Manco Engineering Group Limited v Timberjack Group O.Y HC Auckland CP589-im00

[2001] NZHC 861

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY CP589-im00

BETWEEN MANCO ENGINEERING GROUP LIMITED
Plaintiff

AND TIMBERJACK GROUP O.Y.
Defendant

Hearing: 28 May 2001

Counsel: M C Black for the plaintiff
C S Lill for the defendant

Judgment: 14 September 2001

(RESERVED) JUDGMENT OF MASTER KENNEDY-GRANT

Distribution:
M C Black PO Box 1984 Shortland Street Fax [phone]
Buddle Findlay PO Box 1433 Auckland Fax [phone]

Introduction

[1] The plaintiff seeks summary judgment against the defendant for loss and damage allegedly suffered by it as a result of the defendant’s alleged breach of two contracts entered into between the parties on 23 April 1998 (“the Rights Agreements”).

[2] The Rights Agreements were entered into following the sale by contracts entered into on 20 April 1998 of the assets and undertakings of two subsidiaries of the plaintiff to companies controlled, directly or indirectly, by the defendant.

[3] The Rights Agreements conferred certain rights on the plaintiff in the event of the defendant procuring or permitting the sale or other disposition of the shares in the companies controlled by it which had purchased the assets and undertakings of the plaintiff’s subsidiaries (“the Shares”) or the businesses which had been purchased by those companies respectively (“the Business”).

The contractual terms

[4] The clauses in question in the Rights Agreements read as follows (so far as is material):

“2.1.1 Subject to clause 2.1.4 Timberjack shall not sell, transfer, assign, sub-licence, or enter into any other legal or equitable disposition of or dealing in the Shares, the Business or this Agreement of an absolute nature (each “a Disposition”) without first having granted Manco or its nominee a right of first refusal to acquire the Shares or the Business . . . on the following terms:

(a) Timberjack shall by notice and writing to Manco offer to sell the Business or the Shares to Manco or its nominee and shall set out in full the terms of any Disposition of the Business;

(b) Manco or its nominee shall be entitled within 15 days after receipt of the notice from Timberjack to accept the offer by giving Timberjack notice in writing of the acceptance;

(c) if Manco or its nominee does not accept the offer of Timberjack under clause 2.1.1(b) Timberjack shall be entitled to offer the Business or the Shares to any third party on the same terms and conditions as were contained in the notice to Manco or its nominee under clause 2.1.1(a);

(d) Timberjack shall not be entitled to make a Disposition of the Shares or the Business to a third party at any lesser price or on more favourable terms than those offered to Manco without first re-offering by notice in writing that price or those terms to Manco or its nominee, and Manco’s rights of first refusal shall apply equally to any such subsequent notice.

. . .

2.1.4 Notwithstanding clause 2.1.1, Timberjack shall be entitled to make a Disposition to a Related Company if:

[a] Timberjack obtains the prior written consent of Manco, which shall not be unreasonably withheld; and

[b] Timberjack procures that the Related Company shall have first entered into an agreement with terms and conditions which are in all material respects the same as the terms and conditions contained in this Agreement.”

[5] The defined term “Shares” refers to the shares in the relevant purchasing company referred to in paragraph [2] of this judgment.

[6] The defined term “Business” refers to the assets and undertaking purchased from the relevant subsidiary of the plaintiff, as described in paragraph [2] of this judgment.

[7] The term “Related Company” is defined in clause 1.1 of each agreement in the following terms:

“‘Related Company’ In this Agreement, a company is related to another company if:

(a) the other company is its holding company or subsidiary; or

(b) more than half of the issued shares of the company, other than shares that carry no right to participate beyond a specified amount in the distribution of either profits or capital as held by the other company and companies related to that other company (whether directly or indirectly, but other than in a fiduciary capacity); or

(c) more than half of the issued shares, other than shares that carry no right to participate beyond a specified amount in the distribution of either profits or capital, of each of them as held by members of the other (whether directly or indirectly, but other than in a fiduciary capacity); or

(d) the businesses of the companies have been so carried on that the separate business of each company, or a substantial part of it, is not readily identifiable; or

(e) there is another company to which both companies are related:-

and ‘Related Company’ has a corresponding meaning.”

The admitted facts

[8] It is common cause that:

[a] Trackweld Group Ltd and Trackweld Hire Ltd were subsidiaries of the plaintiff;

[b] By separate contracts dated 20 April 1998 Trackweld Group Ltd sold its assets and undertakings to Trackweld Timberjack Ltd and Trackweld Hire Ltd sold its assets and undertakings to Trackweld Timberjack Hire Ltd;

[c] Trackweld Timberjack Ltd was a subsidiary of the defendant and Trackweld Timberjack Hire Ltd was a subsidiary of Trackweld Timberjack Ltd.

[d] As a result of subsequent name changes, Trackweld Timberjack Ltd is now known as Timberjack (NZ) Ltd and Trackweld Timberjack Hire Ltd is now known as Timberjack Hire (NZ) Ltd.

[e] The Rights Agreements were entered into on 23 April 1998, one in respect of Trackweld Timberjack Ltd (now Timberjack (NZ) Ltd ) and the other in respect of Trackweld Timberjack Hire Ltd (now Timberjack Hire (NZ) Ltd) and that they contain the terms quoted or summarised in paragraphs [4]-[7] of this judgment.

The alleged breaches of contract and the defendant’s answers thereto

[9] The plaintiff alleges the following breaches of contract by the defendant:

[a] The sale and/or disposal by the defendant on or about 28 April 1999 of Trackweld Timberjack Ltd (now Timberjack (NZ) Ltd) to a newly incorporated company, Timberjack (NZ) Holdings Ltd, in breach of the contract of 23 April 1998 giving the plaintiff first right of refusal in respect of the sale of the shares in that company or of the business purchased by that company from Trackweld Group Ltd;

[b] The sale and/or disposal by the defendant on or about 28 April 2000 of “all its business operations including [Trackweld Timberjack Ltd (now called Timberjack (NZ) Ltd] and [Trackweld Timberjack Hire Ltd (now called Timberjack Hire (NZ) Ltd)] to Timberjack Group LLC (John Deere Corporation)”.

[10] The defendant denies selling or disposing of Trackweld Timberjack Ltd (now called Timberjack (NZ) Ltd) to Timberjack Holdings (NZ) Ltd)]

[11] The defendant admits that in or about December 1999 it, together with its parent company and various related companies, “transferred all of the forestry equipment business and associated assets making up the Timberjack Group to Timberjack Group LLC . . and various of its subsidiaries”. The transfer took the form of the sale of all the shares in the North American part of the group and the sale of all the assets of the defendant, including the defendant’s shareholding in Trackweld Timberjack Limited (now, Timberjack (NZ) Limited) and, through that company, in Trackweld Timberjack Hire Limited (now Timberjack Hire (NZ) Limited, the two purchasing companies in the 20 April 1998 contracts. The defendant denies that this transfer was a breach of either of the contracts entered into on 23 April 1998.

[12] In the alternative, in the event that the Court holds that the transfer of the forestry equipment business and associated assets making up the Timberjack Group to Timberjack Group LLC and its subsidiaries was a breach of the rights of first refusal given to the plaintiff under the two contracts entered into on 23 April 1998, the defendant submits:

[a] That such was not the intention of the parties and that the defendant is entitled to rectification of the contracts; alternatively

[b] That the contracts were subject to an implied term that cl 2.1.1 of the contracts would only apply to transfers of the two (purchasing) companies “outside of the Timberjack Group”, i.e. otherwise than as part of the whole group.

[13] Finally, in the event that the Court is satisfied that none of the above defences is arguable, the defendant submits that the plaintiff has failed to demonstrate any loss. This argument is based on the proposition that if, the transfer of the assets of the Timberjack Group to Timberjack Group LLC was caught by cl 2.1.1 of each of the contracts, the plaintiff’s exercise of its rights of first refusal would have depended upon its ability to pay the price for which the entire Timberjack Group was sold i.e. approximately EUR644M.

My findings: the first alleged breach of contract

[14] Mr Black, for the plaintiff, advised, at the outset of his submissions, that the plaintiff is no longer pursuing this allegation.

[15] That decision is an entirely appropriate one, given the evidence before the Court.

My findings: the second alleged breach of contract

[16] In order to succeed in its claim in respect of this alleged breach of contract, the plaintiff must satisfy the Court:

[a] That on the proper interpretation of the contracts entered into on 23 August 1998, the transfer by the defendant, its parent company and related companies of “the forestry equipment business and associated assets making up the Timberjack Group to Timberjack Group LLC . . . and various of its subsidiaries” is caught by cl 2.1.1 in those contracts;

[b] That there is no basis for an argument that the clauses do not reflect the intention of the parties and ought therefore to be rectified;

[c] That there is no basis for an argument that the contracts each contained an implied term to the effect that transfer of the two (purchasing) companies as part of the transfer of the whole group would not fall within cl 2.1.1 of the contracts;

[d] That there is no basis for an argument that, on the proper interpretation of the clauses, if applicable to the transfer in question, the plaintiff could only exercise its rights of first refusal if it were ready willing and able to pay the price paid for the entire Timberjack Group, i.e. approximately EUR644M.

[17] The nature of the transfer of the Timberjack Group to Timberjack Group LLC is described in paragraph [11] of this judgment.

[18] I am satisfied that this transfer was caught by cl 2.1.1 of each of the contracts entered into on 23 April 1998.

[19] I am of this view for the following reasons:

[a] The transfer was of the assets of the defendant;

[b] The assets of the defendant included the shares in Trackweld Timberjack Limited (now Timberjack (NZ) Limited);

[c] Those shares could not be transferred to Timberjack Group LLC without the cooperation of the defendant;

[d] Such cooperation would amount, if not to procuring the transfer of the shares, at least to permitting it:

[e] The assets of the defendant transferred to Timberjack Group LLC included the assets of Trackweld Timberjack Limited (now Timberjack (NZ) Limited, its direct subsidiary, and those of Trackweld - Timberjack Hire (NZ) Limited);

[f] The assets of each of those two companies included the assets purchased by them respectively from the plaintiff’s two subsidiary companies;

[g] The transfer of the defendant’s assets therefore included the transfer of the businesses purchased by the two (purchasing) companies from the plaintiff’s subsidiaries;

[h] The cooperation of the defendant being necessary to enable the transfer to be carried out, the defendant procured or, at the very least, permitted the transfer of the assets, including the assets purchased by the two (purchasing) companies from the plaintiff’s subsidiaries.

[20] I am satisfied that, on the evidence before me, there is no ground for an argument that the contracts as drawn failed to reflect the common intention of the parties. The only evidence on the point is that of Mr HA Asujamaa, the Senior Vice President, Corporate Planning, of the defendant’s parent company. In paragraphs 2.8, 5.6 and 5.7 of his affidavit in opposition to the plaintiff’s application for summary judgment, he states:

“2.8 Broadly I understood the rights agreements as existing to protect [the plaintiff’s] position in the event that [Trackweld Timberjack Limited (now Timberjack (NZ) Limited) or Trackweld - Timberjack Hire Limited (now Timberjack Hire (NZ) Limited)] were sold outside of the Timberjack group of companies. Transfers within the group were generally permitted, however, since such structural chances are normal occurrences in a globally operating group such as the Timberjack group.

5.6 “I believe that the nature of the [transfer to Timberjack Group LLC] was such that there has been no breach of the terms, spirit or object of the [Trackweld Timberjack Limited (now Timberjack (NZ) Limited)] rights agreement. The transfer of the [Trackweld Timberjack Limited (now Timberjack (NZ) Limited] shares was conditional upon the purchase of the entire Timberjack group, and [Trackweld Timberjack Limited (now Timberjack (NZ) Limited)] remains a part of the same group as it was prior to the transaction.

5.7 The [transfer to the Timberjack LLC] was not one whereby [Trackweld Timberjack Limited (now Timberjack (NZ) Limited)] and/or [Trackweld Timberjack Hire Limited (now Timberjack Hire (NZ) Limited)] was separated from the group and disposed of by TGOY. Although ultimately the transaction was structured slightly differently from a sale of TGOY shares, its net effect was the same. As such it was not prohibited by the rights agreements.”

[21] This evidence is not sufficient, in my view, to found an arguable case for the right to rectification, as contended for by the defendant.

[22] I am satisfied, on the evidence before me, that no grounds exist for the implication of a term excluding from the ambit of cl 2.1.1 of the contracts entered into on 23 April 1998 a transfer of the two (purchasing) companies or the businesses purchased by them as part of the whole Timberjack Group. No evidence was given to support such an argument and the submissions of counsel for the defendant were limited, at the end of the day, to submitting that whether the terms sought to be implied “can be implied” is an issue of fact and law and, as such, should not be decided in the context of the summary judgment application but more appropriately should be reserved for a substantive hearing at which witnesses can be called and documents produced in support.

[23] While it is not incumbent for a defendant to lay its entire case before the Court on a summary judgment application, it is obliged, if it wishes to rely on matters of fact (as opposed to matters of law which can be argued on the face of the documents produced by the plaintiff), to deduce sufficient evidence to at least raise an argument that the facts might be found and that, if they are found, the legal consequence of their finding could arguably be held to follow.

[24] I am not, however, satisfied that the plaintiff is entitled, on the proper interpretation of cl 2.1.1 of the contracts entered into on 23 April 1998, to be offered first refusal in respect of the shares in the (purchasing) companies or the businesses purchased from the former subsidiaries of the plaintiff in isolation from the other elements of any contract entered into or proposed to be entered into by the defendant in relation to those shares and/or businesses. The clause, on the interpretation which I have placed on it, could apply as easily to the disposal of the shares or businesses in question in isolation from other assets controlled by the defendant as to their disposal as part of a larger transaction involving other assets as well (as in fact happened). I think that it is at least arguable that there is nothing in the clause that entitles the plaintiff to require the defendant to offer the shares or the businesses to the plaintiff on terms other than those in which it has contracted, or is proposing to contract, with another party. In other words, if it is part of a larger deal, that is the deal that the plaintiff has first refusal on, because that is the “disposition” in terms of the clause. If the deal is limited to the shares or the businesses, as the case may be, without other assets being involved, then that is the deal that is offered and in respect of which the plaintiff has right of first refusal.

[25] For this reason, I am unable to grant summary judgment to the plaintiff.

Orders

[26] I therefore make the following orders:

[a] The plaintiff’s application for summary judgment against the defendant is dismissed.

[b] The matter is transferred to the standard track.

[c] The Registrar is directed to schedule a case management conference before me on a date to be fixed after consultation with counsel and myself.

[d] The costs of the summary judgment application are reserved.

[27] This judgment is signed at 8.58 am on 14 September, 2001.