Greymouth Holdings Ltd v Jet Trustees Limited

[2013] NZHC 2497

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-005309

[2013] NZHC 2497

BETWEEN

GREYMOUTH HOLDINGS LTD

First Plaintiff

AND

R M P DUNPHY
Second Plaintiff

AND

P H AND J A MASFEN
Third Plaintiffs

AND

JET TRUSTEES LIMITED

First Defendant

AND

J G Sturgess Second Defendant

……/continued over page

Hearing:

19 July 2013

Appearances:

J A Farmer QC, M D O’Brien and S Consedine for plaintiffs and fourth defendant in 5309 proceeding and first, second, seventh and eighth defendants in 5442 proceeding

P G Skelton QC and M Corlett for first, second and third defendants in 5309 proceeding and plaintiffs in 5442 proceeding

J F Anderson for third to sixth defendants in 5442 proceeding

Judgment:

24 September 2013

JUDGMENT OF GILBERT J

This judgment was delivered by me on 24 September 2013 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date:

GREYMOUTH HOLDINGS LTD v R M P DUNPHY [2013] NZHC 2497 [24 September 2013]

AND  JOHN STURGESS & ASSOCIATES

Third Defendant

ANDGREYMOUTH PETROLEUM HOLDINGS LIMITED

Fourth Defendant and Cross-Claimant

CIV 2011-404-005442

BETWEEN  J G STURGESS

First Plaintiff

AND  JET TRUSTEES LIMITED

Second Plaintiff

AND  JOHN  STURGESS  &  ASSOCIATES LIMITED

Third Plaintiff

AND  R M P DUNPHY

First Defendant

AND  GREYMOUTH HOLDINGS LIMITED

Second Defendant

ANDRICHARD SHANE DUNPHY AND WENDY DUNPHY

Third Defendants

AND  JUGEN KADEL

Fourth Defendant

AND  TOWER HILL INVESTORS LLP

Fifth Defendant

AND  GERMANDA HOLDINGS LIMITED

Sixth Defendant

ANDPETER HANBURY MASFEN AND JOANNA ALISON MASFEN

Seventh Defendants

ANDGREYMOUTH PETROLEUM HOLDINGS LIMITED

Eighth Defendant

[1] The primary relief sought by the 5309 plaintiffs in this proceeding was an order requiring Mr Sturgess and Jet Trustees Ltd to sell their shares in the Greymouth group of companies on the open market. In my interim judgment dated 8 May 2013,1 I declined to make this order and instead granted the alternative relief sought, namely an order that Mr Sturgess and Jet Trustees sell their shares at the fair market value determined by the arbitration currently being undertaken by the parties.2

[2]  The parties did not initially provide submissions on the precise form of order that would be appropriate if I followed this course. For example, they did not address the date the shares should be valued or how the position of the Group 1

minorities should be accommodated. Accordingly, I invited further submissions from the parties.3

[3] I have now received further submissions covering  these  issues.  This judgment is limited to providing directions as to the final orders required in terms of the interim judgment. I note that three further issues will remain outstanding following the release of this judgment. These are:

(a)The assessment of damages recoverable by Greymouth Petroleum Holdings Ltd from Mr Sturgess and John Sturgess and Associates Ltd (JSAL) in relation to the Midhurst operation.

(b)The assessment of damages recoverable by Greymouth Petroleum Holdings Ltd from Mr Sturgess and John Sturgess and Associates Ltd (JSAL) in relation to the Radnor operation.

(c)Costs.

[4]     The 5309 plaintiffs submitted 13 draft orders which they contend are required to  give  effect  to  the  interim  judgment.    These  are  supported  by  the  Group  1

1 Greymouth Holdings Ltd & Ors v Jet Trustees Ltd & Ors [2013] NZHC 1013.

2 Paragraph (b) of the prayer for relief in the 5309 plaintiffs’ second amended statement of claim dated 10 October 2012.

3At [468].

minorities. Jet Trustees proposed 15 orders. All but one of these was supported by Mr Sturgess.

[5] I now set out the orders sought by the 5309 plaintiffs and the  Group 1 minorities. I deal with each of these in turn before addressing the orders sought by Mr Sturgess and Jet Trustees.

Orders sought by 5309 plaintiffs and Group 1 minorities

Order 1

The first defendant (Jet Trustees Limited) and the second defendant (J S 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 of GPHL (together and separately the Greymouth Group), being in aggregate 13.856 per cent of the total of 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 CIV 2011-404-5309 and on such other terms or at such other price as the Court sees fit having regard to inter alia the assessment of FMV or, prior to the determination of FMV, as might otherwise be agreed in accordance with clause 8 of the parties’ Shareholder Agreement.

[6] Mr Skelton QC submits that it is inappropriate for  the  order  to  make reference to “such other price as the Court thinks fit”. I agree. This was not part of the judgment, nor was it contemplated by it. Subject to that change, there was no objection to this order. I therefore make an order in the terms proposed but deleting the words “as the Court sees fit having regard to inter alia the assessment of FMV, or, prior to the determination of FMV”.

Order 2

The arbitration shall be held and resolved as soon as is reasonably possible, and all parties shall use all reasonable endeavours to ensure the prompt and efficient resolution of the arbitration.

[7]  This  order  is  not  required  because  consent   orders   were   made   by Rodney Hansen J on 18 May 2012 covering these matters. Mr O’Brien acknowledged this at the hearing and no longer seeks this order.

Order 3

The FMV shall be determined as at the time of the arbitration hearing with due reference to the audited accounts for the Greymouth consolidated group companies as at 31 March 2013 and for the GeoServices group companies as at 30 June 2013, adjusted in each case for any distributions made from such date.

[8]   The 5309 plaintiffs, Jet Trustees and the Group 1 minorities all agree that the fair market value for the shares should be determined as at the date of the arbitration hearing.  However,  Mr Sturgess,  who   is   now   unrepresented,   contends   that 31 December 2010 is the appropriate date because that is close to the date he was suspended as COO. Although Mr Sturgess wants the fair market value of the shares determined as at 31 December 2010, he also seeks adjustments to reflect any dividends paid and any material changes in resources and reserves between that date and the date of completion of the sale of shares.

[9] I consider that Mr Sturgess’ proposal is impractical and  inappropriate. Although he was removed as COO on 4 February 2011, he remains as a director and he and Jet Trustees continue to be shareholders. The price they receive for their shares should reflect the risks and rewards associated with their continued participation in the company. This will be achieved if the price is set by a valuation carried out as at the date of the arbitration hearing and I accordingly fix that as the date.

[10] I do not consider that it is necessary to give directions to the arbitrator on the evidence he should take into account in determining the fair market value of the shares at the relevant date. That will be for him to determine.

[11] Accordingly, I make an order that the fair market value of the shares shall be determined as at the date of the arbitration hearing.

Order 4

Pending the arbitration, GPHL shall as soon as is practicable institute a process for a market sale of the shares consistent with normal market practice for the sale of such a block of shares and timed to require receipt of bids prior to the determination of FMV. In conjunction with this process, GPHL may also conduct preparations for the sale of the shares through an Initial Public Offering (IPO), timed to procure underwriters’ recommended pricing prior to the determination of FMV.

[12]  This proposed order is strongly opposed by the Group 2 shareholders.  It is not required to give effect to the interim judgment and is inconsistent with it in that it provides for a market sale.  In these circumstances, I decline to make this order.

Order 5

GPHL shall procure the appointment of an independent third party expert contractor (the Manager) to facilitate the provision of information to the arbitration and to design and manage the sale process and all confidentiality issues in relation thereto.

[13]     This order is also not required to give effect to the interim judgment.

Order 6

GPHL shall provide such assistance and information to the Manager and the parties as may reasonably be required to enable the arbitration and sale processes to proceed and be concluded.

[14]     This order is also not required to give effect to the interim judgment.

Order 7

Prospective bidders in the sale process must be approved by the Manager and the Board of GPHL. Other than with the express written consent of the Group 1 and Group 3 shareholders, no approval shall be given in respect of, and no sale shall be made to, any person who is, or who controls or is controlled (directly or indirectly) by a person who is, or in each case has been or will be, in any way:

(a)interested, engaged or concerned or participates, whether on its own account or as a shareholder, director, agent, employee, consultant, trustee, beneficiary or in any other way whatever, in the conduct of any business, venture or other activity which competes or may compete with the Greymouth Group;

(b)associated with the Sturgess interests.

[15]     This order is also not required to give effect to the interim judgment.

Order 8

The costs and expenses of the Manager and of any other adviser reasonably required to assist in the sale process shall be borne by GPHL in the first instance but shall be reimbursed (with the exception of costs incurred in relation to any IPO other than selling commissions and underwriting fees) to GPHL by the Sturgess interests on the sale of their shares.

[16]     This order is also not required to give effect to the interim judgment.

Order 9

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 8.9 and 8.12 of the Shareholder Agreement shall apply as appropriate with the necessary modifications.

[17] Jet Trustees and Mr Sturgess proposed a similar order except that  they suggested that the notice should be provided to the Group 1 and Group 3 shareholders rather than Greymouth Petroleum Holdings Ltd and clauses 8.10 and

8.11   of the Shareholder Agreement should also apply. Jet Trustees and Mr Sturgess raised a concern that the Group 1 minorities may be disadvantaged if the notice is given to the company rather than the Group 1 and Group 3 shareholders. However, Ms Anderson advised that the Group 1 minorities support the making of this order. Mr O’Brien advised that his clients do not object to the inclusion of Clause 8.10. Clause 8.11 deals with a change of control and is not applicable. I therefore make the order in the terms proposed save that the reference to “8.9” is replaced with “8.10”.

Order 10

If no sale is achieved through the application of these procedures, then the Court may in accordance with paragraph 1 above order a sale at such other price as the Court thinks fit having regard to, inter alia, the assessment of FMV.

[18] The 5309 plaintiffs do not wish to be committed to purchasing the Group 2 shares irrespective of the fair market value determined at arbitration and the Group 2 shareholders agree that they should be required to do so. This is why order 1 does not identify the purchaser. The 5309 plaintiffs will have the opportunity, through the company, to purchase the Group 2 shares at fair market value but they are not obliged to do so. I consider that order 10 goes beyond what is required to give effect to the interim judgment and it is accordingly declined.

Order 11

Pending the sale of the shares:

(a)the Group 2 shareholders shall  appoint  a  director  (in  lieu  of Mr Sturgess) acceptable to the other directors within seven days, failing which such appointment may be made by the President of the Institute of Chartered Accountants or his or her nominee at the request of the other directors, and on such appointment Mr Sturgess shall resign as director;

(b)any provision in the Shareholder Agreement or Constitution allowing a director to act in the best interests of the appointing shareholder rather than the company shall be suspended and each director must act in what the director believes to be the best interests of the company and of the wider Greymouth Group;

(c)Group 2 shall not be able to invoke the deadlock or default provisions or receive the benefit of the pre-emptive rights provisions of the Shareholder Agreement;

(d)Group 2 will be taken as supporting any proposal supported by the Group 1 and 3 directors or shareholders for release of the company’s confidential information to any third party.

[19] The parties reached agreement in relation to proposed orders (a) and (c) at the hearing on 19 July 2013. I therefore made the following orders by consent at the hearing:

(a)Pending the sale of the shares, the Group 2 shareholders shall appoint a director (in lieu of Mr Sturgess) acceptable to the other directors within 28 days (from 19 July 2013), failing which such appointment may be made by the President of the Institute of Directors or his or her nominee at the request of the other directors, and on such appointment Mr Sturgess shall be removed as director.

(b)Pending the sale of the shares, the Group 2 shareholders shall not receive  the  benefit  of  the  pre-emptive  rights  provisions  of  the

Shareholder Agreement and no shareholder shall invoke the deadlock or default provisions of the Shareholder Agreement without the leave of the Court.

[20] I accept the submissions made by Mr Skelton and Mr Sturgess that proposed order 11(b) is unnecessary to give effect to the interim judgment. I decline to make that order.

[21] Mr Farmer QC conceded that proposed order 11(d) was too wide. It is not necessary to give effect to the interim judgment and I decline to make any such order.

Order 12

To the extent these orders conflict with any provision of the Shareholder Agreement or the Constitution, the orders shall prevail.

[22]     This order was not opposed and I accordingly make such an order.

Order 13

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.

[23]     This order was also not opposed and is accordingly granted.

Orders sought by Mr Sturgess and Jet Trustees

Order 1

The 4 February 2011 suspension and subsequent termination of the Management Services Agreement dated 17 April 2002 between Greymouth Petroleum Holdings Ltd, John Sturgess and Associates Limited and Mr J G Sturgess was invalid.

[24] An order in substantially the same terms has already been made in the interim judgment4 and there is no need for any further order.

Order 2

An order is made under s 174 of the Companies Act 1993 cancelling the Management Services Agreement with effect from 8 May 2013.

[25]     This order was made in the interim judgment.5

Order 3

Greymouth Petroleum Holdings Limited is to pay to John Sturgess and Associates Limited the sum of $816,731 plus GST for outstanding management fees within seven days.

[26] The parties agree that the unpaid management fees from the date of the suspension until the date of judgment total $816,731 plus GST. I enter judgment for this sum in favour of John Sturgess and Associates Ltd against Greymouth Petroleum Holdings Ltd in terms of the fourth cause of action in the 5442 proceeding.

Order 4

Greymouth Petroleum Holdings Limited is to pay to John Sturgess and Associates Limited interest on the outstanding management fees pursuant to s 87 of the Judicature Act 1908 within seven days.

[27] John Sturgess and Associates Ltd is entitled to interest on the judgment sum pursuant to s 87 of the Judicature Act 1908 from the date the payments ought to have been made to the date of judgment.  I enter judgment accordingly.

Order 5

4 At [469].

Judgment is entered for the defendants against the first and second plaintiffs in the 5442 proceedings in relation to the first, second, third and fifth causes of action in that proceeding.

[28] This order gives effect to the interim judgment6 and I enter judgment accordingly.

Order 6

Judgment is entered for the fourth defendant against the second and third defendants in the 5309 proceedings under s 174  of  the  Companies  Act  1993  requiring John Sturgess and Associates Ltd and Mr J G Sturgess to pay damages to Greymouth Petroleum Holdings Ltd in respect of the pseudo 3D processing costs incurred in relation to Midhurst and the cost of the full frac operations at Radnor-1A, the quantum of such damages to be determined by an enquiry in accordance with [164] and [225] of the judgment.

[29]   Although the interim judgment referred to these orders being made pursuant to s 174, this was plainly an error. The parties accept that the judgment should reflect that the damages, which are yet to be assessed, were claimed by Greymouth Petroleum Holdings Ltd in terms of its negligence claims in its amended cross-claim against Mr Sturgess and John Sturgess & Associates Ltd in the 5309 proceedings. The order is amended accordingly.

Order 7

Judgment is entered for the plaintiffs against the first and second defendants in the 5309 proceedings that an order is made under s 174 of the Companies Act 1993 directing Mr J G Sturgess and Jet Trustees Ltd to sell their shares in Greymouth Petroleum Holdings Ltd at fair market value as determined by the arbitration process currently being undertaken by the parties subject to the directions set out in proposed orders 8 to 14 below.

[30]     This is covered by order 1 referred to in [6] above.

Order 8

The shares shall be valued as at the date of valuation with the adjustments to be made by the arbitrator to fair market value as determined to account for the following matters (if necessary) between the date of valuation and the date of sale of the Group 2 shares:

(i)Distributions made during that period;

(ii)Any changes to the equity interests in Permits;

(iii)Material changes to the timing of the operations;

(iv)Material changes to resources/reserves.

[31] I do not consider that this order is necessary to give effect to the interim judgment. It will be for the arbitrator to decide what information he should take into account in assessing the fair market value of the shares as at the relevant date.

Order 9

The arbitrator is to determine the fair market value of the shares held by Jet Trustees Ltd and Mr J G Sturgess by applying the provisions of clause 1.3(c) - (f) of the parties’ Shareholders Agreement dated 17 April 2002.

[32] Again, I consider that this proposed order is not necessary. This issue is already addressed in the consent orders made by Rodney Hansen J.

Order 10

If no sale of the shares has been effected prior to the commencement of the fair market value arbitration hearing, Mr J G Sturgess and Jet Trustees Ltd must, within 10 working days following the determination of fair market value, give a sale notice

offering to sell their shares to the Group 1 and Group 3 shareholders at fair market value and clauses 8.5 to 8.12 of the Shareholders Agreement shall apply as appropriate with the necessary modifications.

[33]     This proposed order is covered by Order 9 referred to in [17] above.

Order 11

The arbitration shall be held and resolved as soon as reasonably possible and all parties shall use all reasonable endeavours to ensure the prompt and efficient resolution of the arbitration.

[34] Mr Skelton confirmed that this order is not required. The consent orders made by Rodney Hansen J cover this.

Order 12

Pending the arbitration GPHL, Mr Sturgess and Jet Trustees Ltd may solicit offers for the purchase of the shares and, subject to the terms of the Shareholders Agreement, including the clause 8 pre-emptive rights, Mr Sturgess and Jet Trustees Ltd may sell their shareholdings.

[35] There is no objection in principle to the Group 2 shareholders selling their shares prior to the arbitration, subject to the terms of the Shareholder Agreement. However, the parties were unable to agree on the wording of any order to facilitate such a sale. The 5309 plaintiffs are particularly concerned about the prospect of the Group 2 shareholding being sold in separate parcels. In the absence of agreement between the parties, I am not prepared to make this order. I do not consider that it is necessary to give effect to the interim judgment. The parties are free to exercise their rights under the Shareholder Agreement except to the extent that those rights have been modified by the Court’s orders.

Order 13

Discovery in the arbitration shall be given in accordance with the orders made by His Honour Justice Hansen on 18 May 2012.

[36]     The orders made by consent on 18 May 2012 remain in force and there is no need for me to make any further order.

Order 14

In the event there is any dispute over access to or the provision of information to a party or expert, the arbitrator is empowered to make a determination on the issue.

[37]     This order is also unnecessary, as Mr Skelton acknowledged at the hearing.

Order 15

The costs of and incidental to these proceedings are reserved for determination after completion of the quantum hearing.

[38]     This order is made by consent.

Leave to apply

[39]     I have already reserved leave to the parties to apply to the Court for further directions, if required.7

M A Gilbert J

7 At [23].