R J Asher QC for Appellants P W David and A E Ferguson for Respondent
Judgment:
29 August 2002
JUDGMENT OF THE COURT DELIVERED BY GAULT P
This is an appeal by Mr A S McLachlan and others against a judgment of the High Court at Auckland delivered by Potter J on 11 February 2002 in which she ordered the appellants to provide security for the costs of MEL Network Limited (Network). Network is the first defendant in substantive proceedings in which Mr McLachlan and others are plaintiffs.
The underlying dispute
Mercury Geotherm Limited (Geotherm) was formed as a joint venture between Mr McLachlan together with his companies and trusts (the McLachlan interests) and Mercury Energy Limited now Vector Limited, (Mercury) to develop and operate a geothermal power station on the McLachlan farm land near Taupo. The McLachlan interests transferred nearly all their assets into the joint venture. In return they received cash and shares in Geotherm. They originally held 48.84% of Geotherm. As the result of Mr McLachlan’s need for further funds, in two transactions he transferred 3 million shares in Geotherm to Network in consideration of payments totalling $1.7m. The plaintiffs’ shareholdings were thus reduced to 34.9%. They were given the option to buy back those shares at the amount paid for them by Network.
The underlying dispute between the parties arose out of difficulties in obtaining and continuing project funding. Potter J summarised the relevant facts as follows:
While the intention of the parties as expressed in the documentation was that Westpac Bank would finance the project on a long-term basis, ultimately funding was provided by Mercury through Network. Construction of the power station and development of the project greatly exceeded budget. Network was not prepared to continue funding the project. It made demand of the plaintiffs for $80m relating to the costs of completing and commissioning the power station and purchasing equipment. Formal demand was issued in August 1998. When it was not met, Network sought to appoint receivers. This prompted an application by Mr McLachlan for an injunction to prevent the appointment of receivers. The application was heard and determined by Williams J who issued two judgments on 16 November 1998 and 9 December 1998. In the first judgment he allowed time for the McLachlan interests to purchase Geotherm’s assets. When that was not achieved he declined the injunction in the judgment of 9 December 1998. Receivership followed promptly. In 1999 Geotherm’s assets were sold by the receivers to Contact Energy Limited for $50,500,000.
It is the plaintiffs’ case that decisions taken by Network in relation to the joint venture were financially disastrous for the joint venture and that the “in-house” financing of the project by Mercury through Network and the subsequent enforcement of the debenture and appointment of the receivers resulted…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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Details
AGLC
McLachlan v Mel Network Ltd [2002] NZCA 215
Case
[2002] NZCA 215
Decision Date
CaseChat Overview and Summary
In this appeal, Mr A S McLachlan and others challenge a decision of the High Court that they provide security for the costs of MEL Network Limited (Network), the first defendant in substantive proceedings. The substantive proceedings involve allegations of pre-contractual misrepresentations, breaches of the joint venture agreement, and breach of fiduciary duties, among other claims. The plaintiffs also seek relief under s174 of the Companies Act 1993, alleging that Network has conducted the affairs of Geotherm in a manner that is oppressive, unfairly discriminatory, and unfairly prejudicial to the minority shareholders. The High Court found that the plaintiffs' claims were not strong and ordered the appellants to provide security for the costs of the defendants in the amount of $250,000.
The primary legal issues before the Court of Appeal were whether the High Court Judge correctly exercised her discretion in ordering security for costs and, if so, the appropriate quantum of such security. The Court of Appeal examined the evidence and considered the submissions of counsel for both parties. The Court found that the claims were lacking in specificity and that it was not possible to form any firm view of the merits of the claims at this stage. The Court of Appeal concluded that the order made by the High Court was excessive at the present time and went further than was necessary.
The Court of Appeal allowed the appeal and varied the order made by the High Court. The Court ordered security in the sum of $50,000 to be given within one month of the delivery of this judgment, with the proceedings stayed until that security is provided. The defendants should then promptly make discovery. Within three months of having completed discovery, the defendants may apply for further security. The Court also granted the appellants costs in this Court, which were fixed at $5,000 together with disbursements approved, if necessary, by the Registrar.
Solicitors: Edwards Clark Dickie, Auckland, for Appellants; Wilson Harle, Auckland, for Respondent.