Jacobsen Venue Management New Zealand Ltd v Worldwide NZ LLC

[2008] NZCA 105

IN THE COURT OF APPEAL OF NEW ZEALAND

CA285/06
[2008] NZCA 105

BETWEENJACOBSEN VENUE MANAGEMENT NEW ZEALAND LIMITED

First Appellant

ANDK G JACOBSEN

Second Appellant

ANDM A JACOBSEN

Third Appellant

ANDA L JACOBSEN

Fourth Appellant

ANDWORLDWIDE NZ LLC

First Respondent

ANDJ P UTSICK

Second Respondent

ANDJ J GOSNEY

Third Respondent

CA15/07

AND BETWEEN             QPAM LIMITED

Appellant

ANDWORLDWIDE NZ LLC

First Respondent

ANDJ P UTSICK

Second Respondent

ANDJ J GOSNEY

Third Respondent

Hearing:15 and 16 April 2008

Court:William Young  P, Robertson and Baragwanath JJ

Counsel:C P Browne and K J Sparrow for Appellants in CA285/06

J A Farmer QC and S L Robertson for Appellants in CA15/07
M J Fisher for Respondents

Oral

Judgment:16 April 2008 

ORAL JUDGMENT OF THE COURT

A        We strike out the third cause of action in the 2006 proceedings.

B        We otherwise dismiss the appeals.

CWe make a declaration that the consideration to be paid for WWNZ’s units and shares is to be their fair market value to be assessed if necessary by the court.

DThe appellants are to pay (with joint and several liability) to WWNZ costs of $12,000 and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by William Young P)

Background

[1]        Quay Park Arena Management Ltd (“QPAM”) as trustee for the Quay Park Arena Management Trust (“the QPAM trust”) has developed the Vector Arena at Quay Park, Auckland, as a multi-use indoor sports and entertainment area. The QPAM trust was originally a joint venture between Worldwide NZ LLC (“WWNZ”) as to a 25% interest and entities associated with the Jacobsen family of Australia (“the Jacobsens”) as to 75 per cent.  As might be expected in such a venture, the QPAM trust deed provides for rights of pre-emption which are triggered by, inter alia, a change in control of WWNZ.  QPAM’s constitution provides that WWNZ’s shareholding in QPAM and units in the QPAM trust are “stapled”.  The same is true of the interests held by the Jacobsens in both entities.  WWNZ is a subsidiary of The Worldwide Entertainment Group, a corporation based in Florida.  Mr John Utsick was the WWNZ appointed director on the board of QPAM.  The Jacobsens had three directors.

[2]        In 2005, disharmony between the joint venturers led to WWNZ and Mr Utsick issuing proceedings (“the 2005 proceedings”) under s 165 of the Companies Act 1993 alleging that the Jacobsen directors had preferred their own interests in concluding a ticket sales agreement for the Vector Arena.

[3]        The Federal Court in Florida placed the Worldwide Entertainment Group in receivership on 18 January 2006 and Mr Michael Goldberg of Florida was appointed as receiver.  In early April 2006, Mr Goldberg purported to remove Mr Utsick as a director of QPAM and replace him with Mr John Gosney of Auckland.  There followed disputes between QPAM (and the Jacobsens) with Messrs Goldberg and Gosney about the process of appointing Mr Gosney, access by Mr Gosney to QPAM’s financial records and the adequacy of the records provided to him.

[4]        In late April 2006, the Jacobsens’ solicitors emailed Mr Goldberg invoking their pre-emptive rights as holder of the “A” units in the QPAM trust.  This was on the basis that the receivership of The Worldwide Entertainment Group amounted to a change in control of WWNZ.  They said that the Jacobsens were prepared to pay a “fair price” for the “B” units owned by WWNZ.  They also maintained that WWNZ no longer had any rights in respect of the QPAM trust and QPAM.  Mr Gosney’s appointment as director was thus said to be invalid.  The Jacobsens have subsequently excluded WWNZ and Mr Goldberg from any participation in the affairs of QPAM or the QPAM trust. As well, they maintain that under the QPAM trust deed, the purchase price for the shares and units held by WWNZ in QPAM and the QPAM trust is to be fixed by QPAM.

[5]        WWNZ and Mr Gosney issued a further set of proceedings (“the 2006 proceedings”) in which they challenge the entitlement of QPAM and the Jacobsens to exclude them from participation in, and information about, QPAM and the QPAM trust and also the entitlement of QPAM to fix the purchase price for the shares and units of WWNZ.  As well, until recently, WWNZ was also claiming that QPAM and the Jacobsens were estopped from relying on the rights of pre-emption provided for in the QPAM trust deed.  But this argument has now been abandoned and we need not mention it again.  It now being common ground that the Jacobsens are entitled to acquire the “B” units, the 2006 proceedings involve contentions on the part of WWNZ and Mr Gosney to the effect that:

(a)The consideration to be paid by the Jacobsens for the units and shares is their fair market value to be fixed if necessary by the Court;

(b)WWNZ is entitled to relief against QPAM and the Jacobsens under s 174 of the Companies Act 1993 arising out of their conduct since 26 April 2006; and

(c)Pending completion of the sale of the units and shares to the Jacobsens, WWNZ is entitled:

·     to remain on the registers of unit holders and shares,

·     to attend meetings of unit holders and shareholders,

·     to be furnished with information concerning the affairs of QPAM and the QPAM trust,

·     to appoint a director of QPAM and have that director attend board meetings, and

·     to a fair process for the fixing of the value of its shares.

[6]       Leaving aside the judgment of Winkelmann J which is in issue before us, the 2006 proceedings have already resulted in two substantial judgments: the first by Williams J in which he declined an application by WWNZ and Mr Gosney for interim relief (HC AK CIV-2006-404-1827 30 May 2006) and the second from this Court dismissing an appeal from that judgment (CA122/06 10 November 2006).

[7]       In the judgment under appeal,  Winkelmann J was required to address:

(a)Applications by QPAM and the Jacobsens for summary judgment in respect of the 2006 proceedings (and in the alternative the striking out of individual causes of action); and

(b)An application by QPAM and the Jacobsens in the 2005 proceedings for a determination under r 418 of the High Court Rules of the question whether WWNZ has status to maintain the proceedings.

She declined both applications.  The Jacobsens and QPAM appeal. 

[8]       At the commencement of the hearing this morning, we put the following questions to counsel:

1        As to the purchase of the shares [this is what we said, but we meant “units and shares”]:

(a)Do we need to address the valuation date?

(b)Do we need to consider whether the Jacobsens are committed to purchase on giving their notice?

2        If we interpret the trust deed as requiring the consideration to be at fair market value as assessed if necessary by the court but not QPAM, is it sufficient for us simply to dismiss the application for summary judgment on that basis or should we incorporate our interpretation in the order?

3        If we interpret the trust deed as requiring the consideration to be at fair market value as assessed if necessary by the court but not QPAM, do we need to address the interim rights of QPAM?

We received the following responses to these questions:

(a)As to question 1(a), no, as all parties agree that the valuation should proceed on the basis that the relevant date is 26 April 2006.

(b)As to question 1(b), no, because the Jacobsens regard themselves as committed to pay whatever price is fixed; this is because of commercial imperatives. 

(c)As to question 2, we are to give a formal adjudication recording our interpretation.

(d)As to question 3, although Mr Fisher for WWNZ would prefer an adjudication as to the interim rights of WWNZ, counsel for the appellants (who are making the running on this issue) do not see it as necessary for us to do so at this stage. Given the nature of the proceedings (an appeal against a refusal of summary judgment and dismissal of an associated strike out application), we are not entitled to give a final adjudication on this issue. 

[9]       Against that background, we propose to discuss the case by reference to the following questions:

(a)How is the consideration to be paid by the Jacobsens to WWNZ to be fixed?

(b)What is to happen to the 2005 proceedings?

But it is necessary first for us to refer to the primarily relevant provisions in the QPAM constitution and the QPAM trust deed.

The constitution of QPAM and the trust deed for the QPAM trust

[10]     QPAM’s constitution provides for “A” and “B” shares.  WWNZ’s shares in QPAM (amounting to a 25 per cent interest) are “B” shares.  The “A” shares, which constitute the remaining 75 per cent, are held by the Jacobsens.  The constitution contains no express rights of pre-emption.  It does, however, provide that the “A” shares “correspond to and are stapled to” the corresponding “A” units held by the “A” unit holder in the QPAM trust.  Similarly the constitution provides that “B” shares in QPAM are stapled to the corresponding “B” units held by the “B” unit holder in the QPAM trust. 

[11]     Clause 9.2 of the QPAM trust deed provides for the rights of pre-emption which are at the heart of the present dispute:

9.2      Restriction on “B” Units

9.2.1Except as expressly permitted by clause 9.3, no “B” Unit Holder is entitled to:

(a)sell or Dispose of “B” Units in whole or in part;

(b)sell or Dispose of any Relevant Interest in “B” Units; or

(c)create or grant any options or similar rights over “B” Units.

9.2.2A Change in Control is deemed to be Disposal of “B” Units by the “B” Unit Holder upon the occurrence of which the provisions of clause 10 will apply.

[12]     “Change in Control” is defined in the QPAM Trust Deed as follows:

Change in Control in respect of a “B” Unit Holder means:

(a)       in relation to a corporation:

(i)any person who does not Control (as defined in the Companies Act) and gains Control (as defined in the Companies Act) of:

(A) a member of that corporation; or

(B) a member of the board of directors of that corporation; or

(ii)any member of the corporation ceasing to be a subsidiary (as defined in the Companies Act) of the entity which is its ultimate holding company (as defined in the Companies Act); …

[13]     Clause 9.3.1 permits “B” unit holders to sell or dispose of their units to an “Affiliate” (as that term is defined in the QPAM Trust Deed) but this clause is not applicable in the present context.  Clause 9.3.2 permits “B” unit holders to dispose of “B” units if the sale or disposal is a transfer of “B” units to “A” unit holders in accordance with the pre-emptive rights or to a third party after the “B” units have been offered to the “A” unit holders in accordance with the pre-emptive rights and the “A” unit holders have declined to purchase them.

[14]     Clause 9.6 provides:

9.6      No registration

The Trustee must not register a transfer of any Units unless the terms of this clause 9 have been complied with.

[15]      Much argument was directed to cl 10 which addresses the way in which the rights of pre-emption are to be implemented in the case of sale to a third party:

10.      PRE-EMPTIVE RIGHTS

10.1     Transfer notice

Any “B” Unit Holder who wishes to sell all or any part of its “B” Units to an identified willing third party purchaser (“Purchaser”) on arms’ length terms must give notice in writing (“Transfer Notice”) to the Trustee.

10.2     Relevant particulars

A Transfer Notice must specify:

10.2.1the name and address of the Purchaser;

10.2.2the number of Relevant Units that are the subject of the proposed sale;

10.2.3 the proposed consideration for the sale of the Relevant Units (“Sale Consideration”);

10.2.4 that the Relevant Units will not on completion of the sale be subject to any Encumbrance.

10.3     Acceptance by “A” Unit Holder

The “A” Unit Holder has a right to acquire all or a part of the Relevant Units from the “B” Unit Holder by giving written notice of its willingness to purchase the Relevant Units to the “B” Unit Holder within 10 Business Days after receipt of the Transfer Notice from the Trustee.

10.4     Transfer of “B” Units to Purchaser

Any Relevant Units not transferred to an “A” Unit Holder under clause 10.3 may be transferred by the “B” Unit Holder to the Purchaser provided that:

10.4.1the “A” Unit Holder consents to the transfer of Relevant Units to the Purchaser, such consent not to be unreasonably withheld; and

10.4.2the terms of sale to the Purchaser are no more favourable to the Purchaser than those set out in the Transfer Notice; and

10.4.3before registration of the transfer of the Relevant Units, the Purchaser enters into an agreement with the other parties to this Deed containing the same terms and conditions as this Deed amended as reasonably required by the “A” Unit Holder to protect it from any consequences of the transfer.

10.5     Role of Trustee

10.5.1The Unit Holders each appoint the Trustee as their agent to the extent required to give effect to the provisions of this clause 10. The Trustee must give notice to the Transferor of which Relevant Units are to be transferred.

10.5.2The Trustee will give directions as to the time and place for settlement of the Unit transfers to be effected under this clause 10.

[16]     Clauses 14.3 and 14.4  provide:

14.3     Absolute discretion

The Trustee has an absolute discretion as to the manner, mode and time of exercise of powers, authorities and duties conferred on it, including under this Deed.

14.4     Appointment of advisers

The Trustee may engage any agent, adviser, valuer, broker, underwriter or contractor to advise, provide services or assist the Trustee in discharging its duties, exercising its powers, managing the Trust or dealing with the Trust Fund or any Asset or Liability.

[17]     Australian solicitors (ie not Wilson Harle) acting for the Jacobsens prepared the QPAM trust deed.

How is the consideration to be paid by the Jacobsens to WWNZ to be fixed?

Overview

[18]     The relevant provisions of the QPAM trust deed are very badly drafted.  The cross-reference in cl 9.2.2 to cl 10 does not make much sense because cl 10 is addressed to circumstances in which the pre‑emption provisions are complied with on a sale to a third party.  In such circumstances (ie where the pre‑emption provisions are being worked through), there is no need for a price fixing mechanism (because that is left to the parties). 

[19]     It is likewise clear that in the event of a change of control triggering cl 9.2.2 at least cl 10.3, which requires the “A” unit holder to give written notice if it is to elect to acquire the “B” units, must apply (mutatis mutandis) so as to give the Jacobsens the right to acquire the B units.  

[20]     All parties agree that the Jacobsens may acquire the interests of WWNZ in QPAM and the QPAM trust and the consideration to be paid is their fair market value.

[21]     The Jacobsens and QPAM maintain that in the circumstances which have now arisen, the effect of cll 9.2.2 and 10.5 is that the purchase price is to be calculated by QPAM.

[22]     WWNZ resists the conclusion that QPAM is to fix the consideration by reference to two broad lines of argument:

(a)The QPAM trust deed on its true construction provides for the sale to be at fair market value which must be fixed by the Court (unless the parties agree on some other mechanism).

(b)Alternatively, if QPAM may, in terms of the QPAM trust deed, fix the consideration, WWNZ has an arguable case for the obtaining of orders under s 174 of the Companies Act which will prevent it from doing so, at least in the manner which up to now has been proposed.

[23]     A third line of argument (reflected in the third cause of action in a third amended statement of claim in the 2006 proceedings) is that on its true construction the QPAM trust deed permits WWNZ to state a consideration for the shares and to defer doing so until it has all relevant information.  In the course of argument, Mr Fisher accepted that this cause of action was untenable and that it could fairly be struck out.

The approach of Winkelmann J

[24]     In the judgment under appeal, Winkelmann J summarised the arguments for QPAM and the Jacobsens in this way:

[81]     QPAM and Jacobsen NZ argue that it is to be implied into the QPAM Trust Deed that on a deemed transfer the “B” unit holder appoints the Trustee its agent to hold legal and beneficial title, to agree a price for a sale of the shares with Jacobsen NZ, and see to the practicalities of settlement, and that the Trustee has absolute discretion as to what price it settles.  They argue that the provisions of clause 10 of the Unit Trust Deed, apply, [sic] so that WWNZ has irrevocably appointed QPAM as its agent to give effect to the pre-emption provisions.  WWNZ therefore does not need and is not entitled to any information to test whether the price settled upon is fair.

Without identifying a clear alternative interpretation of the QPAM trust deed, Winkelmann J concluded that this issue was not clear cut particularly given what she saw as continuing uncertainty as to the interim legal entitlements of WWNZ.  She concluded:

[84]     There is therefore a serious question as to what machinery provisions are to be implied.  In particular there is a serious question as to whether a more reasonable and equitable limitation on the ownership interests of WWNZ is appropriate than one that would leave (as conceded by Jacobsen NZ) WWNZ as an unsecured creditor in respect of a purchase price and that purchase price to be fixed by QPAM, an entity controlled by a company associated with the putative purchaser.

[85]     …  The defendants’ summary judgment application is predicated on a reading of the relevant instruments that is not readily apparent on its face and requires the Court to imply numerous terms in order to give this outcome.  I do not consider that the resolution of these complex matters is appropriate for the summary judgment procedure.  I am not satisfied that it is a foregone conclusion that the defendants [sic] proposed construction must override all interests that WWNZ holds in the “B” shares or units.  For that reason, I am not satisfied that all of the causes of action advanced by the plaintiff are incapable of success, and I decline the defendants’ application for summary judgment. 

The subsequent application by QPAM for directions and the means by which it proposes to fix value

[25]     In May and August 2007, two independent directors (ie directors who are independent of the shareholders) were appointed to the QPAM board.  They have formed a subcommittee to establish a value for WWNZ’s interests in QPAM and the QPAM trust.

[26]     On 21 February 2008, QPAM issued proceedings seeking direct confirmation that QPAM may resort to the procedure provided for in cl 10 of the QPAM trust deed to fix a consideration for the transfer between WWNZ and the Jacobsens.  The best indication of the procedure the independent directors intend to follow is given by the prayer for relief in the directions proceedings in which QPAM seeks:

(A)An order for the Court confirming that the Unit Trust Deed authorises QPAM, as Trustee, to:

(a)Act as agent for [WWNZ] and [the Jacobsens] to give effect to the disposal of the “B” units from [WWNZ] to [the Jacobsens];

(b)Engage a valuer to determine the value of the “B” units …;

(c)Fix a consideration by reference to the valuation determined by such valuer.

The arguments advanced by QPAM and the Jacobsens

[27]     The arguments for QPAM and the Jacobsens before us were broadly the same as they were before Winkelmann J.  They contend that following the change in control in WWNZ and the Jacobsens having giving notice that they accepted WWNZ’s “B” units (and shares), those units and shares were transferred to the Jacobsens with WWNZ’s rights being confined to receiving fair value for them as assessed by QPAM and as provided for in cl 10.5 of the QPAM trust deed.

[28]     Counsel for both QPAM and the Jacobsens criticised Winkelmann J for not resolving definitively the legal issues thrown up by the case.  More particularly, they argue that:

(a)Pursuant to cl 9.2.2 of the QPAM Trust Deed, the change in control caused a deemed disposal of the “B” units with the result that the provisions of cl 10 of the QPAM trust deed apply.

(b)Pursuant to cl 10.5 of the QPAM trust deed, QPAM as trustee is appointed as agent for both WWNZ and the Jacobsens to give effect to the transfer.

(c)Pursuant to cl 14.3 of the QPAM trust deed, QPAM has a broad discretion as to the exercise of its powers, authorities and duties under the trust deed and under cl 14.4 may engage a valuer.

On this basis they contend that QPAM is entitled to appoint an independent valuer to determine the value of the “B” units (and consequently the “B” shares) and to fix the consideration having regard to the valuation determined by that valuer.

Evaluation – preferred interpretation of the relevant clauses

[29]     The approach contended for by QPAM and the Jacobsens is neither fair nor reasonable.  WWNZ has not received information relevant to a valuation exercise.  QPAM is now controlled by the Jacobsens who are, in turn, the purchasers of WWNZ’s stake in the QPAM trust.  It is clear that neither QPAM nor the Jacobsens will, in the absence of court order or direction, allow WWNZ to have any material input into the proposed valuation process. 

[30]     In the earlier appeal, this Court observed:

[21]     Clause 10 contemplates the establishment of the purchase price which the A unit holder must pay by a market mechanism, ie what an actual third party purchaser is prepared to offer.  It anticipates that the B unit holder will have reached conditional agreement with the third party before giving the Transfer Notice referred to in cl 10.2.  Unless the B unit holder has reached such an agreement with a third party, it will not be able to set in train the pre-emptive provisions.  All of this means that the cl 10 mechanism cannot be made to work where a deemed disposal under cl 9.2.2 has already taken place.  The terms of the trust deed simply fail to deal with this situation in any workable way.

[31]     We agree with those comments.  Putting cl 9.2.2 to one side, the scheme of cll 9.2 – 9.6 is to prevent sale or disposal of “B” units unless to:

(a)An affiliate of the “B” unit holder; or

(b)The “A” unit holder; or

(c)Third parties where the “A” unit holder has declined the “B” units (providing the sale is on the same terms and conditions as were offered to the “A” unit holder).

As noted, cl 10.3 provides the basis for the Jacobsens to acquire the “B” units.  Otherwise, cll 10.1 – 10.4 are beside the point – they address what is to happen when a transfer of “B” units is to be implemented in accordance with the rights of pre-emption, ie either to the “A” unit holders or to a third party where the “A” unit holders have not exercised their rights of pre-emption and have consented to the transfer (such consent not to have been unreasonably withheld).  So this aspect of the case turns on cl 10.5 which, for ease of reference, we set out again:

10.5     Role of Trustee

10.5.1The Unit Holders each appoint the Trustee as their agent to the extent required to give effect to the provisions of this clause 10. The Trustee must give notice to the Transferor of which Relevant Units are to be transferred.

10.5.2 The Trustee will give directions as to the time and place for settlement of the Unit transfers to be effected under this clause 10.

In the situation which is directly addressed by cl 10 (ie the orderly implementation of the rights of pre-emption), there will never be a requirement for QPAM to fix the price.  In this context, QPAM and the Jacobsens are seeking to put cl 10.5 to a use for which it was not designed and it is not surprising that some awkwardness has arisen.

[32]     The second sentence of cl 10.5.1 and cl 10.5.2 are not material to the current debate.  So the case for QPAM and the Jacobsens must be that the appointment of QPAM as the agent of the unit holders “to the extent required to give effect to the provisions of this clause 10” requires QPAM to fix the consideration to be paid by the Jacobsens where there has been deemed change of control in relation to the “B” unit holder and the Jacobsens wish to exercise their rights of pre-emption. 

[33]     QPAM and the Jacobsens rely on cl 14.4 (which provides for the appointment of agents including valuers) as supporting their interpretation of cl 10.5.1.  But cl 14 (as a whole) is of a general character and it is difficult to treat it as directly referable to cl 10.5.1.

[34]     We accept that cl 9.2.2 states that the provisions of cl 10 apply to a change in control.  We also accept that the words “on the occurrence of which” in cl 9.2.2 must mean that cl 10 is to apply on a retrospective basis.  Such application can, of course, only be on an inferred mutatis mutandis basis.  But this necessarily leaves a good deal of scope for the argument as to the necessary changes – changes that must be very considerable.

[35]     Against that background, this aspect of the case turns on the simple question: is the fair market price of the “B” units and shares to be determined if necessary by arbitration or the courts, or alternatively is it to be fixed by QPAM?  This issue is not clearly resolved (at least in favour of QPAM and the Jacobsens) by the language of cl 10 which does not squarely address the issue.  It really comes down to a requirement to attribute an intention to the parties. 

[36]     Clause 10.5.1 provides that the unit holders “each” appoint QPAM as their agent.  On QPAM and the Jacobsens’ other arguments as to WWNZ’s interim position, WWNZ is not a unit holder.  In the course of argument we suggested to Mr Browne that his argument rests on the assumption that either WWNZ is a unit holder for the purposes of cl 10.5.1 but not for other purposes or that the expression “unit holder” in cl 10.5.1 in a deemed disposal situation includes “former unit holder”.  Mr Browne dealt with this by suggesting that the cl 10.5.1 appointment of QPAM as agent was made via the QPAM trust deed and thus at a time when WWNZ was undoubtedly a unit holder.  That was not a bad response and certainly is a possible solution to the problem we identified.  But the debate highlighted again the awkwardness of the construction that Mr Browne was arguing for and the reality that cl 10.5.1 is not well suited to operate retrospectively in the case of a deemed disposal.

[37]     The argument advanced by QPAM and the Jacobsens also assumes that QPAM as the agent appointed by WWNZ is not required to act in accordance with the instructions of WWNZ or in its bests interests; this despite the agency relied on being several (as signified by the use of the word “each”) and not joint.  It is one thing for QPAM to act as the agent of both parties where that agency is confined to the implementation of an already agreed machinery; it is a rather different thing for QPAM to be the agent of two parties for the purpose of fixing a price one is to pay the other – a situation in which their interests are necessarily conflicting.  Such a task – fixing a price one party is to pay another – is more logically one for a valuer, independent expert or arbitrator. 

[38]     As well QPAM and the Jacobsens’ argument proceeds on the basis that cl 10.5.1, which as drafted can only have been intended to be for ancillary purposes, assumes dominant importance. 

[39]     Finally, it is almost inconceivable that any sensible person in the shoes of the “B” unit holder would have agreed to a process which is in accord with the meaning contended for by QPAM and the Jacobsens.

[40]     A more sensible approach to is construe cl 10 as requiring the “B” unit holder to give the “A” unit holder the opportunity to buy the shares at the fair market value of the units, a value which can if necessary be fixed by the court, see Money v Ven-Lu-Ree Ltd [1988] 2 NZLR 414 (CA), aff [1989] 3 NZLR 129 (PC).

[41]     We therefore interpret the relevant clauses simply as requiring the transaction to occur at fair market value.  As this can be assessed if necessary by the court, there is no need for QPAM to act as the agent of the unit holders (and thus nothing for the first sentence of cl 10.5.1 to bite on) as there is no respect in which QPAM is “required” to act as agent of WWNZ to ensure that cl 10 is complied with.

[42]     It follows that QPAM and the Jacobsens are not entitled to either summary judgment or a strike-out on the interpretation issue.  Further, because this results from our interpretation of the QPAM trust deed, and not merely a view that the associated contentions of WWNZ are “arguable”, and at the request of the parties, we will make a declaration recording our interpretation.

Other issues as to fixing value

[43]     If, contrary to our interpretation, cll 9.2.2 and 10.5 of the QPAM trust deed provided for QPAM to act as the agent of the parties for the purpose of fixing the fair market value of the units, other issues would have arisen.

[44]     If QPAM were to fix the consideration, it could proceed by appointing, in its role as agent for both parties, an arbitrator to fix the price by way of arbitral proceedings in which both sides had a fair opportunity to participate on an equally informed basis.

[45]     In this context, QPAM’s apparent intention to proceed by way of a valuation process in which WWNZ has no meaningful participatory role could well have been subject to review under s 68 of the Trustee Act 1956.  Indeed QPAM anticipated this line of thinking by itself pre‑emptively applying to the High Court for directions under s 66 of that Act. 

[46]     Although WWNZ has not formalised a claim under s 68, it has advanced a conceptually similar claim under s 174 of the Companies Act.  That section provides:

174     Prejudiced shareholders

(1)       A shareholder or former shareholder of a company… who considers that the affairs of a company have been, or are being, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, or are likely to be, oppressive, unfairly discriminatory, or unfairly prejudicial to him or her in that capacity or in any other capacity, may apply to the Court for an order under this section.

(2)       If, on an application under this section, the Court considers that it is just and equitable to do so, it may make such order as it thinks fit including, without limiting the generality of this subsection, an order—

(a)       requiring the company or any other person to acquire the shareholder's shares; or

(b)      requiring the company or any other person to pay compensation to a person; or

(c)       regulating the future conduct of the company's affairs; or

…

[47]     Paragraph 25(j)(i) and (ii) of the third amended statement of claim in the 2006 proceedings is in these terms:

25[WWNZ] considers that the affairs of QPAM have been and are being conducted in a manner that is, or acts of the company have been, or are being, oppressive, unfairly discriminatory or unfairly prejudicial to it in its capacity as a “B” class shareholder in QPAM and/or in its capacity as a “B” unit holder in the Unit Trust… in any one or more of the following requests:

…

(j)in QPAM’s asserting a right or power under the Unit Trust Deed to value the “B” units…:

(i)in circumstances where no such right or power exists under the Unit Trust Deed; and

(ii)pursuant to a procedure which is unfair and inequitable and/or which deprives [WWNZ] of access to any information about the value of the “B” units … or of a right to be heard and/or which disregards [WWNZ’s] legitimate interest in ensuring a process which entitles it to a fair value for its units … .

[48]     Broadly Mr Farmer QC for QPAM maintained that if the QPAM trust deed is to be construed as authorising QPAM to fix the consideration, the s 174 claim could not succeed.  In support of this argument, Mr Farmer referred to and relied on Re Benfield Greig Group plc [2000] 2 BCLC 488 (Ch). This case dealt with provisions in articles of association, which provided for a transfer at a valuation by the company’s auditors or an external valuer appointed by the directors. The articles were specific that the expert chosen was to act as a valuer and not an arbitrator. The company was a public company with many shareholders. In the High Court, Arden J held that the conduct of this valuation in accordance with the articles but without participation by the transferor did not give rise to an arguable case of oppression. So she entered summary judgment for the company. The subsequent appeal was allowed as there was by then evidence available which impugned the fairness of the valuation, see [2002] 1 BCLC 65 (CA).

[49]     In Re Benfield Greig Group the company concerned had a widely dispersed shareholding.  Further, the valuation process in issue there was explicitly provided for in the articles as opposed to the very much more open-textured situation here.  In any event, the subsequent history of the case perhaps suggests that some caution should be shown in granting summary judgment in this context.  The judgment of Arden J is thus not of controlling significance.

[50]     Section 174 characteristically operates so as to limit the exercise of legal powers; in other words to stop, or grant a remedy in respect of, what would otherwise be lawful.  In Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at 379 – 380 (HL) Lord Wilberforce discussed the sort of cases in which the exercise of legal powers might give rise to oppression by reason of inconsistency with underlying equitable considerations. The present situation is not closely aligned with the examples which he gave save that QPAM is closely held (representing a joint venture between two parties) and the circumstances involve what in a sense is an expulsion (albeit not quite of the type that Lord Wilberforce had in mind). On the other hand, s 174 is expressed in rather broader language than the section under consideration in Ebrahimi.  Further, it can hardly be said that there has been a clear and explicit agreement to the sort of ex parte valuation process, which is proposed by QPAM.  Indeed, WWNZ might fairly have assumed that it would still be participating in QPAM in relation to any decision made by QPAM which was likely to affect its interests.  Most importantly, there are the complicating features that QPAM is the trustee under the QPAM trust deed and, on the arguments advanced by QPAM and the Jacobsens, an agent of (and perhaps in this sense a fiduciary for) WWNZ.  If there is scope for QPAM to apply for directions under s 66 of the Trustee Act there must likewise be scope for WWNZ to apply to review its decisions under s 68 of that Act.  Thus, given that arguably there are underlying equitable obligations, resort to s 174 can not be seen as necessarily inappropriately inconsistent with the legal rights conferred under the QPAM constitution and QPAM trust deed.

[51]     On this basis, had we interpreted the QPAM trust deed in the manner contended for by QPAM and the Jacobsens, we would have concluded that WWNZ’s claim under s 174 was nonetheless arguable.  For the avoidance of any doubt, we emphasise that these considerations do not arise on our preferred interpretation of the QPAM trust deed under which the price must be fixed by the court in the absence of any other agreed mechanism (such as arbitration).

What is to happen to the 2005 proceedings?

[52]     Sections 165 and 166 of the Companies Act provide:

165     Derivative actions

(1)       Subject to subsection (3) of this section, the Court may, on the application of a shareholder or director of a company, grant leave to that shareholder or director to—

(a)       bring proceedings in the name and on behalf of the company or any related company; or

(b)      intervene in proceedings to which the company or any related company is a party for the purpose of continuing, defending, or discontinuing the proceedings on behalf of the company or related company, as the case may be.

(2)       Without limiting subsection (1) of this section, in determining whether to grant leave under that subsection, the Court shall have regard to—

(a)       the likelihood of the proceedings succeeding:

(b)      the costs of the proceedings in relation to the relief likely to be obtained:

(c)       any action already taken by the company or related company to obtain relief:

(d)      the interests of the company or related company in the proceedings being commenced, continued, defended, or discontinued, as the case may be.

(3)       Leave to bring proceedings or intervene in proceedings may be granted under subsection (1) of this section, only if the Court is satisfied that either—

(a)       the company or related company does not intend to bring, diligently continue or defend, or discontinue the proceedings, as the case may be; or

(b)      it is in the interests of the company or related company that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders as a whole.

…

166     Costs of derivative action to be met by company

The Court shall, on the application of the shareholder or director to whom leave was granted under section 165 of this Act to bring or intervene in the proceedings, order that the whole or part of the reasonable costs of bringing or intervening in the proceedings, including any costs relating to any settlement, compromise, or discontinuance approved under section 168 of this Act, must be met by the company unless the Court considers that it would be unjust or inequitable for the company to bear those costs.

[53]     Mr Fisher told us that WWNZ quantifies QPAM’s claim against the Jacobsens at around $3.5m.  It is fair to say, however, that absence of diligence in relation to the prosecution of this claim may cast a shadow over its merits.  As well, absent a default by the Jacobsens in paying for the units, it is difficult to see that WWNZ would be granted leave to sue in the name of QPAM.  Most importantly the value of the claim (assuming it has a value) will in any event form part of the valuation exercise and on this basis the 2005 proceedings might be thought to be surplus to requirements.

[54]     Against that background we can see no obvious merit in allowing the 2005 proceedings to continue. We are not, however, seized of a strike out application in relation to these proceedings.  In the High Court Winkelmann J in effect declined to answer the preliminary question because of what she considered to be the uncertainty and difficulty as to the interim position of WWNZ.  Since the appellants are not seeking from us a final resolution as to this interim position, we are, as was Winkelmann J, unable to answer the proposed preliminary question.

Disposition

[55]     We strike out the third cause of action in the 2006 proceedings.

[56]     We otherwise dismiss the appeals.

[57]     We make a declaration that the consideration to be paid for WWNZ’s units and shares is to be their fair market value to be assessed if necessary by the court.

[58]     The appellants are to pay (with joint and several liability) to WWNZ costs of $12,000 and usual disbursements.

Solicitors:
Wilson Harle, Auckland for Appellants in CA285/06
Stewart Germann Law Office, Auckland for Appellants in CA15/07
Brookfields, Auckland for Respondents