Greymouth Petroleum Mining Company Limited v Fletcher Challenge Limited Ca60/91

IN THE COURT OF APPEAL OF NEW ZEALAND

CA60/01

BETWEEN	GREYMOUTH PETROLEUM MINING COMPANY LIMITED
Appellant

AND	FLETCHER CHALLENGE LIMITED
First Respondent

AND	FLETCHER CHALLENGE INDUSTRIES LIMITED
Second Respondent

AND	EXPLORATION HOLDINGS LIMITED
Third Respondent

AND	BUILDING HOLDINGS LIMITED
Fourth Respondent

AND	FLETCHER BUILDING LIMITED
Fifth Respondent

Hearing:	29 March 2001
Coram:	Thomas J Keith J Tipping J
Appearances:	M R Camp QC and J R Eichelbaum for Appellant A R Galbraith QC, R G Simpson and B D Gilbertson for First, Second, Fourth and Fifth Respondents M A Crosbie, P G Foley and M E Richards for Shell Overseas Holdings Limited
Judgment:	29 March 2001
Reasons for Judgment:	30 March 2001

REASONS FOR JUDGMENT OF THE COURT DELIVERED BY TIPPING J

This appeal from an order of Anderson J concerns the powers of the Court under s237 of the Companies Act 1993. That section must be read with s236. The two sections are in the following terms:
236     Approval of arrangements, amalgamations, and compromises
(1)       Notwithstanding the provisions of this Act or the constitution of a company, the Court may, on the application of a company or any shareholder or creditor of a company, order that an arrangement or amalgamation or compromise shall be binding on the company and on such other persons or classes of persons as the Court may specify and any such order may be made on such terms and conditions as the Court thinks fit.
(2)      Before making an order under subsection (1) of this section, the Court may, on the application of the company or any shareholder or creditor or other person who appears to the Court to be interested, or of its own motion, make any one or more of the following orders:
(a)       An order that notice of the application, together with such information relating to it as the Court thinks fit, be given in such form and in such manner and to such persons or classes of persons as the Court may specify:
(b)      An order directing the holding of a meeting or meetings of shareholders or any class of shareholders or creditors or any class of creditors of a company to consider and, if thought fit, to approve, in such manner as the Court may specify, the proposed arrangement or amalgamation or compromise and, for that purpose, may determine the shareholders or creditors that constitute a class of shareholders or creditors of a company:
(c)        An order requiring that a report on the proposed arrangement or amalgamation or compromise be prepared for the Court by a person specified by the Court and, if the Court thinks fit, be supplied to the shareholders or any class of shareholders or creditors or any class of creditors of a company or to any other person who appears to the Court to be interested:
(d)      An order as to the payment of the costs incurred in the preparation of any such report:
(e)        An order specifying the persons who shall be entitled to appear and be heard on the application to approve the arrangement or amalgamation or compromise.
(3)      An order made under this section has effect on and from the date specified in the order.
(4)      Within 10 working days of an order being made by the Court, the board of the company must ensure that a copy of the order is delivered to the Registrar for registration.
(5)      If the board of a company fails to comply with subsection (4) of this section, every director of the company commits an offence and is liable on conviction to the penalty set out in section 374(2) of this Act.
237      Court may make additional orders
(1)     Without limiting section 236 of this Act, the Court may, for the purpose of giving effect to any arrangement or amalgamation or compromise approved under that section, either by the order approving the arrangement or amalgamation or compromise, or by any subsequent order, provide for, and prescribe terms and conditions relating to,—
(a)        The transfer or vesting of real or personal property, assets, rights, powers, interests, liabilities, contracts, and engagements:
(b)      The issue of shares, securities, or policies of any kind:
(c)        The continuation of legal proceedings:
(d)       The liquidation of any company:
(e)      The provisions to be made for persons who voted against the arrangement or amalgamation or compromise at any meeting called in accordance with any order made under subsection (2)(b) of that section or who appeared before the Court in opposition to the application to approve the arrangement or amalgamation or compromise:
(f)      Such other matters that are necessary or desirable to give effect to the arrangement or amalgamation or compromise.
(2)       Within 10 working days of an order being made by the Court, the board of the company must ensure that a copy of the order is delivered to the Registrar for registration.
(3)       If the board of a company fails to comply with subsection (2) of this section, every director of the company commits an offence and is liable on conviction to the penalty set out in section 374(2) of this Act.
On 16 March 2001 the Judge made an order approving the arrangement in question, on the application of the company, Fletcher Challenge Limited. He declined a contemporaneous application made by the present appellant, Greymouth Petroleum Mining Company Limited (“Greymouth”), a shareholder in the company, for an order materially modifying the arrangement. Greymouth has not appealed against the Judge’s order under s236 approving the arrangement, but has appealed against his refusal to make the order which it sought modifying the arrangement.
The appeal was said by Mr Camp to be based on the premise that the Judge had wrongly refused to exercise his powers under s237. There being no appeal from the Court’s unconditional approval order itself, the first question is whether what Greymouth sought below, and seeks on appeal, can be achieved under s237. At the conclusion of oral argument, we announced that we were of the view that the relief sought by Greymouth was not available under s237. The appeal was therefore dismissed, the remaining issues not being relevant. These are the reasons which led us to that conclusion.
Mr Camp acknowledged in his submissions that what his client sought amounted to a “change” to the arrangement. He submitted that s237 permitted such a change if, in terms of ss(1)(f), it was “necessary or desirable”. The respondents argued that the powers vested in the Court by s237 are confined to and by the concept of giving effect to the arrangement. That, they argued, is inconsistent with the concept of changing it.
It is not necessary to describe in any detail the complex background to the present proceeding. Reference can be made to our earlier judgment (CA40/01, 7 March 2001) at a previous stage of the litigation. The circumstances relevant to the present issue are in short that the arrangement deals with certain assets in a particular way. Greymouth wishes those assets to be dealt with in a materially different way. The assets comprise such causes of action as the company, Fletcher Challenge Limited, may have against its directors, professional advisors or others in relation to the terms of the arrangement and, more specifically, in relation to the amount of the consideration payable for the assets of Fletcher Challenge Limited’s Energy Division. Any change in the destination of what must for present purposes be regarded as assets of value would represent a material change to the arrangement. Furthermore, such change would affect contractual arrangements dependant upon and integral to the commercial purpose of the scheme. Greymouth’s suggested modification, if approved, would mean that the party no longer receiving the assets would be getting less than they had paid for, albeit relieved of a consequential indemnity. The new recipient would be getting more than what was intended by the arrangement. The issue is whether s237 allows the Court to modify the arrangement in such a way.
For the reasons already given, the powers of the Court under s236 are no longer relevant. By saying that we should not be taken as indicating support for the view that in present circumstances those powers would have been of assistance to Greymouth. We mention this again below. The present point is one concerning the scope of s237. It is of no moment for present purposes whether there is merit in Greymouth’s suggested modification or otherwise. Section 237(1) contains an early indication that the principal purpose of the section is to give the Court ancillary or machinery powers “for the purpose of giving effect to” an arrangement which has been approved under s236. The powers available under s237 depend on there being an “arrangement approved” under s236. The natural meaning of giving effect to an arrangement does not suggest a power materially to alter it. That view is reinforced by the fact that the s237 powers may be exercised at a time subsequent to the making of the order approving the arrangement. Once approval has been given reliance will reasonably be placed on the sanctity of the arrangement and all aspects of it. As here, transactions may have taken place on the strength of the Court’s approval of the arrangement. It cannot have been intended that the s237 powers, potentially exercisable at a later date, could be exercised so as materially to alter the substance of the already approved arrangement.
The point is further reinforced by the provisions of paragraph (f) of s237(1) which gives the Court power to provide for and prescribe terms and conditions relating to such other matters as are necessary or desirable “to give effect to” the arrangement – the same terminology as in the introductory part of s237(1). Mention was made of paragraph (e) which allows provision to be made for persons who voted against the arrangement. This paragraph looks to the position of minorities as a consequence of the approval of the arrangement. It does not give any power to make provision in the arrangement itself for such persons because, ex hypothesi, the arrangement has already been approved. In any event what Greymouth seeks would go beyond the compass of paragraph (e).
Mr Camp submitted that in circumstances such as the present, s237 had to be regarded as conferring the jurisdiction he sought to ascribe to it. Coupled with that submission was the proposition that the contrary view would have the effect of disenfranchising his clients. He referred to the difficulties that Greymouth felt it had encountered throughout the proceedings. It must be noted, however, that Greymouth had rights to speak at the shareholders meeting. It also had the right to oppose approval under s236 if what it saw as the flaw in the scheme warranted that course. It chose not to oppose, instead seeking a material variation. It has not appealed against the Judge’s unconditional approval and for the reasons given it cannot invoke s237 as a vehicle for achieving such variation.
We add for completeness that nothing in the decision of this Court in Weatherston and Ors v Waltus Property Investments Limited & Ors CA251/00, judgment 4 December 2000, reasons 14 December 2000, suggests a different conclusion.
The case from Alberta cited by Mr Crosbie supports the respondents’ stance: see Re Trizec Corporation (1994) 21 Alta.L.R. (3d) 435. Forsyth J was there dealing with whether to approve a plan of arrangement under s192 of the Canada Business Corporations Act. The Canadian section gave the Court power to approve an arrangement as proposed by the corporation or as amended in any manner the Court might direct. Even against those broad words, expressly conferring a power to approve an arrangement in an amended form, the Judge held at 442 that the power did not cover “substantive change” to the plan. Indeed Forsyth J went as far as suggesting that the power might well cover only amendments sought by the applicant corporation. It is unnecessary for us to go that far, but such a conclusion would be consistent with the view the arrangement is that of the company and it stands or falls on its own merits and is not susceptible to material change under the aegis of imposing conditions or exercising powers of implementation. If material variation had been intended to be encompassed within the scheme of Part XV of the Companies Act 1993, procedural provisions dealing with how such variation was to be addressed by interested parties might have been expected to feature in the legislation.
We note that Mr Camp was unable to point to any authority in New Zealand or in any comparable jurisdiction which supported his argument. He mentioned Waltus (supra) but that case is of no present assistance. The only other case cited as having present relevance was Re Oceanic Steam Navigation Co Ltd [1938] 3 All ER 740, a decision of Simonds J in the Chancery Division. That case turned on the arrangement being ultra vires the company. It provides no support for the submission advanced by Mr Camp. As the editorial note to the case states, the purpose of an arrangement is to bind dissentient parties. That is, unless they can persuade the Court to decline approval. Historically provisions like s236 have never been treated as a means by which dissentients can achieve material variations to an arrangement which has been approved by a requisite majority of shareholders. To treat the section in that way would be to impose on the majority shareholders a materially different outcome from that which they have approved. The purpose and policy of the legislation is such that the shareholders should have an opportunity to express their views and vote on the proposed variation. As noted above, the statutory scheme makes no provision for this to occur. This is because it has always been understood that the Court’s powers under s236 are confined to approving or disapproving the scheme, with any conditions attached to the approval not amounting to variations of substance.
Similarly with s237, the Court’s powers are in aid of the implementation of the scheme, including consequential provision for dissentients. The concept of making material changes to the scheme simply does not feature in either section. If the Court considers the arrangement should not be approved without a material variation, it will refuse its approval and the promoters of the arrangement must then decide whether to promote a new arrangement incorporating the variation. If they decide to do so, the shareholders and others interested can expect to be given an opportunity to vote on the varied arrangement in terms of new procedural orders made under s236(2).
It was for these reasons that we dismissed Greymouth’s appeal at the conclusion of oral argument. Greymouth is to pay the parties represented by Mr Galbraith and those represented by Mr Crosbie the sum of $3500.00 each for costs, plus disbursements including the reasonable travel expenses of two counsel in each case, to be fixed if necessary by the Registrar.

Solicitors
Phillips Fox, Wellington, for Appellant
Bell Gully, Auckland, for First, Second, Fourth and Fifth Respondents
Rudd Watts & Stone, Wellington, for Third Respondent

[2001] NZCA 413

29 March 2001