to the applicant, Plzen Pty Ltd (“Plzen”), two identified documents. The application by Plzen by originating motion filed on 17 May 2007 was made pursuant to r.32.05 and r.32.09 of the Supreme Court (General Civil Procedure) Rules 2005 (“the Supreme Court Rules”). It was supported by the affidavit of Bernard Basil McInerney, the company secretary of Plzen, sworn on 16 May 2007.
The relevant facts were not in dispute. By an agreement made on 2 December 2002 (“the joint venture agreement”), Plzen and POWM entered into a joint venture in relation to, in part, the management and development of wharf facilities and related infrastructure for motor vehicle cargo stevedoring. Each of them became the owner of 50% of the issued share capital in Australian Amalgamated Terminals Pty Ltd (“AAT”), which conducted the joint venture business in accordance with the terms of the joint venture agreement.
In January 2007, DP World Australia Pty Ltd (“DP World”), the then parent of POWM through its subsidiary P&O Ports Limited (“P&O”), announced its intention to engage in a joint logistics alliance with a consortium (“the Consortium”) led by a private equity fund, Kaplan Equity Limited (“KEL”), whereby the Consortium would acquire, among other things, a 75% interest in P&O Automotive and General Stevedoring, which conducted the general stevedoring business and the automotive stevedoring business of DP World.
That announcement caused Plzen’s solicitors, Clayton Utz, to write to POWM on 6 February 2007 advising that Plzen had reasonable cause to believe that it may have the right to obtain relief against POWM in respect of the operation of clauses 13.8, 19 and 23.9 of the joint venture agreement and requesting that they be provided with a number of documents. Plzen no longer relies on clause 19 (confidentiality) or clause 23.9 (assignment of rights). Clause 13.8 (change of control) is, however, crucial to the outcome of this application.
Clause 13.8 of the joint venture agreement states:
(a)In the event of a Change of Control in respect of any party the following provisions shall apply:
(b)Change of Control for the purposes of this clause means any transfers or allotments of shares in the capital of any party (or that party’s holding companies) which have the effect of altering the identity of the person or group of persons who held directly or indirectly more than one half of the capital of that party (or that party’s holding companies) immediately prior to such transfer or allotment. …
(c)The party affected by a Change of Control must immediately notify the other parties in writing of that fact and supply all relevant material particulars of the Change of Control to the other parties.
(d)Upon a Change of Control (whether or not notified under clause 13.8(c)) the party affected by the Change of Control will be deemed to have served a Transfer Notice under clause 13.2, with the Offer Price of Fair Market Value, and the provisions of clauses 13.2, 13.5 and 13.6 will apply with any necessary changes.
By a letter dated 20 February 2007 POWM’s solicitors, Ebsworth & Ebsworth, responded to Clayton Utz’s request for documents. They enclosed a document headed “P&O Wharf Management – Acquisition Term Sheet” (“the Term Sheet”), which was said to contain the terms of the proposed alliance between entities associated with KEL and DP World insofar as they related to POWM. Ebsworth & Ebsworth further stated that it was POWM’s position that the proposed arrangement, when implemented, would not trigger the change of control provisions of clause 13.8 of the joint venture agreement.
The Term Sheet set out the basis on which a KEL subsidiary (“K1”) would “acquire an interest” in POWM. It stated that K1 would acquire 49% of the issued share capital of POWM. But it also provided that there would be a shareholders’ agreement with respect to POWM containing provisions such as the following:
(a)the nominees of K1 would be appointed as the sole directors of POWM (clause 20);
(b)P&O would not exercise any rights or undertake any material action in relation to its 51% shareholding without the prior written consent of K1 (clause 20);
(c)K1 would be given an irrevocable proxy in respect of the 51% shareholding (clause 21(a));
(d)K1 would be given a power of attorney to exercise any right in respect of the 51% shareholding, but not to take any action that would constitute a change of control (clause 21(b));
(e)POWM would appoint the nominees of K1 to the Board of AAT (clause 22);
(f)POWM would not undertake certain actions in respect of the appointment of directors of AAT or the exercise of voting rights at the Board or in respect of its shares in AAT without K1’s prior written consent (clause 22);
(g)if requested by K1, P&O would procure POWM to appoint K1 as its manager to undertake the management of all affairs of POWM including the conduct of all matters relating to the AAT shares (clause 23);
(h)K1 was given an option to purchase the remaining 51% of the issued shares in POWM at an exercise price of $13,493,141, which was the same amount of a loan by K1 to P&O (clauses 15, 10);
(i)interest payable on that loan was equal to all financial benefits received in respect of the 51% shareholding including dividends, the proceeds of any capital reduction, the interest of P&O in surplus assets of POWM on the winding up of POWM, and any other benefit paid or made available to P&O (clause 13);
(j)K1 would meet all funding obligations of POWM under the joint venture agreement (clause 18).
The Term Sheet expressly stated that it was the intention of the parties that a change of control (as defined in clause 13.8 of the joint venture agreement) would not occur (clause 8(b)). The parties also agreed that they would consider in good faith any other alternative structure that might be proposed to give effect to the substance of the transaction, including P&O declaring a trust over the 51% shareholding in favour of K1, but not so as to result in a change of control (clause 25).
Following consideration of the documents provided by POWM’s solicitors, Clayton Utz asserted in a letter dated 27 February 2007 that the proposed arrangement constituted a change of control under clause 13.8 of the joint venture agreement.
On 2 April 2007 Ebsworth & Ebsworth wrote to Clayton Utz advising that the transaction “now proposed” was “only the acquisition of 49% of the issued share capital of POWM by a Kaplan entity from DP World Australia“ and that the Term Sheet would be “rescinded and cease to have any legal or commercial effect”. They further advised that there was “no legal obligation to provide your client with any further information in relation to these matters.”
By a letter dated 3 April 2007 Clayton Utz sought a copy of the document rescinding the Term Sheet. They further stated that Plzen reserved its position in relation to the assertion that the proposed acquisition would not trigger the change of control provisions in clause 13.8 of the joint venture agreement.
The intention of the Consortium to acquire “an effective 24.5% interest” in AAT “via a 49% interest” in POWM was confirmed in an announcement to the Australian Stock Exchange on 10 April 2007. On the following day, Ebsworth & Ebsworth provided to Clayton Utz a copy document dated 5 April 2007 (“the letter agreement”) in which three Kaplan parties, including KEL and K1, and two DP World parties, including POWM, confirmed their agreement that, “subject to paragraph 4”, to the extent that it was legally binding on them, each of the parties rescinded the Term Sheet and released the other parties from all obligations under the Term Sheet. Paragraph 4 of the letter agreement stated:
Nothing in paragraphs 1 or 2 releases any Party from its obligations under the share purchase agreement with respect to shares representing 49% of the issued share capital of POWM between KFM Logistics Investments 6 Pty Limited and DPW of the same date as this letter (SPA) including the obligation to enter into and give effect to the terms of the Shareholders Agreement attached to the SPA from Completion.
An announcement to the Australian Stock Exchange on 1 May 2007 indicated that the Consortium had actually acquired the 49% interest in POWM.
It was the share purchase agreement and the shareholders agreement attached to the share purchase agreement referred to in the letter agreement which were the subject of the application by Plzen for pre-trial discovery. That application followed further correspondence between the solicitors for Plzen and the solicitors for POWM in which the former unsuccessfully sought copies of the two documents. In an attempt to avoid legal action, Plzen’s solicitors sought a warranty from DP World concerning the ambit of the Consortium’s acquisition of the 49% of POWM’s issued share capital. That request was declined.
Rule 32.05 of the Supreme Court Rules provides as follows:
32.05 Discovery from prospective defendant
Where—
(a)there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description the applicant has ascertained;
(b)after making all reasonable inquiries, the applicant has not sufficient information to enable the applicant to decide whether to commence a proceeding in the Court to obtain that relief; and
(c)there is reasonable cause to believe that that person has or is likely to have or has had or is likely to have had in that person's possession any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist the applicant to make the decision—
the Court may order that that person shall make discovery to the applicant of any document of the kind described in paragraph (c).
The argument before the Master and before me concerned only the requirement set out in paragraph (a). There was no dispute that if paragraph (a) were satisfied, Plzen had also satisfied paragraphs (b) and (c).
In my opinion, the authorities relied on by the parties establish the following relevant principles concerning an application such as this:
(a) the rule is to be construed benevolently[1] or beneficially;[2]
[1]Schmidt v Won [1998] 3 VR 435 at 445 per Ormiston JA, with whom Charles and Batt JJA agreed.
[2]St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 at [26(a)] per Hely J.
(b)its primary object is to advance the administration of justice by enabling a prospective plaintiff to make an informed decision on proper material about whether or not to bring an action;[3]
[3]Unity Energy Limited v Energy Risk Management Pty Ltd [1998] VSC 133 at [36] per Gillard J.
(c)the test for determining whether the applicant has “reasonable cause to believe” is an objective one;[4]
[4]United Energy at [48]; St George Bank at [26(c)].
(d) the test is satisfied if the applicant “may have” the right to obtain relief;[5]
[5]United Energy at [50]; St George Bank at [26(c)].
(e)the applicant does not have to show that it has a prima facie case that it has the right to obtain relief;[6]
[6]United Energy at [51]; St George Bank at [26(c)].
(f) an application must not be based upon a mere hunch;[7]
(g)“belief requires more than mere assertion and more than suspicion or conjecture”, the “evidence must incline the mind towards the matter or fact in question”;[8]
(h)but the assent of belief is given on more slender evidence than proof and the grounds which can reasonably induce the required inclination of the mind may, depending on the circumstances, leave something to surmise or conjecture;[9]
(i)it is no answer to an application for pre-trial discovery to say that it is in the nature of a “fishing” expedition because that is permitted by the rule if the required conditions are made out;[10]
(j)if there is no reasonable cause to believe that one of the necessary elements of a potential cause of action exists, that would dispose of the application insofar as it is based on that cause of action;[11]
(k)while uncertainty as to only one element of a cause of action might be compatible with the required “reasonable cause to believe”, uncertainty as to a number of such elements may be sufficient to undermine the reasonableness of the cause to believe;[12]
(l)control of any excesses could be exercised as a matter of the Court’s discretion in the particular circumstances of each case.[13]
[7]Schmidt at 445; United Energy at [33].
[8]St George Bank at [26(d)].
[9]George v Rockett (1990) 170 CLR 104 at 116 per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ.
[10]Schmidt at 445; St George Bank at [26(h)].
[11]St George Bank at [26(d)].
[12]Glowatzky v Insultech Group Pty Ltd (1997) 39 IPR 215 at 224 per Branson J; St George Bank at [26(e)].
[13]St George Bank at [26(a)].
Ms Symon SC, who appeared with Mr Crutchfield on behalf of Plzen, submitted that, given the above history, there was reasonable cause to believe that it may have the right to obtain relief against POWM. She pointed out that the Term Sheet contemplated a share purchase agreement which would have the effect of K1 holding, directly, 49% of the capital in POWM and a shareholders’ agreement which would have the effect of K1 holding, indirectly, 51% of the capital of POWM by reason of the control given K1 over the exercise of the voting and other rights attached to those shares. Counsel submitted that, according to paragraph 4 of the letter agreement, the actual transfer of shares was to be structured in the same way, namely by a share purchase agreement “including the obligation to enter into and give effect to the terms” of a shareholders’ agreement. Accordingly, Ms Symon submitted, there was reasonable cause to believe that the transfer of 49% of the shares in POWM would be effected on terms which gave the Kaplan entity effective control over 100% of these shares, thereby causing a change of control in POWM and bringing clause 13.8 into play.
Mr Wood, who appeared with Mr Cameron on behalf of POWM, submitted that on a proper construction of clause 13.8 even this situation would not be caught because there would have been no “transfer” or “allotment” which had the effect of altering “the identity” of the person holding more than one half of the capital of POWM. The only “transfer” was the acquisition by the Kaplan entity (“K6”) of 49% of the shares, which was less than one half of the capital of POWM. Nothing in the facts resembled an “allotment” of shares.[14] Thus, the change of control provisions were not triggered. Counsel therefore submitted that Plzen simply did not have a cause of action against POWM and accordingly the requirements of r.32.05(a) had not been established.
[14]Reference was made to Coles Myer Ltd v Commissioner of State Revenue [1998] 4 VR 728 at 740 per Ormiston JA, with whom Winneke P agreed, as to the meaning of “transfer” and to Ord Forrest Pty Ltd v Federal Commissioner of Taxation (1974) 130 CLR 124 at 148 per Gibbs J, as to the meaning of “allotment”.
In response, counsel for Plzen submitted that it was not the Court’s task on this application/appeal to determine the construction point. Ms Symon argued that the Court could not do so without looking at the very documents which gave rise to the construction point and in the absence of evidence as to the commercial and other circumstances surrounding the making of the joint venture agreement.
In any event, Ms Symon submitted, there were a number of reasons why POWM’s construction argument might well be incorrect. First, she submitted that it ignored the presence of the words “directly or indirectly” in clause 13.8(b). They might be said to contemplate the de facto control which may have been arranged by the new share purchase agreement and shareholders’ agreement.
Secondly, Ms Symon submitted that the purported construction argument divorced clause 13.8 from its context. Further, she submitted that the strict and technical interpretation of clause 13.8 was not consonant with the contemporary approach to contractual construction[15] and that it defeated the obvious purpose of the pre-emption provisions in clause 13 which was to ensure that each of the parties to the joint venture maintained control, not only of the business, but with whom it was associated in business.
[15]Reference was made to authorities such as K&S Lake City Freighters Pty Ltd v Gordon & Gotch Limited (1985) 157 CLR 309 at 315 per Mason J; McCann v Switzerland Insurance Limited (2000) 203 CLR 579 at [22] per Gleeson CJ; Pacific Carriers Limited v BNP Paribas (2004) 218 CLR 451 at [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; and MLW Technology Pty Ltd v May [2005] VSCA 29 at [76] per Gillard AJA, with whom Winneke P and Buchanan JA agreed.
Thirdly, counsel for Plzen submitted that POWM’s construction argument deprived another provision of the joint venture agreement, clause 13.7, of any sensible operation. That clause relevantly stated:
(a)Nothing in clause 13 shall prohibit or restrict a Shareholder from transferring its Shares [i.e. shares in AAT] to a Related Body Corporate where the Related Body Corporate agrees to be bound by the provisions of this Agreement.
“Related Body Corporate” was defined in clause 1.1 of the joint venture agreement to have the meaning given to that term in the Corporations Act 2001 (Cth) (“the Act”). The definition of related body corporate in s.9 of the Act referred to s.50. According to that section, a subsidiary and a holding company are related to each other. By s.46 of the Act, a body corporate is a subsidiary of another body corporate if that other body corporate, amongst other things, controls the composition of the first body corporate’s board or is in a position to cast, or control the casting, of more than 50% of the maximum number of votes that might be cast at a general meeting of the first body corporate. Ms Symon accordingly submitted that were Kaplan’s acquisition of a 49% shareholding in POWM to be effected on terms such as those contemplated by the Term Sheet, POWM would become a subsidiary of Kaplan. It would then be free to transfer its shares in the joint venture company, AAT, to Kaplan pursuant to clause 13.7. Thus, it was submitted, Plzen’s pre-emptive rights over those shares pursuant to clause 13 would be defeated by the nonsensical construction of clause 13.8 advanced by POWM.
POWM’s answers to these points were, first, that without construing clause 13.8, it was impossible to conclude that there was reasonable cause to believe that there was a right to relief. Counsel further submitted that the reference to a person or group of persons “indirectly” holding more than one half of the capital was to allow for the situation where a transfer might affect the identity of a “grandfather”.
Secondly, Mr Wood submitted that the context within which clause 13.8 was to be construed had never been identified by Plzen. Moreover, he submitted that the authorities relied on by Plzen as being contrary to the strict and technical approach, were not apposite when the detailed joint venture agreement had been drafted by lawyers and not businessmen. It was submitted that there were many types of change of control provisions and effect should be given to the particular definition chosen by the parties.
The second limb of the argument advanced by counsel for POWM, in opposition to the application, was the submission that even if Plzen overcame the above construction hurdle, the requirements of r.32.05(a) had still not been established because there was no reasonable cause to believe that the applicant may have the right to obtain relief in the court. Mr Wood submitted that none of the only possible forms of relief that could be sought, namely a declaration, an award of damages, or an order for specific performance, would be granted by a court.
First, Mr Wood submitted that a court would not grant a declaration in either of the only two possible forms, namely a declaration that there had been a change of control within the meaning of clause 13.8 or a declaration that POWM was in breach of clause 13.8.
Before considering this submission, it is necessary to set out the remaining parts of clause 13 not referred to above. It was headed “Rights of Pre-emption over Shares”:
13.1 General
A Shareholder may not dispose of any of its Shares except by a transfer of the entire legal and beneficial interest in those Shares in accordance with the terms of this Agreement. No Shareholder can offer their Shares for sale to a third person without first complying with the procedures in this clause 13.
13.2 Transfer Notice
A Shareholder wishing to sell Shares (Transferor) must give notice in writing (Transfer Notice) to the Company of:
(a)(Offer) Whether any offer has been made for the purchase of the Transferor’s Shares from a third person (Offeror);
(b)(Price) The price per Share at which the Offeror has offered to purchase the Transferor’s Shares or the price at which the Transferor is willing to sell the Transferor’s Shares (Offer Price); and
(c)(Number) The number of Transferor’s Shares which the Transferor wishes to sell.
The Transfer Notice must be lodged at the registered office of the Company and will constitute the Company as agent for the sale of the Shares specified (Transfer Shares) to the other Shareholders (Offeree Shareholders).
13.3 Offer to Shareholders
(a)(Offer) The Company must within 7 days after it has been served with a Transfer Notice, offer by written notice the Transfer Shares to the Offeree Shareholders, pro rata to their respective Shareholdings in the Company. The offer to the Offeree Shareholders to purchase at the Offer Price will be open for a period of 21 days (Offer Period) after which, if not accepted, it will be deemed to have been declined. Offeree Shareholders may bid for more than their pro-rata entitlements;
(b)(Partial Acceptance) The offer made to the Offeree Shareholders may be accepted in whole or in part or it may be rejected by the Offeree Shareholders; and
(c)(Repeat Applications) If after completion of the procedures in clause 13.3(a) the Offeree Shareholders have not agreed to purchase all the Transfer Shares, then after allocating in full any bids in excess of pro-rata entitlements, the Company must make repeat offers to those accepting Offeree Shareholders, with any necessary changes, until demand for the Transfer Shares has been exhausted and so that such subsequent offers can be concluded in a reasonable period of time.
13.4 Non or Partial Exercise of Pre-Emption Right
(a)(Sale) If within a period of 28 days after being served with a Transfer Notice, the Company has not found an Offeree Shareholder prepared to purchase the Transfer Shares in the manner set out in clause 13.3, the Transferor may sell and transfer those Transfer Shares to the Offeror at the Offer Price; and
(b)(Partial Sale) Where the Offeree Shareholder accepts only part of the Transfer Shares offered, the Transferor may sell and transfer the unaccepted Transfer Shares to the Offeror at the Offer Price.
Any such sales must be made as soon as reasonably practicable by the Transferor.
13.5 Default
Following the full or partial acceptance by the Offeree Shareholders of the offer in clause 13.3, if the Transferor defaults in transferring the Transfer Shares, then the Company may receive the purchase moneys on behalf of the Transferor. The Transferor will be deemed to have appointed any Authorised Officer of the Company as the Transferor’s agent to execute a transfer or transfers of the Transfer Shares in favour of the Offeree Shareholders. Upon execution of the transfer(s), the Company will cause the name of the Offeree Shareholders to be entered into the register of Shareholders as the holder of the relevant Shares and hold the purchase moneys in trust for the Transferor. A receipt given by the Company for the purchase moneys will be a good discharge of the Offeree Shareholders.
13.5 Overcoming Difficulties
The Directors may make provision as they think fit for the settlement of any difficulties which may arise in regard to the allocation or transfer of Shares and in particular, but without limitation, any difficulties which might otherwise result in the breaking up of Shares into fractions.
Counsel for POWM submitted that a declaration that there had been a change of control within the meaning of clause 13.8 would not be granted on the basis that it would have no practical utility because Plzen had failed to exercise any of its rights within the time frame prescribed by clause 13.3 of the joint venture agreement. Counsel referred to the decision of Young J, as he then was, in Wilcox v Kogarah Golf Club Ltd[16] in which his Honour refused to make a declaration of invalidity of the suspension of Mr Wilcox’s membership of the golf club for one month when the period of suspension had already expired. Young J said:
A person who seeks a declaration needs to show that the declaration is of utility at the time when the Court makes its order.[17]
[16](1995) 14 ACLC 421.
[17](1995) 14 ACLC 421 at 424.
Mr Wood also submitted that a court would not grant a declaration that POWM was in breach of clause 13.8, because the appropriate form of relief in such a situation would normally be damages and not a declaration.
Secondly, counsel submitted that, in this case, no damages would be awarded for breach of clause 13.8 because Plzen would not have suffered any loss as a result of not having bought the shares at “Fair Market Value”. That term was defined in the joint venture agreement as meaning:
[T]he value of a Share determined:
(a) by the agreement of the parties; or
(b)where the parties cannot agree, by an agreed major firm of chartered accountants (in the absence of agreement, whom the President of the Institute of Chartered Accountants appoints) who shall act in the capacity of an independent expert whose decision shall be binding on the parties and whose valuation must be based on the following principles:
(i)the value of a Share shall be calculated having regard to the value of the whole Company as a going concern;
(ii)there is to be no discount for the non-negotiability of a Share; and
(iii)there is to be no discount because no Share represents a controlling interest in the Company,
but in any case, must be calculated having regard to the Company as a whole having a value equal to at least the value of the net tangible assets of the Company.
Mr Wood submitted that this definition meant that in this case the only damage suffered by Plzen would be the lost opportunity to invoke the buy out mechanism under clauses 13.2 and 13.3 of the joint venture agreement which, as the purchase had to have been at “fair market value”, would mean that, in fact, Plzen had suffered no loss in monetary terms.
Thirdly, counsel for POWM submitted that a court would not grant specific performance to compel a transfer of the 50% of the shares in AAT[18] held by POWM because of the failure of Plzen to comply with the timing requirements of clause 13.3 of the joint venture agreement. There was no evidence to suggest that there had been any attempt by AAT to comply with the 7 day time limit to offer the shares by written notice or by Plzen to comply with its 21 day time limit to accept the offer.
[18]The written outline of submissions filed by counsel for POWM referred to “a transfer of 50% of the shares in the Respondent”. I have assumed that they intended to refer to the shares in AAT.
The submission by counsel for Plzen in response to the relief argument was that, until the documents were seen, it was not clear what cause or causes of action Plzen might have. Various forms of relief might be available to Plzen, including damages for the loss of opportunity to extract itself from a now unsatisfactory joint venture business. Further, it was submitted that the timing arguments were wrong because it would be open to Plzen to argue that POWM could not rely on its own breach of its contractual obligations to defeat Plzen’s rights.
Having carefully considered all of the above arguments, I am satisfied that there is reasonable cause to believe that Plzen may have the right to obtain relief from POWM. I accept for the purposes of this application that POWM is partially correct in its construction of clause 13.8 of the joint venture agreement and that what is therefore required is a transfer of shares in the capital of POWM which has the effect of altering the identity of the person or group of persons holding directly or indirectly more than one half of that capital. (I accept that it is arguable that “indirectly” is not limited to a grandfather situation.) Nevertheless, I consider that there is reasonable cause to believe that discovery and inspection of “the share purchase agreement” and the attached “Shareholders Agreement” referred to in paragraph 4 of the letter agreement may reveal facts which would enable Plzen to claim that, by the transfer of 49% of the shares to K6, pursuant to the share purchase agreement including the attached shareholders agreement, the Kaplan group or the Consortium or some other entity other than DP World now holds directly and indirectly more than one half of the capital of POWM. Just what provisions are contained in the shareholders agreement are, of course, not yet known, but only some of the more important provisions of the Term Sheet would need to be repeated for Plzen to be able to argue, in my opinion, that there was at least an indirect holding over the 51% interest of POWM. This is sufficient to dispose of the first limb of POWM’s opposition to the application.
In terms of the argument about relief, I am also satisfied that there is reasonable cause to believe that, in the above circumstances, Plzen may have the right to obtain some form of relief, whether it be by way of a declaration, or an award of damages or an order for specific performance. It seems to me to be an extraordinary proposition that a court would not provide any assistance to Plzen despite POWM’s (assumed for this purpose) clear breach of clause 13.8 of the joint venture agreement.
Apart from the submissions made on this point by counsel for Plzen, which I accept, it seems to me that arguably there is a serious flaw in the submissions by counsel for POWM insofar as they rely on the timing requirements of clause 13.3. Mr Wood correctly pointed out clause 13.8(d) operated “whether or not” the party affected had notified the other parties of the Change of Control under clause 13.8(c). But counsel’s submission assumed, arguably wrongly in my opinion, that clause 13.3 applied in that situation. Clause 13.8(d) refers only to the provisions of clauses 13.2, 13.5 and 13.6 applying “with any necessary changes”. There is no mention of clause 13.3, for the very good reason, I believe, that its provisions are simply not appropriate to the situation of a deemed service of a Transfer Notice following a Change of Control.
What would happen in this situation is that the party not affected by the Change of Control (Plzen) could accept the deemed offer of the shares at “Fair Market Value”, pursuant to clause 13.8, by paying the purchase moneys to the party affected by the Change of Control (POWM) and receiving a transfer of the shares. If however POWM were not co-operating then, pursuant to clause 13.5, Plzen could pay the purchase moneys to AAT to be held on trust for POWM; any authorised officer of AAT could execute a transfer of the shares in favour of Plzen; and Plzen’s name could be entered into the register as the holder of those shares. There are no apparent time limits in clause 13.5 governing the taking of those steps. In these circumstances, it seems to me that POWM’s argument, that a court would not assist Plzen to vindicate its rights by making a declaration that there had been a change of control within the meaning of clause 13.8 or ordering specific performance of POWM’s obligations under clause 13, lacks validity.
I, therefore, conclude that POWM’s appeal against the order of the Master should be dismissed.
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