Birnie Capital Property Partnership Limited v Birnie HC Auckland CIV 2010-404-3000

[2010] NZHC 1228

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

COMMERCIAL LIST

CIV 2010-404-3000

BETWEEN  BIRNIE CAPITAL PROPERTY PARTNERSHIP LIMITED Plaintiff

ANDWILLIAM NORMAN BIRNIE First Defendant

ANDSTEPHEN ROBERT NORRIE Second Defendant

ANDW N BIRNIE & ORS AS TRUSTEES OF THE PAONEONE SETTLEMENT TRUST NO 5

Third Defendants

ANDPICASSO NOMINEES LIMITED Fourth Defendant

Hearing:         2 July 2010

Appearances: Z Kennedy and M Pascariu for the applicants

M D O'Brien for the respondents

Judgment:      20 July 2010

JUDGMENT OF ALLAN J

In accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 11 am on Tuesday 20 July 2010

Solicitors:

Minter Ellison, Auckland

Bell Gully, Wellington

BIRNIE CAPITAL PROPERTY PARTNERSHIP LIMITED V WILLIAM NORMAN BIRNIE AND ORS HC AK CIV 2010-404-3000  20 July 2010

[1]      This is a derivative proceeding commenced pursuant to leave granted by

Asher J under s 165 of the Companies Act 1993, in a judgment delivered on 22 April

2010:   Peters v Birnie.[1]    The defendants now apply for a stay of the present proceeding pending an appeal to the Court of Appeal against the judgment of Asher J.    For  its  part,  the  plaintiff  applies  for  a  priority fixture.    Each  application  is vigorously opposed.

Background

[1] HC Auckland CIV-2009-404-8119, 22 April 2010.

[2]      In November 2007, certain investors agreed to invest in a number of property projects then owned or controlled by Mr Birnie.  The intention of the parties was that the investors would become involved in the development of properties, rights to which were held by Mr Birnie, either personally or through the Paoneone Settlement Trust No.5  (Paoneone),  the third defendant, or Picasso Nominees  (Picasso), the fourth defendant.

[3]      The plaintiff was incorporated to serve as the vehicle through which the investors would participate in the projects concerned.

[4]      Through Paoneone, Mr Birnie became entitled to 48.1% of the shares in the plaintiff, and the investors took the remaining 51.9%.  Mr Birnie’s interests became known as the A shareholders, and the investors became the B shareholders.

[5]      The plaintiff was incorporated on 20 November 2007.  On the following day a Shareholders’ Agreement was signed.   Pursuant to that agreement, A and B shareholders could each appoint a maximum of four directors to the Board.  A valid resolution required a vote of the majority of directors, including at least one group A and one group B director.  The result was that no resolution of the plaintiff could be passed without the agreement of at least one director representing the group  A shareholders and one representing the group B shareholders.

[6]      By mid 2009 the group A directors were Mr Birnie and a business associate, Mr Norrie.   The group B directors were Mr Evans and Mr Gardiner (for whom Mr Quinn was an alternate).   Mr McCullough was appointed to be independent chairman.

[7]      In early 2008 an Agreement for Sale and Purchase of Property Project was executed (the property agreement).  The vendors were various interests of Mr Birnie. The purchaser was the plaintiff.  There was an associated Management Agreement.

[8]      Under the property agreement the plaintiff purchased from Mr Birnie and his interests, interests in:

a)        properties on Kawau Island;

b)        an agreement to purchase a building development at 1 Featherstone

Street, Wellington;

c)        what the property agreement termed “the Lion Rock assets”.

[9]      These assets were variously owned by Mr Birnie, Paoneone and Picasso.  The third schedule of the property agreement defined the Lion Rock assets as including shares in Lion Rock Golfcourse Ltd and Lion Rock Development Ltd, two internet names and all intellectual property plans, agreements, and other assets and rights of the Lion Rock vendors relating to the Lion Rock Golfcourse Development.

[10]     In  addition  and  importantly,  the  plaintiff  became  entitled  to  acquire  the interest of Mr Birnie in respect of two blocks of land on the Pererua Peninsula.  The first block, of 94.10 hectares, was owned by John R Paterson & Co Ltd which had entered into an agreement to sell it to Mr Birnie.   The second block, of 95 hectares, was owned by Paoneone.  The intention of the parties was that the two properties together would be developed into a golf course by the plaintiff

[11]     Pursuant to the property agreement the plaintiff was to pay $19 million for the Lion Rock assets.  It was intended that this sum be contributed as to $8 million in

cash by the investors and that the balance be satisfied by the issue of 11 million shares in the plaintiff.  They were subsequently placed in the name of Paoneone.

[12]     Paragraph 8.3 of the property agreement is a pivotal provision for the purpose of this proceeding.  It reads:

8.3      Transfer back of Lion Rock Assets: if the conditions in either:

(a)the  agreement  for  sale  and  purchase  of  the  Paterson’s property referred to in clause 4(a) of the Third Schedule; or

(b)       if  the  agreement  for  sale  and  purchase  for  part  of  the Paoneone Farm referred to in clause 4(b) of the Third Schedule.

are not satisfied in accordance with the terms of the relevant agreement  and  the  Purchaser  is  not  able  to  acquire  both  the properties referred to in those agreements as a result of such failure, the Purchaser, at its discretion, may give written notice to the Lion Rock Vendors within 10 working days that it wishes to transfer back the Lion Rock Assets to the Lion Rock Vendors.

[13]     In the course of argument, counsel have referred to the plaintiff’s entitlement to give a 10 working day notice to the Lion Rock Vendors under paragraph 8.3 as “the put option”.  Pursuant to paragraph 8.4, where the put option is exercised the Lion Rock Vendors were required to take a transfer back of the Lion Rock assets and pay to the plaintiff the sum of $19 million in cash.

[14]     During  2008  and  2009  the  property  market  deteriorated.    The  group  B directors formed the view that certain conditions in the agreements to purchase land on the Pererua Peninsula had not been satisfied by the relevant dates, and sought to have the Board agree that a notice exercising the put option be given to the Lion Rock Vendors, with a view to unwinding the purchase of the Lion Rock assets.

[15]     The group A directors, and in particular Mr Norrie, disagreed.   A formal resolution was put to the Board on 31 July 2009 by certain group B directors.   It sought to require the Board to take steps to exercise the put option.  The resolution was opposed by Messrs Birnie and Norrie and was not passed.

[16]     On 30 September 2009, John R Paterson & Co  Ltd, one of the Pererua

Peninsula vendors, cancelled the agreement between it and Mr Birnie on the grounds

that a vendor loan condition had not been satisfied, and that there had been a failure to obtain a new title within the time limits provided in the agreement.  A deposit of

$1 million paid by Mr Birnie was refunded to the plaintiff.  It is common ground that the cancellation was valid.

[17]     On 12 October 2009  Mr Peters and Mr Quinn (group B directors),  gave notice to the Lion Rock Vendors of the exercise of the put option on behalf of the plaintiff.  They had neither the approval nor the support of any group A director.

[18]     At a further meeting of the plaintiff’s Board on 19 October 2009, the group B directors supported two alternative resolutions calling for the exercise of the put option.   Those resolutions were not supported by Mr Norrie.   Mr Birnie did not attend.   A later request by the group B directors for Messrs Birnie and Norrie to reconsider their position in December 2009 also proved fruitless.

[19]     Valuation evidence before the Court suggests that the land to be acquired by the plaintiff under the two agreements for sale and purchase was, in October 2009, worth between $10-13 million.  The plaintiff had already paid $19 million for the Lion Rock assets, and under the two agreements for sale and purchase was obliged to pay a further $16 million plus GST.   The reliability of the valuation evidence is disputed  by the  defendants,  but  on  any view  it  is  logical  to  accept  for  present purposes that the commercial benefits of the transaction into which the plaintiff had entered with Mr Birnie and his interests in respect of the Lion Rock assets had largely dissipated by late 2009.

[20]     It was against that background that Messrs Peters and Quinn sought and obtained the leave of this Court to commence the present proceeding.

The statement of claim

[21]     The plaintiff pleads two causes of action;  the first against Messrs Birnie and Norrie alone, alleges breach of fiduciary and statutory duties under the Companies Act 1993.   It is claimed that those defendants breached their duties by permitting their personal interests to conflict with those of the plaintiff, and by according them

priority over those of the plaintiff, and further that they opposed the put option resolutions  in  circumstances  where  those  resolutions  were  plainly  in  the  best interests of the plaintiff, but could not be passed without the support of the first or second defendants.

[22]     In respect of the first cause of action the plaintiff seeks both a direction that the first and second defendants ratify the issue of the notice exercising the put option, and an order for damages in respect of any consequential loss.

[23]     The  second  cause  of  action  is  mounted  against  Mr Birnie  and  business entities associated with him, namely Paoneone and Picasso.  The plaintiff alleges that the notice exercising the put option was valid and effective (or alternatively the Lion Rock Vendors were estopped from claiming that it was not), and seeks a declaration to that effect, together with judgment for $19 million.

[24]     The defendants have not as yet filed a statement of defence.   Instead, they have filed the present stay application.  But the Court is advised that the defendants deny there has been any breach of duty by the first or second defendant, and further contend that the proposed put option notice was invalid because it was neither duly authorised by a resolution of the plaintiff’s Board, nor given in circumstances which entitled the put option to be exercised.

The stay application

[25]     The application seeks a stay on two separate grounds.  The first concerns the existence of detailed dispute resolution provisions in the property agreement, including  a  reference  to  arbitration.    However,  during  the  hearing,  Mr O’Brien advised the Court that he relies solely upon his second ground, namely that in all the circumstances the proceeding ought to be stayed pending the determination of the defendants’ appeal to the Court of Appeal against the judgment of Asher J.

[26]     Rule 12(3) of the Court of Appeal (Civil) Rules 2005 provides that pending the determination of an appeal, this Court or the Court of Appeal may order a stay of

the proceeding in which the decision was given.   If this Court refuses a stay then application may be made to the Court of Appeal.

[27]     Counsel are agreed that, in considering a stay, it is proper for the Court to have regard to the non-exhaustive and non-determinative factors listed by Hammond J in Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd.[2].

[2] (1999) 13 PRNZ 48.

[28]     Factors there identified were:

a)        Whether the appeal might be rendered nugatory by the absence of a stay;

b)Whether the successful party would be injuriously affected by the grant of a stay;

c)        The overall balance of convenience and the relevance of preserving the status quo;

d)       The effect on third parties;

e)        The apparent strength of the appeal;

f)        The bona fides of the applicant as to the prosecution of the appeal;

g)        The novelty and importance of the questions involved;  and h)          Any public interest in the proceeding.

[29]     I deal in turn with such of these factors as were addressed by counsel for the parties.

Merits of the appeal

[30]     This ground assumed some prominence during the argument.

[31]     The central thrust of Mr O’Brien’s proposed argument in the Court of Appeal was not addressed, save perhaps in passing, before Asher J.  That much is confirmed by Mr Kennedy, who also appeared before Asher J.   Mr O’Brien, only recently instructed, did not.

[32]     The defendants’ desire to run in the Court of Appeal a point not relied upon to any substantial degree in the High Court raises the bar somewhat for them in the Court of Appeal.   Mr O’Brien’s proposed argument there is that Asher J wrongly assumed or concluded that the plaintiff had, at the relevant time, the right to exercise the put option.  Mr O’Brien will contend that it had no such right.  He develops that argument by suggesting that the put option was never intended to place the risk of compliance with every condition in the Paoneone or Paterson contracts upon the Lion Rock Vendors, nor was it intended to allocate to those vendors the risk that the plaintiff might be unable financially to proceed to complete the contracts and related projects.   But, he argues, that is how the put option has been treated by the B shareholders and their directors.

[33]     His argument in the Court of Appeal will be that the failure to satisfy the conditions in the contract arose as a result of the plaintiff’s own election and subsequent  default.    He  will  argue  that  the  plaintiff  could  have  proceeded  to complete the subdivision and obtain the new titles required by the Paterson contract, but chose not to do so.  In particular, the plaintiff decided not to put up a bond of

$160,000 associated with a condition which required temporary access roading in respect  of  the  Paterson  land.    That  led  to  a  delay in  the  issue  of  title  and  in consequence to a failure to complete arrangements for vendor finance.

[34]     Ultimately,  the  vendor  was  able  to  cancel  the  contract.    That  occurred, Mr O’Brien will argue, simply because the plaintiff chose not to do all such things as were  reasonably  necessary  to  enable  it  to  fulfil  the  conditions  imposed  by  the

Council.    Accordingly,  it  must be  taken to  have deliberately brought  about  the cancellation of the Paterson contract.

[35]     Mr O’Brien argues that clause 8.3, objectively construed, could not properly be said to have conferred on the plaintiff the right to give notice of the exercise of the put option in circumstances where the plaintiff could have complied with the resource consent condition requiring a bond, but chose not to do so.  That choice, allegedly based upon a falling property market, led directly to the vendor’s cancellation of the Paterson agreement.

[36]     A further point made by Mr O’Brien (apparently not raised before Asher J either) concerns an indemnity in favour of the Lion Rock Vendors on the part of the plaintiff, in respect of any breach by the plaintiff in relation to the assets obtained by the plaintiff from the Lion Rock Vendors.

[37]     A completely separate argument, which was apparently touched on before Asher J, concerns the fact that Mr Birnie secured from the vendor of the Paterson property, post cancellation, a further purchase option, valid until 1 December 2010. Mr Birnie says that he held, and still holds, this option for the benefit of the plaintiff if it chooses to accept it.  It is to be noted that the terms of that option are somewhat different from those in the Paterson agreement, in that there is no vendor finance provision  attached  to  the  option,  and  of  course  the  settlement  date  would  be different.

[38]     Mr Kennedy argues that the option obtained by Mr Birnie is irrelevant for present purposes;  the plaintiff was simply not obliged to become a party to it.

[39]     In essence, Mr O’Brien’s argument is that the plaintiff lost the Paterson contract as a matter of deliberate choice, with a view to giving notice of the exercise of the put option to the Lion Rock Vendors, in order to escape what had become a disadvantageous contract.

[40]     It follows, Mr O’Brien argues, that:

a)       There could be no valid claim against the first and second defendants who each held a reasonable belief that the proposed exercise of the put option was invalid;

b)Asher J wrongly assumed or concluded that the plaintiff had at the relevant time the right to exercise the put option;

c)       In any event, the unilateral purported exercise of the put option by two group B directors could not have been valid.  Clause 8.3 provides that the  put  option  may  be  exercised  within  10  working  days  of  the plaintiff becoming unable to acquire both properties.   There was no exercise of the put option within that time period;

d)The  doctrine  of  ratification  could  not  operate  to  extend  the  time frame.

[41]     In summary, Mr O’Brien argues that there is a good prospect that the Court of Appeal will reach a different conclusion from that of Asher J, and that this proceeding will accordingly be brought to an end.

[42]     Mr Kennedy  supports  the  Judge’s  finding  that  there  was  a  sufficient likelihood of success to justify the grant of leave, largely for the reasons he gave.  He summarises Asher J’s conclusions in the following way:

a)       If the put option was not exercised the plaintiff remained obliged to pay Mr Birnie a further $8 million for the Birnie land in addition to the $19 million already spent;

b)The total value of that land and the Paterson land (the subject of the separate sale and purchase agreement for a further $8 million, but subsequently cancelled by the vendor) was assessed to be no more than $10-13 million by valuers instructed by the plaintiff;

c)        At a basic commercial level proceeding with the investment would be

“grossly imprudent” and it was “doomed to failure”;

d)The development as a whole would likewise appear to be doomed in any event by reason of the cancellation of the Paterson agreement;

e)       The  exercise  of  the  put  option  would  relieve  the  plaintiff  of  the obligation to pay a further $8 million to Mr Birnie and provide the opportunity to recover the $19 million already spent which would otherwise be wasted;

f)        It was reasonably arguable that Mr Birnie in his personal capacity could be seen as taking advantage of his dual role by refusing to vote for the exercise of the put option in his capacity as a director, and it was also reasonably arguable that the put option could be ratified in any event;

g)       It could not be said that Mr Birnie would suffer any unfair prejudice resulting from ratification if he had indeed acted in breach of his fiduciary duty.

[43]     It seems that the focus of the defendants’ argument has changed somewhat since Asher J delivered his judgment.  Before him, counsel for the defendant appears to have concentrated on the detail of the various acts and omissions of Messrs Norrie and Birnie, in their capacity as directors of the plaintiff, with a view to showing that they were not in breach of their duties as directors.   Less attention seems to have been devoted to the point which is at the forefront of Mr O’Brien’s submission to me that the plaintiff itself was at fault because it brought about, by its own choice, the cancellation of the Paterson agreement, in order to avail itself of a collateral advantage, namely the opportunity to give notice of exercise of the put option.

[44]     To  the  extent  that  that  is  a  new  argument,  the  defendants  will  need  to persuade the Court of Appeal that it is a contention which ought to be entertained on appeal.  But having said that, I am satisfied that, as Mr O’Brien argues, the proposed appeal is not devoid of merit.   In other words, the case for the defendants is reasonably arguable on appeal.

[45]     Mr Kennedy mounted a detailed argument to the effect that the defendants’ prospects of success in the Court of Appeal were so limited that it was a proper inference that the defendants were simply engaging in delaying tactics with a view to burning the plaintiff off.   In truth his argument is simply the reciprocal of that addressed by Mr O’Brien in respect of the merits of the case in the Court of Appeal, but I deal with it under this head simply because Mr Kennedy chose to do so.  He relies upon the following principal factors:

a)       Under the relevant provisions of the Paterson and Birnie agreements the terms of any resource consent had to be acceptable to the plaintiff and to the vendor;

b)The conditions eventually imposed were likely to make the Lion Rock development commercially unattractive to the plaintiff;

c)       The Board of the plaintiff took legal advice as to whether the put option was exercisable in the circumstances, and received advice to the effect that it was;

d)The group A directors consistently opposed resolutions to exercise the put option;

e)       The alternative purchase option negotiated in respect of the Paterson property by Mr Birnie did not include an obligation by the vendor to provide finance of $4 million and was accordingly on terms clearly disadvantageous to the plaintiff;

f)        Following cancellation of the Paterson agreement the plaintiff was plainly “not able to acquire both properties” for the purposes of clause

8.3,  thus  triggering  the  plaintiff’s  entitlement  to  give  notice  of exercise of the put option;

g)       At a Board meeting on 19 October 2009 all directors other than the group A directors resolved that it was in the plaintiff’s best interests to exercise the put option;

h)There   were   plain   and   obvious   grounds   upon   which   it   was commercially prudent for the plaintiff to exercise the put option;   it had and still has no prospect of funding the purchase price of the Paterson land and the Birnie land.

[46]      Against that background, Mr Kennedy submits that the refusal of Messrs Birnie and Norrie to permit the exercise of the put option can only be explained by reference to their conflict of interest and their preference for the interests of the Lion Rock Vendors at the expense of the interests of the plaintiff.

[47]     Although the facts sit within a narrow compass, this case is nevertheless relatively complex.  It would not be right for me to make a ruling amounting to a finding of bad faith on the affidavit material before the Court.  I do however accept that the plaintiff has a relatively strong argument to mount in the Court of Appeal when the appeal against the judgment of Asher J is heard.

Will the appeal be rendered nugatory by refusal of a stay?

[48]     Mr O’Brien advised the Court that there is a possibility of a hearing in the Court of Appeal in October, or (more likely) November, although the number of available fixture dates in those months is very limited.  There is however a prospect of a hearing this year if counsel are able to accept a back-up fixture there.  Counsel on both sides thought there was a real prospect of a hearing in the Court of Appeal prior to Christmas.  As will emerge, no fixture is likely to be available for the trial of the proceeding in this Court until at least March 2011.  That being so, it is apparent that  the appeal  will  be heard  before any fixture for  the trial.    The appeal  will therefore not be rendered nugatory if a stay is refused.

[49]     Mr O’Brien did not address in detail any of the remaining Dymock’s factors. He relies principally upon the strength of the defendants’ case on appeal, which he says is considerable.

[50]     Mr Kennedy did however raise several additional factors.  He acknowledges that if a stay is refused, the case proceeds to trial and the defendants are successful, there may well be an issue as to whether the plaintiff is in a position to meet the costs of the successful defendants, but argues that is an issue for consideration if and when an application for security for costs is made.  In my view, it would not justify serious consideration as a relevant factor for present purposes.  But I accept that the prospect of wasted costs, if a stay is refused but the appeal succeeds, is a matter to be taken into account.

[51]     Mr Kennedy argues also that if a stay is granted, the plaintiff may well run out of funds and reach the point prior to trial where it simply cannot continue.  There is evidence that the plaintiff’s funds may be seriously depleted by February or March

2011.  I accept that that is a relevant factor.

[52]     Mr Kennedy argues also that the defendants do not appear to be prosecuting the appeal with due diligence.  A notice of appeal was filed on 20 May 2010, being the last day of the applicable appeal period.   The defendants’ solicitors were not approached regarding the preparation of the case on appeal until 29 June 2010.

[53]     Mr O’Brien, newly in the case, has indicated that he will co-operate with the plaintiff’s solicitors with a view to securing the earliest possible hearing time. Accordingly, I set this issue to one side.

Conclusion with respect to stay

[54]     I have reached the clear view that it would not be appropriate to grant a stay of the proceeding pending the outcome of the appeal.   If a stay is granted, then

nothing will be done to advance the proceeding until the judgment of the Court of

Appeal is available.  That may be in late 2010, or early 2011.

[55]     Given the factors to which I have earlier referred, I consider that it is not in the interests of justice to permit the case to lie dormant, pending the outcome of the defendants’ appeal.  If that appeal succeeds then of course, that will be the end of the proceeding and all parties will have incurred wasted costs.  On the other hand, if the appeal fails, the plaintiff will have lost some months of preparation for trial, and may well have reached the stage where it is unable to continue for financial reasons.  The information before the Court as to the ability or willingness of the plaintiff’s shareholders  to  provide  further  funding  for  the  prosecution  of  the  proceeding suggests that nothing is available.  No authority has been cited for the proposition that it is appropriate to grant a stay pending appeal, simply in order to avoid preparation costs in the meantime.   I do not consider it appropriate to do so here. The prospect of wasted costs is outweighed by other considerations.

[56]     The application for a stay is therefore refused.

Other dispute resolution procedures

[57]     As noted earlier, Mr O’Brien formally abandoned at the hearing reliance upon the arbitration provisions of the property agreement for the purposes of the present stay application.  But he nevertheless drew to the attention of the Court the existence of those provisions, and of an allied provision imposing on the parties a duty to negotiate in good faith.  Mr O’Brien advised the Court and counsel for the plaintiff that the defendants wished to avail themselves of the alternative dispute resolution procedure, insofar at least as negotiations were concerned, and asked the Court to note that intention, which I do.  As always, the Court will encourage bona fide negotiations with a view to achieving an overall outcome acceptable to all parties.

[58]     Under High Court rule 7.13 a Judge may give a direction allocating a hearing date for a proceeding.  The Court has a broad discretion under the rule to allocate a priority fixture if it is satisfied that it is just to do so.

[59]     The plaintiff applies for a priority fixture for the trial of the proceeding.  The grounds advanced in support are:

a)       The financial position of the plaintiff has deteriorated significantly and there is no certainty that the company will be able to carry on trading beyond February 2011;

b)The financial position of the defendants is also likely to deteriorate further, and their ability to satisfy a judgment may be compromised if no early hearing is available;

c)       The plaintiff’s attempts to exercise the put option have already been delayed for almost a year by reason of the stance adopted by the defendants (or some of them).

[60]     The proper approach to priority fixture applications is well established.  In a practice note issued by the Executive Judge at Auckland on 18 December 1987 it was said that:[3]

Generally speaking, some particular hardship to a litigant other than the usual hardship must be shown to justify priority;  health problems, financial hardship or public interest are grounds frequently relied upon by successful applicants.

[3] (1988) 1 PRNZ 59 at 60.

[61]     The  proper  approach  was  further  explained  by  Barker  J  in  Shattock  v

Devlin.[4].  There, His Honour said that:

[4] (1988) 1 PRNZ 271 at 278.

One expects strong evidence of, for example, compassionate grounds, impending financial disaster, the public interest or the interests of children

before allowing the case to ‘jump the queue’ occupied by less complaining citizens waiting patiently for their cases to be reached.

[62]     With those considerations in mind, I turn to the case made by Mr Kennedy for the plaintiff.

[63]     The  plaintiff  is  in  effect  a  single  purpose  company incorporated  for  the purpose of participating in the projects initiated by Mr Birnie.  One of those projects concerned a property at Kawau.  In order to settle the purchase of the Kawau land, the plaintiff obtained a facility from the Bank of New Zealand.

[64]     There  have  been  no  returns  as  yet  from  the  development  of  the  Kawau property.  The plaintiff has serviced the loan from the BNZ from the deposit of $1 million refunded upon the cancellation of the Paterson agreement.  Those funds will be exhausted early in the New Year.

[65]     Accordingly,  the  plaintiff’s  financial  viability beyond  February or  March

2011 will be in question if the shareholders are not prepared to provide additional funds.  The Court is advised that at present there is no prospect of that.

[66]     The plaintiff is also concerned about the financial position of the Lion Rock Vendors, who would be responsible for payment of the sum of $19 million to the plaintiff in the event that the Court upheld the validity of the purported exercise of the put option.  It is unnecessary to discuss the detail of what is said on behalf of the plaintiff  on  that  score,  save  to  say that  the  plaintiff’s  argument  is  to  a  degree speculative;   but it is common ground that the defendants are heavily engaged in property development, a commercial area which at present has its problems.

[67]     Mr Kennedy is also inclined to place some weight for present purposes upon what he says is the intransigence of the defendant directors of the plaintiff, with respect to the put option.  I understand him to refer in that respect to what he regards as delaying tactics on the part of the defendants.  The plaintiff believes that they may be endeavouring to reach the point in the litigation where the plaintiff is simply unable to continue.

[68]     I do not place any significant weight on this consideration.  Earlier I held that the defendants have at least an arguable case to run in the Court of Appeal.  I do not regard their mere refusal to accede to the plaintiff’s demands as adding weight to the application for a priority fixture.

[69]     Having said that however, I do consider that the financial predicament of the plaintiff is a circumstance which takes the case out of the ordinary run.  It is clear enough that if this case is not heard relatively promptly (assuming it survives the pending appeal), then it may not reach trial at all because the plaintiff will run out of funds.

[70]     I note that at [74] of his judgment, Asher J considered that there was: “…a need for a speedy hearing and the parties should consider seeking a priority fixture or some sort of fast track designation”.

[71]     I consider that the plaintiff has made out a case for a priority fixture.  Counsel differ in respect of time estimates.   Mr Kennedy thinks that the case may take no more than five-six days;   Mr O’Brien however considers that two weeks will be needed and possibly a little more.  As always, the prudent course is to allow more time than may prove ultimately to be necessary.

[72]     Accordingly, there will be an order directing that the trial of this proceeding commence on Monday 14 March 2011, on the basis that the trial will last up to three weeks.

Result

[73]   The defendants’ application for a stay of the proceeding pending the determination of the Court of Appeal is dismissed.  The plaintiff’s application for a priority fixture is granted;   the trial will commence on 14 March 2011, with an allocated hearing time of three weeks.

Costs

[74]     Having  succeeded  on  both  applications,  the  plaintiff  is  entitled  to  costs. Counsel may file memoranda if they are unable to agree.

Further steps

[75]     Given the obvious need for early pre-trial directions, there will be a telephone conference at 9 am on Friday 30 July 2010.  Counsel should in the usual way file memoranda in advance of that conference.

C J Allan J