Greymouth Holdings Limited v Jet Trustees Limited
[2014] NZHC 2283
•12 September 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2011-404-005309 [2014] NZHC 2283
BETWEEN GREYMOUTH HOLDINGS LIMITED
First Plaintiffs
R M P DUNPHY Second Plaintiff
P H AND J A MASFEN Third Plaintiffs
AND
JET TRUSTEES LIMITED First Defendant
J G STURGESS Second Defendant
cont …
Hearing: 11,12 September 2014 Appearances:
J A Farmer QC and M D O'Brien for Greymouth Petroleum
Holdings Limited and Groups 1 and 3 shareholders
J F Anderson for the Group 1 minorities
P Missingham representing GPHL
P G Skelton QC and A Borchardt for Jet Trustees Limited
J G Sturgess in personJudgment:
12 September 2014
Reasons:
19 September 2014
JUDGMENT OF GILBERT J [Application to determine validity of sale notices]
This judgment is delivered by me on 19 September 2014 at 3 pm pursuant to r 11.5 of the High Court Rules.
..................................................... Registrar / Deputy Registrar
GREYMOUTH HLDGS LTD & ORS v JET TRUSTEES LTD & ORS [2014] NZHC 2283 [12 September 2014]
CIV 2011-404-005309
(cont)
JOHN STURGESS & ASSOCIATES LIMITED
Third Defendant
GREYMOUTH PETROLEUM HOLDINGS LIMITED
Fourth Defendant and Cross-Claimant
CIV 2011-404-005422
BETWEEN J G STURGESS First Plaintiff
JET TRUSTEES LIMITED Second Plaintiff
JOHN STURGESS & ASSOCIATES LIMITED
Third Plaintiff
ANDR M P DUNPHY First Defendant
GREYMOUTH HOLDINGS LIMITED Second Defendant
RICHARD SHANE DUNPHY AND WENDY DUNPHY
Third Defendants
JUGEN KADEL Fourth Defendant
TOWER HILL INVESTORS LLP Fifth Defendant
GERMANDA HOLDINGS LIMITED Sixth Defendant
PETER HANBURY MASFEN AND JOANNA ALISON MASFEN Seventh Defendant
GREYMOUTH PETROLEUM HOLDINGS LIMITED
Eighth Defendant
Introduction
[1] These proceedings arise out of a dispute between the three groups of shareholders in Greymouth Petroleum Holdings Limited (GPHL). In a judgment delivered on 8 May 2013, I granted relief pursuant to s 174 of the Companies Act
1993 requiring the Group 2 shareholders to sell their shares at fair market value
(FMV) as determined at arbitration.1
[2] Following submissions from the parties on the precise form of the orders required to give effect to this judgment, I issued a further judgment on
24 September 2013. This reflected a proposal advanced by the Groups 1 and 3 shareholders, supported by the Group 2 shareholders, that the sale process should be initiated by the Group 2 shareholders giving a sale notice offering to transfer their shares at FMV within 10 working days of the determination of FMV. The Groups 1 and 3 shareholders proposed that the sale notice should offer the shares to GPHL, in its own capacity and as agent for all Greymouth group companies and related entities. The Group 2 shareholders did not oppose this proposal although they suggested that the notice should be given to the Groups 1 and 3 shareholders rather than GPHL to protect the position of the Group 1 minorities. Ms Anderson subsequently advised that the Group 1 minorities did not object to the orders proposed by Groups 1 and 3 and accordingly an order was made in these terms. There was no dispute that the relevant provisions in the parties’ Shareholder Agreement should apply, subject to any necessary modifications, and this was also ordered.
[3] There is a dispute as to how these orders should operate in the circumstances that have now arisen and further orders are required to facilitate their implementation. The Groups 1 and 3 shareholders have therefore applied for such orders in reliance on order 12 in the sealed judgment which provides:
All parties shall have liberty to apply in relation to the implementation of these orders or for further or ancillary orders as may be required.
1 Greymouth Holdings Limited v Jet Trustees Limited [2013] NHZC 1013.
[4] It is accepted that the present application falls within the scope of the leave reservation in the judgment but that the Court’s jurisdiction does not extend to altering the express terms of the orders contained in the judgment.
[5] The first issue concerns when time starts to run for service of the sale notice in circumstances where the arbitrator has issued an interim award determining FMV but there is an outstanding request, pursuant to art 33 of the First Schedule of the Arbitration Act 1996, to correct alleged computational errors in the award. The Groups 1 and 3 shareholders contend that time will not commence to run until the arbitrator has determined the art 33 request. The Group 2 shareholders disagree. They have purported to issue sale notices believing that they were required to do so to comply with the judgment.
[6] This issue had to be determined at short notice last Friday,
12 September 2014, because the notices purportedly issued by the Group 2 shareholders expired that day. I found that FMV has not been finally determined because of the outstanding art 33 request and that time has not commenced to run. Accordingly, I ruled that the sale notices issued by the Group 2 shareholders were invalid. Mr Skelton QC requested that I deliver brief written reasons and these are set out in this judgment.
Reasons for determination that time has not commenced to run
[7] The relevant orders in the sealed judgment are:
1. The first defendant (Jet Trustees Limited) and the second defendant (Mr John Gilbert Sturgess) (together and separately “the Sturgess interests”) shall sell their shares (“the shares”) in Greymouth Petroleum Holdings Limited (“GPHL”) and in or in respect of all other companies and related entities owned legally or beneficially by the shareholders in GPHL (together and separately “the Greymouth Group”), being in aggregate 13.856 per cent of the total shares issued by those companies, at the fair market value (“the FMV”) determined by the arbitration (“the arbitration”) currently being undertaken by the parties to the 5309 proceeding and on such other terms or at such other price as might otherwise be agreed in accordance with clause 8 of the parties’ Shareholder Agreement.
2. The FMV of the shares shall be determined as at the date of the arbitration hearing.
3. If no sale of the shares has been effected prior to the commencement of the FMV arbitration hearing, the Sturgess interests must, within
10 working days following the determination of FMV, give a sale notice offering to transfer the shares to GPHL (for itself and as agent for all
Greymouth Group companies and related entities) at FMV and clauses 8.5 to
8.10 and 8.12 of the Shareholder Agreement shall apply as appropriate with the necessary modifications.
[8] The arbitrator issued his interim award on 30 July 2014. By that time, the Court of Appeal had dismissed the appeals and cross appeals against my judgment but had stayed the operation of orders 1 and 3 pending further argument as to whether those orders needed to be modified.2
[9] On 7 August 2014, the Group 2 shareholders applied to the Court of Appeal to lift the stay, indicating that they intended to issue sale notices offering to sell their shares to GPHL at FMV. The draft sale notices attached to their memorandum stipulated a price calculated in accordance with the arbitrator’s interim award but stated that this was “subject however to any adjustment made to the Arbitral Award in terms of art 33 of the First Schedule of the Arbitration Act 1996”. The Groups 1 and 3 shareholders filed a memorandum in response challenging the validity of the proposed sale notices.
[10] On 14 August 2014, the Court of Appeal lifted the stay and noted that this finally disposed of the appeals. It directed that the issues raised by the Groups 1 and 3 shareholders, and any further issues concerning the implementation of the orders, must be dealt with in this Court.
[11] On 29 August 2014, 11 working days after the stay was lifted, Mr Sturgess and Jet Trustees purported to issue sale notices to GPHL in the same form as the draft sale notices attached to the memorandum they had filed in the Court of Appeal. On the same day, Mr Sturgess, on behalf of John Sturgess & Associates Limited (JSAL), filed a request under art 33 requesting the arbitrator to correct alleged errors in his interim award. Also on that day, the Groups 1 and 3 shareholders lodged a request under art 33 similarly seeking correction of other alleged errors in the award. They assert that FMV is substantially overstated in the interim award as a result of
these errors.
2 Sturgess v Dunphy & Ors [2014] NZCA 266.
[12] The arbitrator determined that the request filed on behalf of JSAL was invalid because JSAL was not a party to the arbitration. The arbitrator acknowledged the validity of the request filed by the Groups 1 and 3 shareholders but has not yet determined it.
[13] Mr Skelton argues that the 10 working day period under order 1 of the judgment commenced running when the stay was lifted even though the arbitrator may alter the FMV in response to the art 33 request. On this basis, he claims that the Group 2 shareholders were obliged to issue the sale notices at the figure shown as FMV in the interim award. Mr Skelton acknowledges that the arbitrator will not be able to rule on the art 33 request within the 10 working day period for acceptance stipulated in the sale notices. For that reason, Mr Skelton argues that GPHL must decide whether or not to accept the offers contained in the sale notices before it knows whether FMV will be corrected by the arbitrator. If GPHL chooses not to accept the offers in the sale notices, Mr Skelton argues that the Group 2 shareholders will be free to offer their shares on the open market on the same terms but will be obliged to issue fresh sale notices to GPHL if FMV is subsequently altered. How this would work if a sale to a third party is concluded in the meantime is not clear.
[14] I reject Mr Skelton’s analysis. It is contrary to the objective of the judgment, which is to provide GPHL with the opportunity of acquiring the Group 2 shares at the true FMV as finally determined by the arbitrator, not at a potentially incorrect figure resulting from a computational error. Until it knows what that price is, GPHL cannot make this assessment. Equally, the objective of the judgment was to ensure that the Group 2 shareholders received FMV after this had been finally determined by the arbitration process to which the parties had submitted.
[15] The Group 2 shareholders did not make a request under art 33 but Mr Sturgess purported to do so as agent for JSAL. This means that at the time the sale notices were issued, the principal players associated with the three shareholding groups, Messrs Sturgess, Dunphy and Masfen, all considered that there were computational errors in the award that required correction. It would be an odd result if they were bound to implement the judgment on the basis of an award that they all considered contained computational errors that would soon be corrected.
[16] Any correction the arbitrator makes to the award will form part of the award and will be enforceable between the parties.3 The arbitrator’s mandate to determine FMV will not terminate until he has dealt with the art 33 request and he will not have finally determined FMV until then. GPHL will not be in a position to assess whether it wishes to exercise its option to purchase until the price has been finally determined by the arbitrator. The “determination of FMV” for the purposes of order 3, which
was required to enable GPHL to make this assessment, must mean, in the present circumstances, the final determination of FMV by the arbitrator after he has dealt with the art 33 request. Only then will the Group 2 shareholders be able to stipulate the price in any sale notice issued to GPHL, or subsequently to the market. It follows that the obligation on the Group 2 shareholders to serve a sale notice in terms of the judgment will not be triggered until then.
[17] This analysis is supported by art 34(3) which provides that the time within which an application may be made to set aside an award runs from the date of receipt of the award or, if a request has been made under art 33, from the date on which that request has been disposed of by the arbitral tribunal. It is also supported by art 35 which deals with recognition and enforcement of an award. The party relying on the award or applying for its enforcement must supply the duly authenticated award. This must include any correction of the award by the arbitral tribunal under art 33. Similarly, although I have not been provided with a copy of the arbitration agreement, I anticipate that all parties would have grounds to resist the enforcement of the interim award under art 36(1)(v) on the basis that until the art 33 request has been disposed of, it is not binding on them.
[18] I also reject Mr Skelton’s contention that a valid notice would be invalidated by any correction to the interim award. In my view, the notice is either valid or it is not and this must be judged at the time the notice is served. I consider that the notices are not valid because, even leaving to one side the other issues raised by GPHL concerning their validity, FMV has not been finally determined by the arbitrator and no notice offering to transfer shares at FMV can be given until that has
occurred. Until then, the price cannot be stated with certainty.
3 Art 33 of Schedule 1 of the Arbitration Act 1996 deals with corrections and interpretations of awards by the arbitral tribunal. Art 33(1) expressly provides that any interpretation will form part of the award. Although not stated expressly, it must be implicit that any correction will similarly form part of the award because it could not be separately enforced.
Outstanding issues
[19] For convenience, I also summarise the further issues still requiring determination and allocate a date for these to be heard. The remaining issues are:
(a) Should there be one sale notice covering the shares held by Jet Trustees Limited and Mr Sturgess as the Group 2 shareholders or two separate notices?
(b)Should the time for acceptance of the sale notice be extended from 10 working days, as provided in cl 8.6 of the Shareholder Agreement, to
20 working days?
(c) Are the Group 2 shareholders entitled to insist upon receiving FMV without deduction, including any deduction required by law for resident withholding tax and any other deduction permitted by GPHL’S constitution?
(d)The form of any other ancillary orders required to facilitate the implementation of the judgment.
[20] Time has already been allocated on 29 and 30 September 2014 to determine the quantum of damages to which GPHL is entitled against Mr Sturgess and JSAL. I now allocate the following day, 1 October 2014, for the hearing of the outstanding issues referred to above. If the appropriate pre-trial directions cannot be agreed, a
telephone conference will need to be convened.
M A Gilbert J
2