Greymouth Holdings Ltd v Jet Trustees Limited

[2012] NZHC 3396

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-005309 [2012] NZHC 3396

BETWEEN  GREYMOUTH HOLDINGS LTD First Plaintiff

ANDR M P DUNPHY Second Plaintiff

ANDP H AND J A MASFEN Third Plaintiffs

ANDJET TRUSTEES LIMITED First Defendant

ANDJ G STURGESS Second Defendant

ANDJOHN STURGESS & ASSOCIATES LIMITED

Third Defendant

ANDGREYMOUTH PETROLEUM HOLDINGS LIMITED

Fourth Defendant and Cross-Claimant

CIV 2011-404-005442

BETWEEN  J G STURGESS First Plaintiff

ANDJET TRUSTEES LIMITED Second Plaintiff

ANDR M P DUNPHY First Defendant

ANDGREYMOUTH HOLDINGS LIMITED Second Defendant

ANDRICHARD    SHANE     DUNPHY    AND WENDY DUNPHY

Third Defendants

ANDJUGEN KADEL Fourth Defendant

GREYMOUTH HOLDINGS V JET TRUSTEES HC AK CIV 2011-404-005309 [13 December 2012]

ANDTOWER HILL INVESTORS LLP Fifth Defendant

ANDGERMANDA HOLDINGS LIMITED Sixth Defendant

ANDPETER     HANBURY    MASFEN    AND JOANNA ALISON MASFEN

Seventh Defendants

ANDGREYMOUTH PETROLEUM HOLDINGS LIMITED

Eighth Defendant

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

P G Skelton, M A Corlett and R D Butler for the first, second and third defendants in the 5309 proceeding and the plaintiffs in the 5442 proceeding

J F Anderson for the third to sixth defendants in the 5442 proceeding

Judgment:      13 December 2012

JUDGMENT OF GILBERT J

[5442 plaintiffs’ application to amend statement of claim]

This judgment was delivered by me on 13 December 2012 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:

Counsel:            J A Farmer QC, Auckland:    [email protected]

M D O’Brien, Wellington:     [email protected]

S M Consedine, Wellington:    [email protected]

P G Skelton, Auckland:        [email protected]

M A Corlett, Auckland:        [email protected]

R D Butler, Auckland:         [email protected]
J F Anderson, Auckland:      [email protected]

[1]      On Monday 10 December 2012, the 5442 plaintiffs applied to amend their statement of claim.  A number of the amendments involve the deletion of various alleged Events of Default and deadlocked resolutions that were abandoned during the course of the trial.   There are other minor “tidy up” amendments.   These amendments can be made by consent.   However, two amendments were opposed. They are each substantive and significant.   The application was heard on Tuesday afternoon.  I advised the parties that I would not allow the opposed amendments and that I would provide my reasons later.  My reasons are set out in this judgment.

The opposed amendments

[2]      The first opposed amendment relates to the first cause of action in which the

5442 plaintiffs seek specific performance of the deadlock provisions in cl 6 of the

Shareholder Agreement which provides:

6.        DEADLOCK

6.1If a resolution submitted to the Board by a Director is not passed, then if the resolution is not resolved within 90 Working Days of the date the resolution was submitted to the Board, any Shareholder may by notice to the other Shareholders require that all the Shares in the Company be sold to a third party.  In the event that the parties are unable to find a purchaser for the Shares, then unless one (or more) of the Shareholders agrees to purchase the Shares held by the other Shareholders,   the   Company   (and   any   Subsidiaries)   shall   be liquidated unless the parties agree otherwise.

6.2In the event that a notice is given by a Shareholder pursuant to the first sentence of cl 6.1, any Shareholder shall be entitled to purchase the Shares of the other Shareholders on terms no less favourable to the purchasing Shareholder than the terms upon which all the Shares in the Company would otherwise be sold to the third party referred to in clause 6.1.  If more than one Shareholder wishes to so purchase the Shares of the other Shareholders, this clause 6.2 shall not apply unless the Shareholders wishing to purchase the Shares agree a basis for allocating such Shares between them.

[3]      The 5442 plaintiffs’ current pleading is the third amended statement of claim dated 7 August 2012.  This was filed shortly before the parties exchanged their briefs of evidence on  12 September   2012.   The  5442 plaintiffs set  out  in  schedule C

11 resolutions which they alleged triggered rights under the deadlock provisions in cl 6.   These resolutions mirrored the resolutions referred to in a letter sent by the

5442 plaintiffs’ solicitors on 9 July 2012 purporting to give notice under cl 6.  This notice was given to Mr Dunphy and Mr and Mrs Masfen, the first and seventh defendants.

[4]      The substantive relief sought by the 5442 plaintiffs in their first cause of action, relying on these provisions and this notice, includes orders for specific performance requiring that all of the shares in the eighth defendant, Greymouth Petroleum Holdings Limited (the Company), be offered for sale to a third party and for the appointment of the Official Assignee as liquidator of the Company if a third party purchaser cannot be found within a stipulated period.

[5]      The 5442 plaintiffs have now abandoned eight  out of the 11  resolutions alleged to have triggered deadlock rights under the Shareholder Agreement.  One of the three surviving resolutions, which was referred to in the notice and continues to be relied on in the claim, is a proposed resolution dated 21 June 2011 that the Company make a distribution to shareholders of $2 million within seven days. The

5442 plaintiffs’ now seek to add a further resolution, dated 31 October 2011, that the Company make a distribution to shareholders of $5 million.  This resolution was not referred to in the notice or in the pleadings to date.

[6]      The second opposed amendment is similarly significant.  It relates to the third cause of action in which the 5442 plaintiffs seek specific performance of the “Event of Default” provisions in the Shareholder Agreement.  They rely on clause 13.1 of the Shareholder Agreement which provides:

13.      DEFAULT

13.1Consequences:  Subject to completion of the process referred to in clause 14 (to the extent applicable), if an Event of Default occurs in respect of a Shareholder (the “Defaulting Shareholder”) the Non- Defaulting Shareholders may, while that Event of Default continues, by notice in writing to the Defaulting Shareholder require that the Defaulting Shareholder transfer all of its shares to the Non- Defaulting  Shareholders,  whereupon  the  Defaulting  Shareholder shall be deemed to have given a sale notice offering to transfer all of its Shares to the Non-Defaulting Shareholders at Fair Value, and clauses  8.3  to  8.5 (but  not  clause  8.6)  shall,  with the  necessary modifications, apply.

[7]      In  their  third  amended  statement  of  claim  dated  7  August  2012,  the

5442 plaintiffs set out in schedule B the six Events of Default upon which they relied.  Again, these mirrored the alleged Events of Default referred to in a letter from their solicitors purporting to give notice under cl 13.1.  This notice was also given to Mr Dunphy and Mr and Mrs Masfen.

[8]      All but one of these six alleged Events of Default have now been abandoned. The   sole   surviving   alleged   Event   of   Default   is   that   Mr   Dunphy   and Mr and Mrs Masfen breached cl 15.2 of the Shareholder Agreement by “providing” confidential information developed or held for the Company to Methanex.   The

5442 plaintiffs    want    to    add    a    further    Event    of    Default    namely    that Mr and Mrs Masfen breached cl 15.2 of the Agreement by “allowing” confidential information to be provided to Methanex.

[9]      In reliance on these alleged Events of Default, the 5442 plaintiffs seek an order for specific performance of cl 13.1 and other related provisions in the Shareholder Agreement requiring Mr Dunphy and Mr and Mrs Masfen, as allegedly Defaulting  Shareholders,  to  transfer  all  of  their  shares  in  the  Company  to  the Non-Defaulting Shareholders at fair value.

[10]   As can be seen, both amendments, if allowed, could have significant consequences for Mr Dunphy and Mr and Mrs Masfen in that they could be required to divest all of their shares in the Company to the other shareholders or to a third party, or suffer a liquidation of the Company.

[11]     The 5442 plaintiffs’ application to amend their pleading in these substantive and significant respects comes at an extremely late stage.  It follows completion of their closing submissions on their claims.  Mr Skelton nevertheless argues that the amendments ought to be allowed under r 1.9 of the High Court Rules because the amendments are necessary to enable the real controversy between the parties to be determined.      He   submits   that   there   is   no   prejudice   to   Mr   Dunphy   and Mr and Mrs Masfen because all of the relevant facts have been traversed in evidence and there is nothing further that could be said relating to the issues that would arise out of the proposed amendments.  He submitted that even if this is not correct and

further evidence would be required, the appropriate course is to allow the amendments and permit the defendants to re-call witnesses or call further witnesses in support of their defence to these new claims.

[12]     Mr Farmer QC was unable to point to any specific further evidence that his clients would have offered had they known from the outset that they would be facing the claims now sought to be introduced.  However, he made the point that his clients have had very limited time to consider the matter.   He could not say whether his clients would wish to call further evidence to address these proposed new issues.  He submits that they would be seriously prejudiced if these significant amendments were permitted at such a late stage.  He urged me to decline these amendments for much the same reasons as I declined his clients’ application to make substantive changes to their pleadings shortly prior to the commencement of the trial.

Deadlock resolution

[13]     The proposed resolution is dated 31 October 2011.  The 5442 plaintiffs, with the benefit of legal advice, gave notice in respect of 11 proposed resolutions which they alleged entitled them to give notice under cl 6 of the Shareholder Agreement. They would have been well aware of the 31 October 2011 proposed resolution but chose not  to  rely on  it  in  the notice that  was  given  or in  the  pleadings.   The defendants were entitled to prepare their case on the basis that the only resolutions they needed to consider were those set out in this notice and in the statement of claim.   I consider that they would be prejudiced by having to respond to this new allegation after all parties have closed their cases and following completion of the

5442 plaintiffs’ closing submissions.   I take into account that the proposed amendment is significant in that it is said to found an entirely new basis for an order for specific performance requiring the divestment of shares in the Company or for the appointment of a liquidator.

[14]     There is a further difficulty with the proposed amendment.  The service of a valid notice under cl 6 is a prerequisite for any order for specific performance.  The Shareholder Agreement  contains mandatory provisions relating to the service of notices given under, or in connection with, the agreement.  Mr Skelton acknowledges

that no such notice has yet been given and that his clients would have to rely on the amended  statement  of  claim  as  fulfilling  the  notice  requirement  under  the Shareholder Agreement.  The amendment would therefore go beyond asserting the existing facts upon which relief is sought; it would be relied on as fulfilling a substantive requirement for such relief.

[15]     I  consider  that  the  proposed  amendment  seeking  to  introduce  a  further resolution for the purposes of the deadlock cause of action must be declined.

Events of Default

[16]     At a superficial level, the proposed amendment to the claim relying on the Event of Default provisions in the Shareholder Agreement is more subtle because it is based on an alleged breach of cl 15.2 of the Shareholder Agreement arising out of the   provision   of   confidential   information   to   Methanex.      Mr   Dunphy   and Mr and Mrs Masfen  already  face  claims  for  having  breached  this  provision  by providing such information to Methanex. To that extent, the issue is not new.

[17]     However, in my view, this amendment should also be declined because, on analysis, the proposed new claim is materially different.   It relates to a distinct obligation under cl 15.2.  There are three relevant covenants in the clause.  The first is to keep information developed or held for the purposes of the Company confidential and secure.  The second is not to make any disclosure or use of such information.   The third is not to allow such disclosure or use to be made.   The

5442 plaintiffs, with the benefit of legal advice, have asserted that Mr Dunphy and Mr  and  Mrs  Masfen  breached  cl  15.2  by  providing  confidential  information belonging to the Company to Methanex.  This was the Event of Default relied on in the notice from the 5442 plaintiffs’ solicitors dated 9 July 2012 and in the third amended statement of claim dated 7 August 2012.

[18]     The  5442  plaintiffs  now  wish  to  amend  their  claim  by  asserting  that Mr and Mrs Masfen  breached  cl  15.2  by  allowing  the  Company’s  confidential information to be provided to Methanex.  This is to meet the prospect that they did

not provide the information to Methanex but nevertheless allowed such provision to occur.

[19]     The same difficulty arises in relation to notice.   The 5442 plaintiffs were quite specific, as they were required to be, in the notice that they served purportedly triggering  rights  under  the  default  provisions  in  cl  13.1  of  the  Shareholder Agreement.   Mr Skelton acknowledges that the notice served on Mr Dunphy and Mr and Mrs Masfen by his instructing solicitors on 9 July 2012 does not refer to this new alleged Event of Default.  Again, Mr Skelton says that his clients intend to rely on the amended pleading as fulfilling the notice requirement under the Shareholder Agreement.

[20]     In my view, Mr and Mrs Masfen, and indeed all defendants, were entitled to prepare on the basis of the Events of Default that were relied on in the notice and in the third amended statement of claim dated 7 August 2012.   I consider that they could be seriously prejudiced if this amendment was allowed at such a late stage giving them very limited time to consider how to respond to it.  I do not consider that it would be just to grant the indulgence now sought by the 5442 plaintiffs.

Result

[21]     The 5442 plaintiffs are given leave to amend their claim in the respects set out in the draft fourth amended statement of claim provided, with the exception of

the two opposed amendments referred to in this judgment.

M A Gilbert J