Perry Corporation And v Ithaca (Custodians) Limited

[2003] NZCA 220

IN THE COURT OF APPEAL OF NEW ZEALAND

CA43/03

BETWEENPERRY CORPORATION AND RICHARD C PERRY

Appellant

ANDITHACA (CUSTODIANS) LIMITED

First Respondent

ANDGUINNESS PEAT GROUP PLC

Second Respondent

ANDRUBICON LIMITED

Third Respondent

Hearing:11 September 2003

Coram:Keith J
Anderson J
Glazebrook J

Appearances:  C M Stevens and A L Holloway for Appellant

R J Asher QC for Respondents

Judgment:12 September 2003 

JUDGMENT OF THE COURT DELIVERED BY GLAZEBROOK J

Introduction

[1] On 14 March 2003, in a decision now reported at [2003] 2 NZLR 216, Potter J upheld Guinness Peat Group’s claim that Perry Corporation had breached the substantial security holder disclosure requirements under the Securities Markets Act 1988 (SMA), as renamed from 1 December 2002, by not disclosing an interest in Rubicon shares. The shares in question had been sold to Deutsche Bank and UBS Warburg at the same time as Perry Corporation had entered into matching equity swap contracts. The Judge held that Perry Corporation had an arrangement or understanding with the counterparties that gave it the power to reacquire the Rubicon shares and thus that it was required to disclose an interest in Rubicon by virtue of s5(1)(f) of the SMA. She ordered (under s32 of the SMA) that one third of the 36 million shares in question be forfeited and that Perry Corporation sell a further 24 million shares within 180 days. She also ordered that no distributions be made on those shares while they were still held by Perry Corporation and that no voting rights be exercised. No damages were awarded to GPG under s34 of the SMA as the Judge was not satisfied that GPG had suffered any loss.

[2]       Perry Corporation has appealed against the decision of Potter J and that appeal was heard at the beginning of June but no judgment has yet been given.  By consent a stay of the sale and forfeiture orders was made by Potter J on 3 April 2003.  There was also an order that the exercise of voting rights in respect of the 36 million shares “will remain prohibited subject to leave to all parties to apply.”  On 4 September 2003 Paterson J refused Perry Corporation’s application to vary the order prohibiting voting to allow the shares to be voted at the Annual Shareholders Meeting (ASM) to be held on 15 September.  Perry Corporation now applies, under r9 of the Court of Appeal (Civil) Rules 1997, to this Court for a stay in that regard.

[3]       The matters to be considered at the ASM are largely routine. The exception relates to the re-appointment of directors.  Mr Hasler and Dr Villiger, two of the independent directors of Rubicon, are to retire by rotation in accordance with Rubicon’s constitution.  They offer themselves for re-election.  In addition, the Board of Rubicon had appointed Mr Gibbs and Dr Weiss (GPG nominees) as additional directors.  In accordance with the Constitution they hold office only until the ASM.  They offer themselves for election as directors at the ASM.

[4]       Perry Corporation does not oppose the election of Mr Gibbs and Dr Weiss and supports the re-election of Mr Hasler and Dr Villiger.  GPG has not yet announced its position in relation to Mr Hasler and Dr Villiger.

Submissions of the parties

[5]       Perry Corporation is concerned that, if the voting rights on the 36 million shares cannot be exercised, GPG will in effect, by its almost 20% shareholding in Rubicon, be able to block the passing of ordinary resolutions at the ASM, including that relating to the re-election of Mr Hasler and Dr Villiger.  This is because voting patterns at annual general meetings of listed companies generally and those at the last Rubicon meeting suggest that a large proportion of shareholders will not vote.  If Mr Hasler and Dr Villiger are not re-elected there can, in Perry Corporation’s submission, be no guarantee that they would be prepared or available to stand for re-election should Perry Corporation’s appeal succeed.  The uncontested evidence was that these directors have performed their functions well and that they have particular expertise in relation to one of Rubicon’s investments, the biotech company Arborgen.

[6]       Further, Perry Corporation submitted that, but for Perry Corporation’s appeal, the 24 million shares which were the subject of the sale order, would have been available for voting by the time of Rubicon’s ASM as they were ordered to be sold within 180 days of judgment.  In respect of those 24 million shares therefore GPG are not denied the fruits of their judgment if the prohibition on voting is stayed.  Rather, in Perry Corporation’s submission, it is a bonus harvest for GPG that cannot have been anticipated by the judgment. 

[7]       GPG submitted that Perry Corporation’s right of appeal will not be rendered nugatory if it cannot vote at the ASM.  Most of the agenda items are routine and Perry Corporation will be able, if successful in its appeal, to call a further meeting where Mr Hasler and Dr Villiger could seek election to the Board if they are not re-elected at the 15 September meeting.  In the meantime, while the Board may have been reduced from nine members to seven members, there will be only two GPG nominated directors on the Board and they will not be in a position to dominate the Board.  Perry Corporation will therefore not suffer any irreversible harm and GPG should be entitled to the fruits of its judgment.

[8]       GPG does not in any event accept the suggestion that it will be in a position to block ordinary resolutions.  It points to the existence of a number of institutional shareholders which have in the past supported Perry Corporation and also to Perry Corporation’s almost 8% shareholding which is not affected by the orders made by Potter J. 

Decision of Paterson J

[9]       Paterson J held that, even assuming that GPG can in effect control the voting at the ASM, no irreversible harm can be caused to Perry Corporation or to the other shareholders.  Even if the two independent directors are not re-elected, GPG will only have two of its directors on a seven person board and will not be in a position to dominate the Board.  The other resolutions to be considered at the ASM are routine and, in the Judge’s view, could not prejudice Perry Corporation, no matter what the result.  He pointed out that the time for giving notice to have other matters considered has now expired so it is not possible for other controversial matters to come before the meeting.

[10]     Paterson J concluded by saying that he considered there was nothing to suggest that either Rubicon or its shareholders would be prejudiced in any way by Perry Corporation being unable to exercise the voting rights and that, in the circumstances, GPG should not be denied the fruits of its judgment.

Discussion

[11]     The effect of the prohibition on voting the 36 million shares by Perry Corporation is to increase the voting percentage of the other shareholders, including GPG.  That was an intended effect of the judgment insofar as the order for forfeiture is concerned.  With respect to the shares that were ordered to be sold this was not an intended benefit of the judgment.  Indeed, if the judgment had been carried into effect, Perry Corporation would have sold the shares and they would have been available to be voted by their new owners.

[12]     As a matter of commercial reality, because of voting patterns, it is possible that GPG will be able to block the passing of ordinary resolutions at the ASM, including that relating to the re-election of Dr Villiger and Mr Hasler.  If the 24 million shares are able to be voted by Perry Corporation then there is a greater likelihood of Dr Villiger and Mr Hasler being re-elected and the maintenance of the status quo at Board level.

[13]     We are not able to regard the appointment of directors as unimportant.  If Dr Villiger and Mr Hasler are not re-elected then this will change the composition of the Board, depriving it of two independent and experienced directors.  There is a possibility, if they are not re-elected at the 15 September meeting, that this loss will be permanent, even if Perry Corporation subsequently succeeds in its appeal.

[14]     We also note that this case is different from ordinary civil proceedings in that the role of GPG, apart from its failed bid for damages, has been to enforce a regulatory requirement.  The proceedings therefore can be seen as quasi-public in nature.  In these circumstances we do not consider it apt to talk of GPG being entitled to the fruits of the judgment with regard to voting on the 24 million shares.  The fact that the proceedings are quasi-public may justify a slightly different approach when deciding whether a stay should be granted.  We note, for example, the differences in the approach towards interim orders under s8 of the Judicature Amendment Act 1972 as against the principles that relate to interim injunctions in civil proceedings.

[15]     The benefit GPG will attain, if the stay is not granted in respect of voting on the 24 million shares, was not an intended benefit of the orders and would not have accrued if the orders had been executed.  The benefit will be at the expense of Perry Corporation, which will be permanently deprived of the ability to vote at the ASM even if its appeal is successful.  There is the possibility of irretrievable loss if the two directors are not re-elected and are unwilling or unavailable to stand for re-election at a later date.  On the other hand if Perry Corporation is allowed to vote the other shareholders of Rubicon will have the same shareholding percentages that they would have had if the judgment had been executed.

[16]     There is no guidance in R9 as to when a stay should be granted.  Principles have, however, been devised by the Courts and these are long-established.  We are not suggesting any modification to those principles.  The ultimate test, however, must be whether a stay is in the interests of justice.  In the unusual circumstances of this case, involving quasi-public proceedings and of unintended benefit on the one hand against possible irretrievable loss on the other, we consider that it is in the interests of justice that the stay be granted in relation to 24 million of the 36 million shares at issue.

Result and costs

[17]     Perry Corporation’s application for a stay is granted to allow it to vote the 24 million shares that are the subject of the sale order at the Rubicon ASM on 15 September 2003 but only in relation to the re-election of Mr Hasler and Dr Villiger as directors of Rubicon.

[18]     The parties have leave to file submissions on costs on or before 19 September 2003 if the issue cannot be resolved between them.

Solicitors:

Phillips Fox, Wellington for Appellants
Lowndes Jordan, Auckland for Respondents